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 1 4 A N N U A L R E P O R T
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, Mississippi. The following presents
Management’s discussion and analysis of the consolidated financial condition and results of operations of the Company and its consolidated subsidiaries
for the years ended December 31, 2014, 2013 and 2012. 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.
F O R W A R D - L O O K I N G I N F O R M A T I O N
Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s
anticipated 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 performance 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.
N E W A C C O U N T I N G P R O N O U N C E M E N T S
The Financial Accounting Standards Board (“ FASB” ) has issued new accounting standards updates, which have been disclosed in Note A to the
Consolidated Financial Statements. The Company does not expect that these updates will have a material impact on its financial position, or results
of operations.
C R I T I C A L A C C O U N T I N G P O L I C I E S
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“ GAAP” ) requires
Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
evaluates these estimates and assumptions on an on-going basis using historical experience and other factors, including the current economic
environment. We adjust such estimates and assumptions when facts and circumstances dictate. Certain critical accounting policies affect the more
significant estimates and assumptions used in the preparation of the consolidated financial statements.
Allowance for Loan Losses
The Company's most critical accounting policy relates to its allowance for loan losses (“ ALL” ), which reflects the estimated losses resulting from the
inability of its borrowers to make loan payments. The ALL is established and maintained at an amount sufficient to cover the estimated loss associated
with the loan portfolio of the Company as of the date of the financial statements. Credit losses arise not only from credit risk, but also from other risks
inherent in the lending process including, but not limited to, collateral risk, operation risk, concentration risk and economic risk. As such, all related risks
of lending are considered when assessing the adequacy of the ALL. On a quarterly basis, Management estimates the probable level of losses to determine
whether the allowance is adequate to absorb reasonably foreseeable, anticipated losses in the existing portfolio based on our past loan loss experience,
known and inherent risk in the portfolio, adverse situations that may affect borrowers’ ability to repay and the estimated value of any underlying
collateral and current economic conditions. Management believes that the ALL is adequate and appropriate for all periods presented in these financial
statements. If there was a deterioration of any of the factors considered by Management in evaluating the ALL, the estimate of loss would be updated,
and additional provisions for loan losses may be required. The analysis divides the portfolio into two segments: a pool analysis of loans based upon a
five year average loss history which is updated on a quarterly basis and which may be adjusted by qualitative factors by loan type and a specific reserve
analysis for those loans considered impaired under GAAP. All credit relationships with an outstanding balance of $100,000 or greater that are included in
Management's loan watch list are individually reviewed for impairment. All losses are charged to the ALL when the loss actually occurs or when a
determination is made that a loss is likely to occur; recoveries are credited to the ALL at the time of receipt.
1
Other Real Estate
Other real estate (“ ORE” ) includes real estate acquired through foreclosure. Each other real estate property is carried at fair value, less estimated costs to
sell. Fair value is principally based on appraisals performed by third-party valuation specialists. If Management determines that the fair value of a
property has decreased subsequent to foreclosure, the Company records a write down which is included in non-interest expense.
Employee Benefit Plans
Employee benefit plan liabilities and pension costs are determined utilizing actuarially determined present value calculations. The valuation of the
benefit obligation and net periodic expense is considered critical, as it requires Management and its actuaries to make estimates regarding the amount
and timing of expected cash outflows including assumptions about mortality, expected service periods and the rate of compensation increases.
Income Taxes
GAAP requires the asset and liability approach for financial accounting and reporting for deferred income taxes. We use the asset and liability method
of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences. See Note I to the
Consolidated Financial Statements for additional details. As part of the process of preparing our Consolidated Financial Statements, the Company is
required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure
together with assessing temporary differences resulting from differing treatment of items, such as the provision for the allowance for loan losses, for tax
and financial reporting purposes. These differences result in deferred tax assets and liabilities that are included in our consolidated statement of
condition. We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that
recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income
taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. To the extent the Company
establishes a valuation allowance or adjusts this allowance in a period, we must include an expense within the tax provision in the consolidated
statement of operations.
O V E R V I E W
The Company is a community bank serving the financial and trust needs of its customers in our trade area, which is defined as those portions of
Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the bank subsidiary’s three most
outlying locations. Maintaining a strong core deposit base and providing commercial and real estate lending in our trade area are the traditional
focuses of the Company. Growth has largely been achieved through de novo branching activity, and it is expected that these strategies will continue to
be emphasized in the future.
The Company incurred a net loss of $10,004,000 for 2014 compared with a net loss of $538,000 for 2013. Results in 2014 included a decrease in net inter-
est income, a decrease in non-interest income, an increase in non-interest expense and an increase in income tax expense. These increases were
partially offset by a decrease in the provision for the allowance for loan losses.
Managing the net interest margin in the Company's highly competitive market and in context of larger economic conditions has been very challenging
and will continue to be so, for the foreseeable future. Net interest income was impacted primarily by the decrease in interest income on loans of
$2,872,000. This decrease was primarily the result of the decrease in average loans as principal payments, maturities, charge-offs and foreclosures on
existing loans exceeded new loans.
Monitoring asset quality, estimating potential losses in our loan portfolio, and addressing non-performing loans continue to be emphasized during these
difficult economic times, as the local economy continues to negatively impact collateral values and borrowers’ ability to repay their loans. A provision
for the allowance for loan losses of $7,404,000 was recorded in 2014 as compared with $9,661,000 in 2013. The Company is working diligently to address
and reduce its non-performing assets. The Company's nonaccrual loans totaled $33,298,000 and $26,171,000 at December 31, 2014 and December 31, 2013,
respectively. Most of these loans are collateral-dependent, and the Company has rigorously evaluated the value of its collateral to determine
potential losses.
Non-interest income decreased $448,000 for 2014 as compared with 2013 results. Service charges on deposit accounts decreased $336,000 for 2014 as
compared with 2013 results primarily as a result of decreased ATM fee income. Results for 2014 included gains on sales of securities of $99,000 as
compared with $258,000 in 2013.
Non-interest expense increased $1,554,000 for 2014 as compared with 2013 results. This increase for 2014 was the result of the increase in salaries and
employee benefits of $457,000 and the increase in other real estate expense of $647,000 as compared with 2013.
The Company recorded income tax expense of $4,726,000 for 2014 as compared with an income tax benefit of $2,201,000 for 2013. In 2014, a valuation
allowance of $8,140,000 was established based on an evaluation of the Company's deferred tax assets.
Total assets for December 31, 2014 decreased $93,369,000 as compared with December 31, 2013. Available for sale securities decreased $60,318,000 as a
result of sales and maturities of these investments during 2014. Loans decreased $12,942,000 for 2014 as compared with December 31, 2013, as principal
payments, maturities, charge-offs and foreclosures on existing loans exceeded new loans. Other assets decreased $8,840,000 as of December 31, 2014 as
compared with 2013 as a result of a valuation allowance of $8,140,000 on deferred tax assets.
2
R E S U L T S O F O P E R A T I O N S
Net Interest Income
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.
2014 as compared with 2013
The Company's average interest-earning assets decreased approximately $79,906,000, or 11%, from approximately $727,723,000 for 2013 to
approximately $647,817,000 for 2014. The Company's average balance sheet decreased primarily as decreased pledging requirements on public funds
allowed for reduced investment in securities and principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new
loans. Average federal funds sold also decreased based on the liquidity position of the bank subsidiary. The average yield on interest-earning assets was
at 3.54% for 2014 and 2013. The yield on average loans decreased in 2014 as compared with 2013 as the prior year included $1,523,000 in interest and fees
from the sale of a gaming loan which had been on nonaccrual. The yield on taxable available for sale securities increased to 1.99% for 2014 from 1.78% for
2013 due to the Company's strategy of extending the duration of new investments.
Average interest-bearing liabilities decreased approximately $74,402,000, or 13%, from approximately $578,921,000 for 2013 to approximately $504,519,000
for 2014. Average time deposits decreased primarily as brokered deposits matured during 2013. Average federal funds purchased and securities sold under
agreements to repurchase, which only included non-deposit accounts, decreased as these customers reallocate their balances periodically. Average
borrowings from the FHLB increased due to the liquidity needs of the bank subsidiary. The average rate paid on interest-bearing liabilities increased
4 basis points, from .25% for 2013 to .29% for 2014. This increase was due to an immaterial interest expense adjustment on time deposits.
The Company's net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.32% for 2014
as compared with 3.34% for 2013.
2013 as compared with 2012
The Company's average interest-earning assets decreased approximately $21,292,000, or 3%, from approximately $749,015,000 for 2012 to approximately
$727,723,000 for 2013. The Company's average balance sheet decreased primarily as decreased pledging requirements on public funds allowed for reduced
investment in securities, the fair value of available for sale securities decreased and principal payments, maturities, charge-offs and foreclosures relating
to existing loans outpaced new loans. The average yield on interest-earning assets increased 15 basis points, from 3.39% for 2012 to 3.54% for 2013, with
the biggest impact being to the yield on loans. During 2013, the Company sold a gaming loan which had been on nonaccrual and recognized
approximately $1,523,000 in interest and fees which increased the yield on loans to 4.67%. Without this transaction, the yield on loans would have been
4.29%. Recent investment strategy included extending durations to improve yield on these assets, while planning for rising rates in the future.
Average interest-bearing liabilities decreased approximately $25,008,000, or 4%, from approximately $603,929,000 for 2012 to approximately $578,921,000
for 2013. During 2013, brokered deposits, which are reported as time deposits, of $23,612,000 matured. Borrowings from the FHLB fluctuated based on the
liquidity needs of the bank subsidiary. The average rate paid on interest-bearing liabilities decreased 9 basis points, from .34% for 2012 to .25% for 2013.
Rates paid on deposit accounts and non-deposit accounts, which are reported as federal funds purchased and securities sold under agreements to
repurchase, decreased in 2013. The unprecedented low rate environment which existed on a national and local level caused customers to
tolerate lower interest rates in return for less risk.
The Company's net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.34% at
December 31, 2013, up 23 basis points from 3.11% at December 31, 2012. Without the additional interest income and fees from the sale of the gaming loan,
the net interest margin for 2013 would have been 3.13%.
3
The tables below analyze the changes in tax-equivalent net interest income for the years ended December 31, 2014 and 2013 and the years ended
December 31, 2013 and 2012.
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 )
2014
Average Balance
362,649
$
7,305
Interest Earned/Paid Rate
4.43%
$
0.29
16,055
21
2013
Average Balance
\\\\\ 405,463
$
26,306
Interest Earned/Paid
\\\\ 18,927
$
69
Loans (1) (2) (3)
Federal funds sold
Held to maturity:
Non taxable (4)
Available for sale:
Taxable
Non taxable (4)
Other
Total
Savings and
interest-bearing DDA
Time deposits
Federal funds
purchased and
securities sold
under agreements
to repurchase
Borrowings from FHLB
Total
Net tax-equivalent spread
Net tax-equivalent margin
on earning assets
Loans (1) (2) (3)
Federal funds sold
Held to maturity:
Non taxable (4)
Available for sale:
Taxable
Non taxable (4)
Other
Total
Savings and
interest-bearing DDA
Time deposits
Federal funds
purchased and
securities sold
under agreements
to repurchase
Borrowings from FHLB
Total
Net tax-equivalent spread
Net tax-equivalent margin
on earning assets
13,696
225,742
34,360
4,065
$ \\ 647,817
$
230,399
89,564
474
4,502
1,889
18
\22,959
\\\\\ 174
937
$
$
127,707
56,849
\\\504,519
$
100
230
$ \\\ 1,441
2013
3.46
1.99
5.50
0.44
3.54%
0.08%
1.05
0.08
0.40
0.29%
3.25%
3.32%
Interest Earned/Paid Rate
$
18,927
69
Average Balance
\\\\405,463
$
26,306
9,936
247,097
36,605
2,316
\\\\\\727,723
\\\\246,728
123,198
$
$
363
4,407
1,946
29
25,741
179
919
$
$
181,702
27,293
\\\\\578,921
$
158
191
$ 1,447
4.67%
0.26
3.65
1.78
5.32
1.25
3.54%
0.07%
0.75
0.09
0.70
0.25%
3.29%
3.34%
9,936
247,097
36,605
2,316
727,723
\246,728
123,198
$
$
363
4,407
1,946
29
25,741
\\\\
\\\ 179
919
$
$
181,702
27,293
\\\\ \\ 578,921
$
158
191
$ \\\ 1,447
Rate
4.67%
0.26
3.65
1.78
5.32
1.25
3.54%
0.07%
0.75
0.09
0.70
0.25%
3.29%
3.34%
2012
Average Balance
$ \\\\ \\ 430,205
6,601
Interest Earned/Paid
$
\\\\ 18,576
16
Rate
4.32%
0.24
4,698
264,248
39,407
3,856
\\\\ 749,015
189
4,527
2,073
15
$ \\\ 25,396
\ 230,829
149,560
$ \\\\
410
1,090
$
$
169,352
54,188
$ \\ \\603,929
335
233
$ \\ \\\\\ 2,068
4.02
1.71
5.26
0.39
3.39%
0.18%
0.73
0.20
0.43
0.34%
3.05%
3.11%
(1) 2013 includes interest and fees of $1,523 recognized from sale of a nonaccrual loan during the fourth quarter.
(2) Loan fees of $557, $911 and $797 for 2014, 2013 and 2012, respectively, are included in these figures.
(3) Includes nonaccrual loans.
(4) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2014, 2013 and 2012.
4
A N A L Y S I S O F C H A N G E S I N I N T E R E S T I N C O M E A N D E X P E N S E ( I N T H O U S A N D S )
Interest earned on:
Loans
Federal funds sold
Held to maturity securities:
Non taxable
Available for sale securities:
Taxable
Non taxable
Other
Total
Interest paid on:
Savings and interest-bearing DDA
Time deposits
Federal funds purchased
Borrowings from FHLB
Total
Interest earned on:
Loans
Federal funds sold
Held to maturity securities:
Non taxable
Available for sale securities:
Taxable
Non taxable
Other
Total
Interest paid on:
Savings and interest-bearing DDA
Time deposits
Federal funds purchased
Borrowings from FHLB
Total
For the year ended December 31, 2014 compared with December 31, 2013
Total
Volume
Rate/Volume
Rate
$ \\\\(1,998)
(50)
$
(977)
7
137
(19)
(380)
(119)
22
$ (2,388)
$ \\\\
(12)
(251)
(47)
207
$ (103)
520
66
(19)
$ \\\\\\\\\\\\ (422)
$ \\ 7
370
(16)
(81)
$\\\\\\\\\\\\\\\\\\ 280
$
103
(5)
(7)
(45)
(4)
(14)
$ \\\\\\ 28
$ \\\\ G
(101)
5
(87)
$ (183)
$ \\\(2,872)
(48)
111
95
(57)
(11)
$ (2,782)
$ \(5)
18
(58)
39
\(6)
$
For the year ended December 31, 2013 compared with December 31, 2012
Volume
Rate/Volume
Rate
Total
$\\\\\\\\\(1,068)
48
$
1,505
1
$ \\\\(86)
4
$ \\\\ 351
53
211
(17)
(20)
174
(294)
(147)
(6)
$\\\\\\\\\\(1,256)
$ \ 28
(192)
24
(115)
$ \\\\\\\\\\\\ (255)
186
22
33
$ \\\\\ 1,730
$
(242)
26
(188)
147
$ \\ (257)
(12)
(2)
(13)
$ (129)
$ \\\\ (17)
(5)
(13)
(74)
$ \\\\(109)
(120)
(127)
14
$ \\\\\ 345
$ \\(231)
(171)
(177)
(42)
\\\(621)
$
5
Provision for Allowance for Loan Losses
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. The Company's Loan Review and Special Assets
Departments play key roles in monitoring the loan portfolio and managing problem loans. New loans and, on a periodic basis, existing loans are reviewed
to evaluate compliance with the loan policy. Loan customers in concentrated industries such as gaming and hotel/motel, as well as the exposure for out
of area; residential and land development; construction and commercial real estate loans, and their direct and indirect impact on the Company's
operations are evaluated on a monthly basis. Loan delinquencies and deposit overdrafts are closely monitored in order to identify developing problems
as early as possible. Lenders experienced in workout scenarios consult with loan officers and customers to address non-performing loans. A monthly
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 potential effect of the continuing decline in real estate values and actual losses incurred by the
Company were key factors in our analysis. Much of the Company's loan portfolio is collateral-dependent, requiring careful consideration of changes in
the value of the collateral. Note A to the Consolidated Financial Statements discloses a summary of the accounting principles applicable to impaired and
nonaccrual loans as well as the allowance for loan losses. Note C to the Consolidated Financial Statements presents additional analyses of the
composition, aging and performance of the loan portfolio as well as the transactions in the allowance for loan losses.
The Company's analysis includes evaluating the current value of collateral securing all nonaccrual loans. Nonaccrual loans totaled $33,298,000 and
$26,171,000 with specific reserves on these loans of $2,207,000 and $1,280,000 as of December 31, 2014 and 2013, respectively. The specific reserves
allocated to nonaccrual loans are relatively low as collateral values appear sufficient to cover loan losses or the loan balances have been charged down
to their realizable value.
The Company's on-going, systematic evaluation resulted in the Company recording a total provision for the allowance for loan losses of $7,404,000,
$9,661,000 and $4,264,000 in 2014, 2013 and 2012, respectively. The increases for 2014 and 2013 were the result of receiving new appraisals on several
collateral-dependent loans. The new appraisals caused Management to update the evaluation of these loans and increase the loan loss provision
significantly for two impaired loans during these years. Additional loan loss provisions of $1,600,000 and $7,600,000 were recorded for one out-of-area
residential development loan in 2014 and 2013, respectively. An additional loan loss provision of $3,300,000 was recorded for one commercial real estate
loan secured by a hotel in our trade area in 2014. The allowance for loan losses as a percentage of loans was 2.54%, 2.38% and 2.05% at December 31, 2014,
2013 and 2012, respectively. The Company believes that its allowance for loan losses is appropriate as of December 31, 2014.
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 the future 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 operations.
Non-interest income
2014 as compared with 2013
Total non-interest income decreased $448,000 in 2014 as compared with 2013. Service charges on deposit accounts decreased $336,000 in 2014 as com-
pared with 2013 as a result of decreased ATM fees. ATM fees decreased $333,000 as the Company's off-site ATMs at a casino transferred to another ven-
dor during 2014 which reduced ATM transactions. Gains from liquidation, sales and calls of securities decreased $159,000 as sales were executed when pro-
ceeds would be maximized. The Company realized a loss from operations of its investments in a low income housing partnership in 2014 as compared
with income from operations in 2013 as a result of decreased occupancy.
2013 as compared with 2012
Total non-interest income decreased $462,000 in 2013 as compared with 2012. Service charges on deposit accounts increased $325,000 in 2013 as com-
pared with 2012 as a result of increased service charges and ATM fees and a decrease in NSF fees. Fees from service charges increased $51,000 as a result
of the Company increasing per account and per transactions fees in 2013 and an increase in ATM fees of $409,000 as a result of the improvement in the
local casinos at which the Company has off-site ATMs. NSF fees decreased $153,000 as customers changed their overdraft activity based on economic con-
ditions. Gains from sales and calls of securities decreased $1,106,000 as sales were executed when proceeds would be maximized. The increase in cash
surrender value of life insurance decreased $72,000 in 2013 as compared with 2012 as a result of the decline in the stock market. The Company had a loss
from impairment of other investments of $360,000 in 2012 and income on other investments of $42,000 in 2013 as compared with a loss of $84,000 in 2012.
Other income decreased as prior year results included gains of $31,000 from the sale of bank vehicles.
6
Non-interest expense
2014 as compared with 2013
Total non-interest expense increased $1,554,000 in 2014 as compared with 2013. Salaries and employee benefits increased $457,000 in 2014 as compared
with 2013. Salaries increased $293,000 in 2014 as compared with 2013 due to merit raises. Expenses relating to the retiree health plan increased $123,000
as 2013's results included the effect of an amendment to the plan which lowered the expense. Equipment rentals, depreciation and maintenance increased
$176,000 in 2014 as compared with 2013 primarily as a result of an increase of $63,000 in depreciation and servicing costs on new computer
hardware and software placed into service during 2014. Other expense increased $856,000 for 2014 as compared with 2013. This increase was the result of
increases in FDIC and state assessments and other real estate expenses. FDIC and state assessments increased $163,000 in 2014 as 2013 results included an
adjustment in the estimate of prepaid assessments. Increased write downs of other real estate to fair value caused these expenses to increase $647,000 in
2014 as compared with 2013.
2013 as compared with 2012
Total non-interest expense increased $377,000 in 2013 as compared with 2012. Salaries and employee benefits decreased $424,000 in 2013 as compared
with 2012. Salaries increased $101,000 in 2013 as compared with 2012 due to merit raises. Expenses relating to deferred compensation plans decreased
$136,000 in 2013 as a result of the impact of recent and future retirements and changes in the discount rate utilized to compute related liabilities. The
Company's board of directors reduced contributions to its defined contribution plans $110,000 in 2013 as a result of the net loss. Health insurance costs
decreased $270,000 as a result of a reduction in claims in 2013 as compared with 2012 and amendments made to the retiree health plan which require plan
participants to utilize drug benefits and health insurance coverage available under Medicare. Equipment rentals, depreciation and maintenance
decreased $228,000 in 2013 as compared with 2012 primarily as a result of a decrease of $299,000 in depreciation on furniture and equipment replaced
during the years after Hurricane Katrina became fully depreciated. Maintenance costs increased $33,000 as a result of the timing of work performed. Other
expense increased $1,048,000 for 2013 as compared with 2012. This increase was the result of increases in advertising, FDIC and state assessments, other
real estate and ATM expenses, which were partially offset by a decrease in data processing costs. Advertising expenses increased $107,000, which was
primarily attributable to the production of a new advertising campaign. FDIC and state assessments increased $367,000 in 2013 as 2012 results
included an adjustment in the estimate of prepaid assessments. Increased write downs of other real estate to fair value caused these expenses to increase
$315,000 in 2013 as compared with 2012. ATM expense increased $334,000 in 2013 as a result of increased ATM activity. Data processing expense decreased
$180,000 as 2012 costs included several additional services and projects.
Income Taxes
Income taxes have been impacted by non-taxable income and federal tax credits during 2014, 2013 and 2012, respectively. Income taxes increased in 2014
as the Company established a valuation allowance for its deferred tax assets. Note I to the Consolidated Financial Statements presents a reconciliation of
income taxes for these three years.
F I N A N C I A L C O N D I T I O N
Cash and due from banks decreased $12,708,000 at December 31, 2014, compared with December 31, 2013 in the management of the bank subsidiary’s
liquidity position.
Available for sale securities decreased $60,318,000 at December 31, 2014 compared with December 31, 2013 as a result of sales and maturities of these
investments during 2014.
Held to maturity securities increased $6,642,000 at December 31, 2014 compared with December 31, 2013 as the Company opted to classify some of its
investment purchases during the current year as held to maturity.
Loans decreased $12,942,000 at December 31, 2014 compared with December 31, 2013, as principal payments, maturities, charge-offs and foreclosures on
existing loans exceeded new loans.
Other real estate (“ ORE” ) decreased $1,984,000 at December 31, 2014 as compared with December 31, 2013. Loans totaling $1,345,000 were transferred
into ORE while $2,068,000 was sold for a gain of $47,000 and write-downs of ORE to fair value were $1,261,000 during 2014.
Other assets decreased $8,840,000 at December 31, 2014 as compared with December 31, 2013 primarily as a result of a valuation allowance of $8,140,000
on deferred tax assets.
Total deposits decreased $35,844,000 at December 31, 2014, as compared with December 31, 2013. Typically, significant increases or decreases in total
deposits and/or significant fluctuations among the different types of deposits from year to year are anticipated by Management as customers in the
casino industry and county and municipal entities reallocate their resources periodically.
Federal funds purchased and securities sold under agreements to repurchase decreased $15,433,000 at December 31, 2014 as compared with
December 31, 2013 as several county and municipal entities reallocated their balances from a non-deposit account during 2014.
Borrowings from the Federal Home Loan Bank decreased $38,976,000 at December 31, 2014 as compared with December 31, 2013 based on the liquidity
needs of the bank subsidiary.
Employee and director benefit plans liabilities increased $1,120,000 at December 31, 2014 as compared with December 31, 2013 due to deferred
compensation benefits earned by employees and directors during 2014.
7
S H A R E H O L D E R S ’ E Q U I T Y A N D C A P I T A L A D E Q U A C Y
Strength, security and stability have been the hallmark of the Company since its founding in 1985 and of its bank subsidiary since its founding in 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 14.38% at December 31, 2014, 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 2014 are described in Note J to the Consolidated Financial Statements. The Statement of
Changes in Shareholders’ Equity also presents all activity in the Company's equity accounts.
L I Q U I D I T Y
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 to the Consolidated Financial Statements 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 and manages its liquidity position diligently through a number of methods, including through the computation of liquidity risk
targets and the preparation of various analyses of its funding sources and utilization of those sources on a monthly basis. The Company also uses
proforma liquidity projections which are updated on a continuous basis in the management of its liquidity needs and also conducts contingency testing
on its liquidity plan. The Company has also been approved to participate in the Federal Reserve's Discount Window Primary Credit Program, which it
intends to use only as a contingency. Management carefully monitors its liquidity needs, particularly relating to potentially volatile deposits, and the
Company has encountered no problems with meeting its liquidity needs.
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 also uses other sources of funds, including borrowings from the FHLB. The Company generally anticipates relying on deposits, purchases
of federal funds and borrowings from the FHLB for its liquidity needs in 2015.
R E G U L A T O R Y M A T T E R S
During 2009, Management identified opportunities for improving risk management, addressing asset quality concerns, managing concentrations of
credit risk and ensuring sufficient liquidity at the Bank as a result of its own investigation as well as examinations performed by certain bank regulatory
agencies. 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.
O F F - B A L A N C E S H E E T A R R A N G E M E N T S
The Company is a party to off-balance-sheet arrangements in the normal 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
commitments and irrevocable letters of credit may expire without being drawn upon, the total amount does not necessarily represent future cash
requirements. 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 L to the Consolidated Financial Statements.
8
Q U A N T I T A T I V E A N D Q U A L I T A T I V E D I S C L O S U R E A B O U T M A R K E T R I S K
Market risk is the risk of loss arising from adverse changes in market prices 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, the executive vice president, the chief credit officer, the chief financial officer and the investment
officers of the bank subsidiary, is responsible 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 management 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. Agency
securities with maturities of two years or more. Due to the low interest rate environment, the duration of investments has been extended to fifteen years
with call provisions. The loan portfolio consists of a 40% /60% blend of fixed and floating rate loans. It is the general loan policy to offer loans with
maturities of seven years or less; however the market is now dictating floating rate terms to be extended up to twenty years. On the liability side, more
than 75% of the deposits are demand and savings transaction accounts. Additionally, 85% 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 2015 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 allowance 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.
9
Interest rate sensitivity at December 31, 2014 was as follows (in thousands):
Loans, net
Average rate
Securities
Average rate
Total Financial Assets
Average rate
Deposits
Average rate
Federal funds purchased
and securities sold under
agreements to repurchase
Average rate
Borrowings from FHLB
Average rate
Total Financial Liabilities
Average rate
2 0 1 5
$ 202,946
2 0 1 6
$ 28,192
2 0 1 7
2 0 1 9
2 0 1 8
$ \ 10,215 $ \ 26,515 $ \\\31,918
B E Y O N D
$ \\ 53,415
T O T A L
$ 353,201
1 2 / 3 1 / 1 4
F A I R
V A L U E
$ \\\355,004
4.73%
4.98%
4.58%
4.92%
13,368
24,264
166,696
238,372
238,447
4.86%
16,055
2.30%
219,001
4.77%
266,042
0.69%
124,206
0.07%
35,308
3.50%
425,556
1.57%
5.51%
5,017
2.78%
33,209
5.29%
7,609
0.55%
311
4.08%
7,920
1.37%
5.95%
12,972
2.05%
23,187
4.76%
10,333
1.25%
2.37%
39,883
4.25%
3,073
2.12%
56,182
4.28%
2,050
0.96%
0.96%
296
4.08%
10,269
1.49%
245
187
4.08%
4.08%
3,318
1.75%
2,237
1.83%
2.74%
220,111
3.38%
2,361
4.08%
2,361
4.08%
2.39%
591,573
4.31%
289,107
0.80%
124,206
0.07%
38,708
3.56%
452,021
1.61%
593,451
289,466
124,206
40,730
454,402
Interest rate sensitivity at December 31, 2013 was as follows (in thousands):
Loans, net
Average rate
Securities
Average rate
Total Financial Assets
Average rate
Deposits
Average rate
Federal funds purchased
and securities sold under
agreements to repurchase
Average rate
Borrowings from FHLB
Average rate
Total Financial Liabilities
Average rate
2 0 1 4
2 0 1 5
2 0 1 6
2 0 1 7
2 0 1 8
B E Y O N D
T O T A L
1 2 / 3 1 / 1 3
F A I R
V A L U E
$ 238,254
$ 8,187
$ \\\\\ 27,900 $ \\\\ 11,528 $ \\ 31,264
$ \\\\ 49,282
$ \\\ 366,415
$ \\\ 369,117
4.92%
17,191
2.93%
255,445
4.84%
295,583
1.96%
139,639
0.09%
70,246
1.59%
505,468
1.87%
6.23%
5,940
3.06%
14,127
5.40%
10,183
1.43%
254
4.58%
10,437
1.66%
6.47%
20,128
1.69%
5.83%
12,197
2.38%
4.94%
13,110
2.33%
4.45%
225,112
2.43%
4.68%
293,678
2.39%
293,222
48,028
23,725
44,374
274,394
660,093
662,339
5.71%
2,428
1.32%
4.79%
7,948
1.18%
4.51%
5,299
1.18%
251
4.58%
2,679
2.18%
5,233
1.64%
13,181
1.40%
179
4.58%
5,478
1.57%
3.01%
1,521
1.67%
1,521
1.67%
4.01%
321,441
1.86%
139,639
0.09%
77,684
1.66%
538,764
1.80%
322,535
139,639
79,051
541,225
10
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
(In thousands except share data)
D E C E M B E R 3 1 ,
Assets
Cash and due from banks
Available for sale securities
Held to maturity securities, fair value of
$17,859 - 2014; $10,686 - 2013;
$7,225 - 2012
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
Other assets
Total assets
Liabilities and 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
Employee and director benefit plans liabilities
Other liabilities
Total liabilities
Shareholders’ Equity:
Common Stock, $1 par value, 15,000,000 shares
authorized, 5,123,186 shares issued and outstanding at
December 31, 2014 and 2013 and 5,136,918 at December 31, 2012
Surplus
Undivided profits
Accumulated other comprehensive income (loss), net of tax
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
2 0 1 4
2 0 1 3
2 0 1 2
$ \\\ 23,556
$
\\\\ 36,264
$
\\\\ 54,020
215,122
275,440
258,876
17,784
2,962
2,504
362,407
9,206
353,201
23,784
7,646
2,125
18,145
2,066
11,142
3,262
3,834
375,349
8,934
366,415
25,308
9,630
2,607
17,456
10,906
7,125
3,450
2,380
431,083
8,857
422,226
26,222
7,008
2,895
16,861
3,849
$ \\\\ 668,895
$ \ 762,264
$ \\ 804,912
$
\\\\ 103,607
$ \\
107,117
$
\\\ 102,609
212,534
35,925
40,648
392,714
124,206
38,708
16,957
1,359
573,944
5,123
65,780
23,743
305
94,951
217,005
60,519
43,917
428,558
139,639
77,684
15,837
1,399
663,117
5,123
65,780
34,259
(6,015)
99,147
232,401
94,606
46,103
475,719
194,234
7,912
14,291
2,002
694,158
5,137
65,780
34,964
4,873
110,754
$
\\\ 668,895
$ \ 762,264
$ \\ 804,912
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 O P E R A T I O N S
(in thousands except per share data)
Y E A R S E N D E D D E C E M B E R 3 1 ,
Interest income:
Interest and fees on loans
Interest and dividends on securities:
U.S. Treasuries
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Other investments
Interest on federal funds sold
Total interest income
Interest expense:
Deposits
Borrowings from Federal Home Loan Bank
Federal funds purchased and securities sold under agreements to repurchase
Total interest expense
Net interest income
Provision for allowance for loan losses
Net interest income after provision for allowance for loan losses
Non-interest income:
Trust department income and fees
Service charges on deposit accounts
Gain on liquidation, sales and calls of securities
Loss on impairment of other investments
Income (loss) on other investments
Increase in cash surrender value of life insurance
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 (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Basic and diluted earnings (loss) per share
Dividends declared per share
See Notes to Consolidated Financial Statements.
2 0 1 4
2 0 1 3
2 0 1 2
$ 16,055
$ |
|\\\ 18,927
$
\ 18,577
587
3,027
888
1,560
18
21
22,156
1,111
230
100
1,441
20,715
7,404
13,311
1,463
5,900
99
(64)
589
632
8,619
12,025
2,480
3,054
9,649
27,208
(5,278)
4,726
590
3,114
703
1,524
29
69
24,956
1,098
191
158
1,447
23,509
9,661
13,848
1,423
6,236
258
42
501
607
9,067
11,568
2,415
2,878
8,793
25,654
(2,739)
(2,201)
$ \ (538)
$
$
\\ (.10)
\\\
\ \
463
3,777
287
1,493
15
16
24,628
1,500
232
335
2,067
22,561
4,264
18,297
1,458
5,911
1,364
(360)
(84)
573
667
9,529
11,992
2,434
3,106
7,745
25,277
2,549
(92)
$ \\\\ 2,641
$ \\\\\\\\
$ \\\\
.51
.20
$ \\\\ \\ (10,004)
$ \ \ (1.95)
$ \ \\ .10
12
|
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 M P R E H E N S I V E I N C O M E ( L O S S )
(in thousands)
Y E A R S E N D E D D E C E M B E R 3 1 ,
Net income (loss)
Other comprehensive income
(loss), net of tax:
Net unrealized gain (loss) on
available for sale securities, net
of tax of $3,506, $5,153 and $440
for the years ended
December 31, 2014, 2013 and
2012, respectively
Reclassification adjustment for realized
gains on available for sale securities
called or sold in current year, net
of tax of $34, $88 and $464
for the years ended
December 31, 2014, 2013 and
2012, respectively
Loss from unfunded post-
retirement benefit obligation, net
of tax of $217, $369 and
$137 for the years ended
December 31, 2014, 2013 and
2012, respectively
Total other comprehensive income (loss)
2 0 1 4
2 0 1 3
2 0 1 2
$ \\\\ (10,004)
$ \\\\ (538)
$ \\\\ \\\ 2,641
6,806
(10,002)
855
(65)
(170)
(900)
(421)
6,320
(716)
(10,888)
(266)
(311)
Total comprehensive income (loss)
$ \\\ \\ (3,684)
$ \\\\\\\\ (11,426)
$ \ \\ 2,330
See Notes to Consolidated Financial Statements.
13
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
(in thousands except share and per share data)
Balance, January 1, 2012
Net income
Other comprehensive loss, net of tax
Cash dividend ($.20 per share)
Balance, December 31, 2012
Net loss
Other comprehensive loss, net of tax
Retirement of stock
Balance, December 31, 2013
Net loss
Other comprehensive income, net of tax
Cash dividend ($.10 per share)
N u m b e r o f
C o m m o n
S h a r e s
5,136,918
C o m m o n
S t o c k
$ \\\\ 5,137
S u r p l u s
$ \ 65,780
5,136,918
(13,732)
5,123,186
5,137
(14)
5,123
65,780
65,780
\
\\\\
\\\
Balance, December 31, 2014
5,123,186
$ 5,123
$ \ 65,780
\\\
\\\
See Notes to Consolidated Financial Statements.
14
\\\\
\
U n d i v i d e d
P r o f i t s
$
\ 33,351
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 ( L o s s )
$ \\\\
5,184
2,641
(1,028)
34,964
(538)
(167)
34,259
(10,004)
(512)
(311)
4,873
(10,888)
(6,015)
6,320
T o t a l
$
\\\ 109,452
2,641
(311)
(1,028)
110,754
(538)
(10,888)
(181)
99,147
(10,004)
6,320
(512)
\
$ 23,743
$ \\\ 305
$ \\\ 94,951
15
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
(in thousands)
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 (loss)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation
Provision for allowance for loan losses
Writedown of other real estate
(Gain) loss on sales of other real estate
Loss on impairment of other investments
(Income) loss on other investments
Amortization of available for sale securities
Accretion of held to maturity securities
Gain on liquidation, sales and calls of securities
Increase in cash surrender value of life insurance
Gain on sale of bank premises and equipment
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, liquidation, sales and
calls of available for sale securities
Purchases of available for sale securities
Proceeds from maturities of held to maturity securities
Purchases of held to maturity securities
Purchases of Federal Home Loan Bank Stock
Redemption of Federal Home Loan Bank Stock
Redemption of other investments
Proceeds from sales of other real estate
Loans, net change
Acquisition of premises and equipment
Proceeds from sales of banking premises and equipment
Insurance proceeds from casualty loss on other real estate
Investment in cash surrender value of life insurance
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 increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See Notes to Consolidated Financial Statements.
2 0 1 4
2 0 1 3
2 0 1 2
$ \\\ (10,004)
$ \\ (538)
$ \\\ 2,641
1,817
7,404
1,261
(47)
64
250
(3)
(99)
(589)
482
810
5,218
6,564
72,374
(1,995)
660
(7,299)
1,330
236
2,115
4,465
(293)
(100)
71,493
(7,981)
(27,863)
(512)
2,013,013
(2,051,989)
(15,433)
(90,765)
(12,708)
36,264
$ \
23,556
$
16
16
1,750
9,661
670
63
(42)
514
(2)
(258)
(501)
(15)
288
(467)
(1,122)
10,001
142,355
(174,588)
795
(4,810)
(1,454)
230
1,125
41,613
(840)
19
57
(94)
4,408
(10,888)
(36,273)
(181)
868,560
(798,788)
(54,595)
(32,165)
(17,756)
54,020
36,264
2,048
4,264
153
21
360
84
293
(1)
(1,364)
(573)
(197)
600
(211)
8,118
358,404
(337,360)
170
(5,865)
201
36
1,546
(4,794)
(235)
(91)
12,012
32,110
(24,830)
(1,541)
2,246,717
(2,292,128)
36,633
(3,039)
17,091
36,929
54,020
$
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
N O T E A - B U S I N E S S A N D S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S :
Business of The Company
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 Bank, 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 those
portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the Bank's three most
outlying locations (the “ trade area” ).
Principles of Consolidation
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.
Basis of Accounting
The Company and its subsidiaries recognize assets and liabilities, and income and expense, on the accrual basis of accounting. The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America (“ GAAP” ) requires Management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited
to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans,
assumptions relating to employee and director benefit plan liabilities and valuation allowances associated with the realization of deferred tax assets,
which are based on future taxable income.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ ASU” ) No. 2014-06, Technical Corrections and
Improvements Related to Glossary Terms. This ASU added, deleted, corrected and modified terms in the Master Glossary of the Codification and was
effective upon issuance. The adoption of this ASU did not have a material effect on the Company's financial position, results of operations or cash flows.
In August 2014, the FASB issued ASU No. 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain
Government-Guaranteed Mortgage Loans upon Foreclosure. This ASU requires that a mortgage loan be derecognized and a separate other receivable be
recognized upon foreclosure if certain conditions are met. ASU No. 2014-14 is effective for annual periods and interim periods within those annual
periods beginning after December 31, 2014. The adoption of this ASU is not expected to have a material effect on the Company's financial position, results
of operations or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity's Ability to Continue as a Going Concern. This ASU defines management’s responsibility to evaluate whether there is substantial doubt about an
organization’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after
December 31, 2016, and interim periods within annual periods beginning after December 14, 2016. The adoption of this ASU is not expected to have a
material effect on the Company's financial position, results of operations or cash flows.
Cash and Due from Banks
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 $417,000, $407,000 and $566,000 for the years ending December 31, 2014, 2013 and 2012, respectively.
Securities
The classification of securities is determined by Management at the time of purchase. Securities are classified as held to maturity when the Company has
the positive intent and ability to hold the security until 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
shareholders’ 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. A decline in the market value of any investment below cost that is deemed to be other-than-temporary is
charged to earnings for the decline in value deemed to be credit related and a new cost basis in the security is established. The decline in value
attributed to non-credit related factors is recognized in other comprehensive income. 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 identification method is used to determine realized gains and
losses on sales of securities, which are reported as gain (loss) on sales and calls of securities in non-interest income.
Other Investments
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.
Federal Home Loan Bank Stock
The Company is a member of the Federal Home Loan Bank of Dallas (“ FHLB” ) and as such is required to maintain a minimum investment in its stock that
varies with the level of FHLB advances outstanding. The stock is bought from and sold to the FHLB based on its $100 par value. The stock does not have a
readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment in accordance with GAAP.
Loans
The loan portfolio consists of commercial and industrial and real estate loans within the Company's trade area that we have the intent and ability to hold
for the foreseeable future or until maturity. The loan policy establishes guidelines relating to pricing; repayment terms; collateral standards including
loan to value limits, appraisal and environmental standards; lending 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 on a
daily basis 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.
17
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. Loan
delinquencies and deposit overdrafts are monitored on a weekly basis in order to identify developing problems as early as possible. On a monthly basis,
a watch list of credits based on our loan grading system is prepared. Grades of A – F are applied to individual loans based on factors including
repayment ability, financial condition of the borrower and payment performance. Loans with a grade of D – F, as well as some loans with a grade of C,
are placed on the watch list of credits. The watch list is the primary tool for monitoring the credit quality of the loan portfolio. Once loans are determined
to be past due, the loan officer and the special assets department work vigorously to return the loans to a current status.
The Company places loans on a nonaccrual status when, in the opinion of Management, they possess sufficient uncertainty as to timely collection of
interest or principal so as to preclude the recognition in reported earnings of some or all of the contractual interest. 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 placement of loans on and removal of loans
from nonaccrual status must be approved by Management.
Loans which become 90 days delinquent are reviewed relative to collectibility. 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, these loans are placed on nonaccrual and, if deemed uncollectible, are charged off against
the allowance for loan losses. That portion of a loan which is deemed uncollectible will be charged off against the allowance as a partial charge off. All
charge offs must be approved by Management and are reported to the Board of Directors.
Allowance for Loan Losses
The allowance for loan losses (“ ALL” ) is a valuation account available to absorb losses on loans. The ALL is established through provisions for loan losses
charged against earnings. Loans deemed to be uncollectible are charged against the ALL, and subsequent recoveries, if any, are credited to the allowance.
The ALL 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. On a quarterly basis, the Company's problem asset committee meets to
review the watch list of credits, which is formulated from the loan grading system. Members of this committee include loan officers, collection officers,
the special assets director, the chief lending officer, the chief credit officer, the chief financial officer and the chief executive officer. The evaluation
includes Management's assessment of several factors: review and evaluation of specific loans, changes in the nature and volume of the loan portfolio,
current and anticipated economic 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 ALL consists of specific and general components. The specific component relates to loans that are classified as impaired. The general component of
the allowance relates to loans that are not impaired. Changes to the components of the ALL are recorded as a component of the provision for the allowance
for loan losses. Management must approve changes to the ALL and must report its actions to the Board of Directors. The Company believes that its
allowance for loan losses is appropriate at December 31, 2014.
The Company considers a loan to be impaired when, based upon current information and events, it 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 troubled debt
restructurings and performing and non-performing major loans for which full payment of principal or interest is not expected. Payments received for
impaired loans not on nonaccrual status are applied to principal and interest.
All impaired loans are reviewed, at a minimum, on a quarterly basis. The Company calculates the specific 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. Most of the Company's impaired loans are collateral-dependent.
The fair value of the collateral for collateral-dependent loans is based on appraisals performed by third-party valuation specialists, comparable sales and
other estimates of fair value obtained principally from independent sources such as the Multiple Listing Service or county tax assessment valuations,
adjusted for estimated selling costs. The Company has a Real Estate Appraisal Policy (the “ Policy” ) which is in compliance with the guidelines set forth
in the “ Interagency Appraisal and Evaluation Guidelines” which implement Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 (“ FIRREA” ) and the revised “ Interagency Appraisal and Evaluation Guidelines” issued in 2010. The Policy further requires that appraisals be in
writing and conform to the Uniform Standards of Professional Appraisal Practice (“ USPAP” ). An appraisal prepared by a state-licensed or state-certified
appraiser is required on all new loans secured by real estate in excess of $250,000. Loans secured by real estate in an amount of $250,000 or less, or that
qualify for an exemption under FIRREA, must have a summary appraisal report or in-house evaluation, depending on the facts and circumstances. Factors
including the assumptions and techniques utilized by the appraiser, which could result in a downward adjustment to the collateral value estimates
indicated in the appraisal, are considered by the Company.
When Management determines that a loan is impaired and the loan is collateral-dependent, an evaluation of the fair value of the collateral is performed.
The Company maintains established criteria for assessing whether an existing appraisal continues to reflect the fair value of the property for
collateral-dependent loans. Appraisals are generally considered to be valid for a period of at least twelve months. However, appraisals that are less than
12 months old may need to be adjusted. Management considers such factors as the property type, property condition, current use of the property,
current market conditions and the passage of time when determining the relevance and validity of the most recent appraisal of the property. If
Management determines that the most recent appraisal is no longer valid, a new appraisal is ordered from an independent and qualified appraiser.
During the interim period between ordering and receipt of the new appraisal, Management considers if the existing appraisal should be discounted to
determine the estimated fair value of collateral. Discounts are applied to the existing appraisal and take into consideration the property type, condition
of the property, external market data, internal data, reviews of recently obtained appraisals and evaluations of similar properties, comparable sales of
similar properties and tax assessment valuations. When the new appraisal is received and approved by Management, the valuation stated in the
appraisal is used as the fair value of the collateral in determining impairment, if any. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is required as a specific component of the allowance for loan losses. Any specific reserves recorded in the
interim are adjusted accordingly.
The general component of the ALL is the loss estimated by applying historical loss percentages to non-classified loans which have been divided into
segments. These segments include gaming; residential and land development, real estate, construction; real estate, mortgage; commercial and
industrial and all other. The loss percentages are based on each segment's historical five year average loss experience which may be adjusted by
qualitative factors such as changes in the general economy, or economy or real estate market in a particular geographic area or industry.
18
Bank Premises and Equipment
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.
Other Real Estate
Other real estate (“ ORE” ) includes real estate acquired through foreclosure. Each other real estate property is carried at fair value, less estimated costs to
sell. Fair value is principally based on appraisals performed by third-party valuation specialists. Any excess of the carrying value of the related loan over
the fair value of the real estate at the date of foreclosure is charged against the ALL. Any expense incurred in connection with holding such real estate or
resulting from any writedowns in value subsequent to foreclosure is included in non-interest expense. When the other real estate property is sold, a gain
or loss is recognized on the sale for the difference, if any, between the sales proceeds and the carrying amount of the property. If the fair value of the
ORE, less estimated costs to sell at the time of foreclosure, decreases during the holding period, the ORE is written down with a charge to non-interest
expense. Generally, ORE properties are actively marketed for sale and Management is continuously monitoring these properties in order to minimize
any losses.
Trust Department Income and Fees
Corporate trust fees are accounted for on an accrual basis and personal trust fees are recorded when received.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss
carry forwards, is required to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company's assets and liabilities
results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation
allowance is provided for the portion of the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future
taxable income and tax planning strategies. The Company currently evaluates income tax positions judged to be uncertain. A loss contingency reserve
is accrued if it is probable that the tax position will be challenged, it is probable that the future resolution of the challenge will confirm that a loss has
been incurred and the amount of such loss can be reasonably estimated.
Post-Retirement Benefit Plan
The Company accounts for its post-retirement benefit plan under Accounting Standards Codification (“ Codification” or “ ASC” ) Topic 715, Retirement
Benefits (“ ASC 715” ). The under or over funded status of the Company's post-retirement benefit plan is recognized as a liability or asset in the statement
of condition. Changes in the plan's funded status are reflected in other comprehensive income. Net actuarial gains and losses and adjustments to prior
service costs that are not recorded as components of the net periodic benefit cost are charged to other comprehensive income.
Earnings Per Share
Basic and diluted earnings per share are computed on the basis of the weighted average number of common shares outstanding, 5,123,186 in 2014,
5,128,889 in 2013 and 5,136,918, in 2012.
Accumulated Other Comprehensive Income (Loss)
At December 31, 2014, 2013 and 2012, accumulated other comprehensive income (loss) consisted of net unrealized gains (losses) on available for sale
securities and over (under) funded liabilities related to the Company's post-retirement benefit plan.
Statements of Cash Flows
The Company has defined cash and cash equivalents to include cash and due from banks and federal funds sold. The Company paid $1,447,133, $1,470,945 and
$2,082,914 in 2014, 2013 and 2012, respectively, for interest on deposits and borrowings. Income tax payments totaled $320,000, $810,000 and $835,000 in 2014, 2013
and 2012, respectively. Loans transferred to other real estate amounted to $1,345,170, $4,536,710 and $2,575,520 in 2014, 2013 and 2012, respectively. Dividends
payable of $513,692 as of December 31, 2011 were paid during the year ended December 31, 2012.
Fair Value Measurement
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 establish a hierarchy for ranking the quality and reliability of the infor-
mation used to determine fair value.
Reclassification
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.
19
N O T E B - S E C U R I T I E S :
The amortized cost and fair value of securities at December 31, 2014, 2013 and 2012, respectively, are as follows (in thousands):
Amortized Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
December 31, 2014
Available for sale securities:
Debt securities:
U.S. Treasuries
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, 2013
Available for sale securities:
Debt securities:
U.S. Treasuries
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, 2012
Available for sale securities:
Debt securities:
U.S. Treasuries
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
$ \\\
27
115
282
1,180
1,604
$
(160)
(1,931)
(136)
(2,227)
$ \\\ 1,604
$\\\
\\\\\(2,227)
Fair Value
$ \ 29,654
117,989
35,817
31,012
214,472
650
\ 215,122
$
$
$
$
$
29,787
119,805
35,671
29,832
215,095
650
215,745
17,784
17,784
$ 132
$ 132
(57)
$ \\\
$ \ (57)
$
$
17,859
\\ 17,859
Amortized Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
$ \\\\\ 44,636
155,772
51,454
33,764
285,626
650
$ 286,276
$
$
11,142
11,142
$\\\\
54
734
141
1,248
2,177
$\\ (1,042)
(10,701)
(1,269)
(1)
(13,013)
$
\\ 2,177
$\\ (13,013)
$
$
\\\ 13
\\\ 13
$
$
(469)
(469)
Amortized Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
$
53,661
147,652
16,903
35,433
253,649
650
$ 254,299
$
$
7,125
7,125
$
490
1,810
538
2,158
4,996
$
(55)–
(364)
(419)
$\\\\
4,996
$
(419)
$ 112
$ 112
$
$
(12)
(12)
Fair Value
$\\\ 43,648
145,805
50,326
35,011
274,790
650
$ 275,440
$ \\ 10,686
10,686
$
Fair Value
$
54,096
149,098
17,441
37,591
258,226
650
$ 258,876
$
$
7,225
7,225
20
The amortized cost and fair value of debt securities at December 31, 2014, (in thousands) by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available for sale 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
Due after ten years
Totals
Amortized Cost
$
$
\\\\
5,715
61,539
52,867
59,303
35,671
\\\\\ 215,095
$ \\\ 211
3,964
8,118
5,491
\\ 17,784
$
Fair Value
$\\\\ 5,762
61,738
52,627
58,528
35,817
$ \\\214,472
$ \\\\
211
3,976
8,179
5,493
$ \\\\17,859
Available for sale and held to maturity securities with gross unrealized losses at December 31, 2014, 2013 and 2012, aggregated by investment category and
length of time that individual securities have been in a continuous loss position, are as follows (in thousands):
Less Than Twelve Months
Over Twelve Months
Total
December 31, 2014:
U.S. Treasuries
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Total
Fair Value
$ \\ 4,968
9,954
Gross Unrealized Losses
15
22
$ \\\
5,485
20,407
$
32
\ 69
$
Fair Value
$\\\\\ 14,795
92,923
19,436
1,444
$ \\128,598
Gross Unrealized Losses
$ 145
1,909
136
25
$ \\2,215
Fair Value
$ \ 19,763
102,877
19,436
6,929
$ 149,005
$
Gross Unrealized Losses
160
1,931
136
57
$ 2,284
Less Than Twelve Months
Over Twelve Months
Total
December 31, 2013:
U.S. Treasuries
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Total
Fair Value
$ 29,708
113,446
44,269
7,690
195,113
$
$
Gross Unrealized Losses
1,042
10,322
1,269
470
13,103
$
Fair Value
2,826
$
4,621
Gross Unrealized Losses
$ 826
379
$
4,621
$ 379
Fair Value
$ 29,708
118,067
44,269
7,690
$ 199,734
$
Gross Unrealized Losses
1,042
10,701
1,269
470
$ 13,482
Less Than Twelve Months
Over Twelve Months
Total
December 31, 2012:
U.S. Treasuries
U.S. Government agencies
States and political subdivisions
Total
Fair Value
9,887
$
30,335
1,451
$ 41,673
Gross Unrealized Losses
$ 55
364
12
431
$
Fair Value
$ 2,826
Gross Unrealized Losses
$ 254
$ 41,67
$
41,
Fair Value
9,887
$
30,335
1,451
$ 41,673
Gross Unrealized Losses
$ 55
364
12
431
$
At December 31, 2014, 4 of the 8 securities issued by the U.S. Treasury, 19 of the 24 securities issued by U.S. Government agencies, 5 of the 10
mortgage-backed securities and 20 of the 152 securities issued by states and political subdivisions contained unrealized losses.
Management evaluates securities for other-than-temporary impairment on a monthly basis. In performing this evaluation, the length of time and the
extent to which the fair value has been less than cost, the fact that the Company's securities are primarily issued by U.S. Treasury and U.S. Government
Agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that we
will be required to sell these securities before maturity. While some available for sale securities have been sold for liquidity purposes or for gains, the
Company has traditionally held its securities, including those classified as available for sale, until maturity. As a result of this evaluation, the Company
has determined that the declines summarized in the tables above are not deemed to be other-than-temporary.
Proceeds from sales of available for sale debt securities were $44,279,605, $26,075,225 and $77,605,104 during 2014, 2013 and 2012, respectively. Available
for sale debt securities were sold and called for realized gains of $98,859, $257,997 and $1,363,802 during 2014, 2013 and 2012, respectively. The Company
recorded a loss from the impairment of its other investments of $360,000 in 2012.
Securities with a fair value of $200,474,637, $262,830,011 and $241,879,775 at December 31, 2014, 2013 and 2012, respectively, were pledged to secure
public deposits, federal funds purchased and other balances required by law.
21
N O T E C - L O A N S :
The composition of the loan portfolio at December 31, 2014, 2013 and 2012 is as follows (in thousands):
December 31,
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
2014
$ \\\\\\\\\\\\\ 31,353
10,119
34,010
240,341
31,906
14,678
$ \\\ 362,407
2013
$ 29,570
19,403
44,987
237,158
35,007
9,224
$ 375,349
2012
$ \\\\ 60,187
27,338
52,586
246,420
35,004
9,548
$ \\\\ 431,083
In the ordinary course of business, the Company's bank 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 collectibility and do not include
other unfavorable features. An analysis of the activity with respect to such loans to related parties is as follows (in thousands):
Years Ended December 31,
Balance, January 1
New loans and advances
Repayments
Balance, December 31
2014
$ 6,761
2,516
(1,517)
$ \\ 7,760
2013
$ \ 6,310
1,647
(1,196)
$\\\ 6,761
2012
$ 5,681
3,755
(3,126)
6,310
$
As part of its evaluation of the quality of the loan portfolio, Management monitors the Company's credit concentrations on a monthly basis. Total
outstanding concentrations were as follows (in thousands):
December 31,
Gaming
Hotel/motel
Out of area
2014
2013
2012
$
31,353
$ \\ 29,570
$ \\\\\\\\ 60,187
47,144
19,179
49,842
24,945
52,776
25,413
The age analysis of the loan portfolio, segregated by class of loans, as of December 31, 2014, 2013 and 2012 is as follows (in thousands):
Number of Days Past Due
30-59
60-89
Greater Than 90
Total Past Due
Current
Total Loans
Loans Past Due
Greater Than
90 Days And Still
Accruing
December 31, 2014:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
$ 2222
$9,205
1,665
3,502
909
168
$6,244
85
3,101
7
10
$3,203
$5 7,219
5,262
1,944
12,007
205
$19,418
$9,205
$
December 31, 2013:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
$ 2222
51
3,846
6,910
1,192
227
$ 12,226
2,684
5
$2,689
December 31, 2012:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
$9 ˜, \205
$ 1,721
3,989
12,012
1,804
127
$ 17,932
878
2,702
79
26
$5,406
13,572
9,452
5,134
$ 28,158
$\\ 9,205
5,765
6,151
7,605
107
1
$ \\\19,629
22
$5 7,219
5,262
3,694
18,610
1,121
178
$28,865
$
13,623
13,298
14,728
1,192
232
$43,073
$
1,721
5,765
11,018
22,319
1,990
154
$42,967
$ 31,353
4,857
30,316
221,731
30,785
14,500
$333,542
$ 29,570
5,780
31,689
222,430
33,815
8,992
$332,276
$ 58,466
21,573
41,568
224,101
33,014
9,394
$ 388,116
$ \\\\\\ 31,353
10,119
34,010
240,341
31,906
14,678
$ \\362,407
$ 29,570
19,403
44,987
237,158
35,007
9,224
$ \\\375,349
$ \\\\\\\\\ 60,187
27,338
52,586
246,420
35,004
9,548
$ \\\\\\431,083
$ 205
30
733
$ 763
$ ,205
146
505
$ 651
$ ,205
572
872
1
$1,445
The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 – 5 is assigned to the loan based on factors
including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to
value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of
A - F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A
grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will
generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. Loans with a grade of C may
be placed on the watch list if weaknesses are not resolved which could result in potential loss or for other circumstances that require monitoring. A grade of D will
generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral.
Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of
collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will
generally be applied to loans for customers with weaknesses inherent in the D classification and in which collection or liquidation in full is questionable. In
addition, on a monthly basis the Company determines which loans are 90 days or more past due and assigns a grade of E to them. A grade of F is applied to loans
which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even
though partial or full recovery may be possible in the future.
An analysis of the loan portfolio by loan grade, segregated by class of loans, as of December 31, 2014, 2013 and 2012 is as follows (in thousands):
Loans With A Grade Of:
December 31, 2014:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
December 31, 2013:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
December 31, 2012:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Other
Total
A or B
$\\\\\ \ 8,400
3,520
27,474
197,086
26,877
14,583
$ \\\ 277,940
$ 23,975
4,236
38,808
204,569
31,902
9,131
$ \\\\ 312,621
$\\\\
27,530
4,630
43,318
209,479
32,036
9,449
$ \\\\\ 326,442
C
$\9 \\\ 22,953
1,319
723
4,051
25
6
$ \\\\ 29,077
$ \\ 2,500
1,544
781
4,495
682
24
$ \ 10,026
$ \
$ \
12,300
1,544
1,001
3,093
442
27
18,407
D
33,077
17
2,496
16,591
1,579
89
20,772
$
$
$ 9, 5
51
2,220
17,852
2,402
50
$ \\\\ 22,575
$
$
4,108
81
2,701
21,167
2,312
72
30,441
E
x,xxx
5,263
3,317
22,613
3,425
x,xxx
34,618
$ \\\\\
$
$ 3,095
13,572
3,178
10,242
21
19
$\\\ 30,127
$ \
16,249
21,083
5,566
12,681
214
F
$ \56 56
$
$
$ \\
Total
31,353
10,119
34,010
240,341
31,906
14,678
362,407
$9\, 5
$ \\\\\\\bn
$\\\ 29,570
19,403
44,987
237,158
35,007
9,224
$ 375,349
$ \ 756
$\\\\\
60,187
27,338
52,586
246,420
35,004
9,548
431,083
$\\\
55,793
$ \ 756
$
A loan may be impaired but not on nonaccrual status when the loan is well secured and in the process of collection. Total loans on nonaccrual as of
December 31, 2014, 2013 and 2012 are as follows (in thousands):
December 31,
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
2014
$ \\ x,xxx
8,233
3,287
21,398
380
$ 33,298
2013
$ 1,223
13,572
2,588
8,788
2013
$ \26,171
2012
$ \\ 16,249
21,083
5,171
11,174
214
$ \\\ 53,891
The Company has modified certain loans by granting interest rate concessions to these customers. These loans are in compliance with their modified terms,
are currently accruing and the Company has classified them as troubled debt restructurings. Troubled debt restructurings as of December 31, 2014, 2013
and 2012, were as follows (in thousands except for number of contracts):
December 31, 2014:
Real estate, mortgage
Total
December 31, 2013:
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
December 31, 2012:
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
Number of
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
2
2
2
6
1
9
3
3
1
7
$ \\\837
$ \\\837
$ \\ 837
$ \\ 837
$
\ 891
10,012
678
$ \\11,581
$ \\\\\\ 1,095
9,054
702
$ \\\\\\10,851
$ \ 891
10,012
678
$ \\\\\\\\\\\11,581
$ \1,095
9,054
702
$ \\\\ \10,851
Related
Allowance
$ \50
\\\\ \\\ 50
$
$\\\
270
994
$ \1,264
$
\ 340
957
$ \\\\\\1,297
During 2013, the Company classified four additional loans as troubled debt restructurings. The loans are included in the real estate, mortgage segment
and had a total balance of $1,652,903 when they were modified. During 2013, two loans which had been classified as troubled debt restructurings at
23
December 31, 2012 became in default of their modified terms and were placed on nonaccrual. These loans included one loan that was included in the real
estate, construction segment with a balance of $182,164 and one loan that was included in the real estate, mortgage segment with a balance of $527,677
as of December 31, 2012. During 2014, seven loans which had been classified as troubled debt restructurings at December 31, 2013 became in default of
their modified terms and were placed on nonaccrual. These loans included two loans that were included in the real estate, construction segment with a
total balance of $891,782, four loans that were included in the real estate, mortgage segment with a total balance of $9,136,954 and one loan that was
included in the commercial and industrial segment with a balance of $677,901 as of December 31, 2013.
Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of December 31, 2014, 2013
and 2012 were as follows (in thousands):
Unpaid
Principal Balance
Recorded
Investment
Related
Allowance
Average Recorded
Investment
Interest Income
Recognized
December 31, 2014:
With no related allowance recorded:
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
With a related allowance recorded:
Real estate, construction
Real estate, mortgage
Total
Total by class of loans:
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
December 31, 2013:
With no related allowance recorded:
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
With a related allowance recorded:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Total
Total by class of loans:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
December 31, 2012:
With no related allowance recorded:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
With a related allowance recorded:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
Total by class of loans:
Gaming
Residential and land development
Real estate, construction
Real estate, mortgage
Commercial and industrial
Total
$ \\\ \\9,513
2,198
19,517
380
31,608
1,109
6,591
7,700
9,513
3,307
26,108
380
$ \\\39,308
$ \\ 4,425
2,294
9,722
678
17,119
1,698
17,576
1,185
9,677
30,136
1,698
22,001
3,479
19,399
678
$ \\\47,255
$ 14,528
21,837
4,635
9,971
892
51,863
1,721
350
1,694
10,893
24
14,682
16,249
22,187
6,329
20,864
916
$\\\\\66,545
$ 8,233
2,178
16,243
380
27,034
1,109
5,992
7,101
8,233
3,287
22,235
380
$\\\\\\34,135
$ 4,425
2,294
9,123
678
16,520
1,223
9,147
1,185
9,677
21,232
1,223
13,572
3,479
18,800
678
$\\\37,752
$ 14,528
20,733
4,580
9,935
892
50,668
1,721
350
1,686
10,293
24
14,074
16,249
21,083
6,266
20,228
916
$64,742
24
$ \\\\ l
422
2,135
2,557
422
2,135
$2,557
$0000
626
471
337
1,110
2,544
626
471
337
1,110
$2,544
$3,028
g
1,100
70
663
1,229
12
3,074
1,100
70
663
1,229
12
$3,074
$\\\\\\\\\\8,380
2,222
18,258
384
29,244
1,115
5,996
7,111
8,380
3,337
24,254
384
$\\\36,355
$\\\\\\\\\\\4,465
2,054
9,097
689
16,305
1,316
15,909
1,239
8,801
27,265
1,316
20,374
3,293
17,898
689
$\\\43,570
$ 14,869
21,288
3,833
9,821
791
50,602
350
1,314
10,199
11,863
14,869
21,638
5,147
20,020
791
$ 62,465
$ g
26
26
9
9
35
$ 35
$\\\\\\\000
26
26
24
76
23
306
329
49
332
24
$ \\\\405
$\\\\\\\000
23
23
8
319
327
8
319
23
$ \\\\350
Transactions in the allowance for loan losses for the years ended December 31, 2014, 2013 and 2012, and the balances of loans, individually and
collectively evaluated for impairment, as of December 31, 2014, 2013 and 2012 are as follows (in thousands):
December 31, 2014:
Allowance for Loan Losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance
Allowance for Loan Losses:
Ending balance: individually\
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Total Loans:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
December 31, 2013:
Allowance for Loan Losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance
Allowance for Loan Losses:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Total Loans:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
December 31, 2012:
Allowance for Loan Losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending Balance
Allowance for Loan Losses:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Total Loans:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Gaming
Residential
and Land
Development
Real Estate,
Construction
Real Estate,
Mortgage
Commercial
and
Industrial
Other
Total
$
977
(992)
260
328
$ \\\ 573
$ \\\\ 776
(2,060)
1,535
$ \\ 251
$ \\ \\\\ 695
(127)
35
257
$ \\\ 860
$ \\ 5,553
(368)
193
1,231
$ \6,609
$ \\ 632
(3,948)
20
3,883
$ \\\\ 587
$ \\\\\ 301
(235)
90
170
$ \\ 326
$ \\ 8,934
(7,730)
598
7,404
$ \\9,206
$
\\
$ \ \\ 573
$
\\\\ \\\
$\ 31,353
$ 1,541
(474)
110
(200)
$ \ 977
$ 626
$
351
$ 3,095
$\26,475
$
457
(275)
1,359
$ 1,541
$ 1,100
$
441
$ 20,357
$39,830
$ \ \\\
$ \\\\\\ 742
$ \\\\ 2,706
$ \\\\ 289
$ \ \\\ 6
$\\\ 3,743
$ \\\ 251
$ \\\\\\ 118
$ \\\\3,903
$ \\ 298
$ \\\\ 320 $ \\\\ \5,463
$\\\\\\ 6,830
$ \39,204
$ \ 2,035
$ \\\\
89
$ 55,390
$\\\\\\\27,180
$ 201,137
$\\\\29,871
$ 14,589
$307,017
$ \\\\\\\ 967
(1,013)
97
644
$ \\\\\\\ 695
$ \\\\\\\ 5,273
(1,048)
150
1,178
$ \\\\\\\ 5,553
$ 593
(24)
26
37
$ \ \\\\632
$ \ 283
(238)
88
168
$ \ \\\\301
$ \\\\8,857
(10,122)
538
9,661
$ \ \\\8,934
$ \\ 615
$ \ 1,698
$ 342
$ 33
$\\ 3,785
$ \\ 80
$ \ 3,855
$ 290
$ 268
$\\\\ 5,149
$ \\\\\\\5,399
$ \ 28,094
$ 2,423
$ 69
$ \52,704
$\\\39,588
$\209,064
$32,584
$ 9,155
$322,645
$ \\ 937
(474)
504
$ \\ 967
$ \\\\\\4,800
(1,348)
7
1,814
\\\\\\5,273
$ \
$ 557
(203)
41
198
593
$
$ 304
(273)
85
167
$ \ 283
$ \ 8,136
(3,676)
133
4,264
$ \\\ 8,857
$ \\ 922
$ \\\\\\\ 1,758
$ 300
$ \ 35
$ \\ 4,115
$
\\ 45
$ \\\\\\\ 3,515
$
293
$ \ 248
$ \\ 4,742
$ \\8,267
$\\\\\ 33,848
$ \\ 2,525
$ \\\\\\ 72
$ \\\\\86,234
$ \\44,319
$\\\\\\\212,572
$32,479
$ \\\\\9,476
$344,849
$ 7,232
$\\\2,887
$\\\\\\\\\ 200
(7,325)
67
7,834
$ \\\\776
$ \\\ 471
$ 305
$13,624
$ 5,779
$\ 1,081
(1,103)
222
$ \\\\ 200
$
\\\200
$\\\\\\\\ 200
$\\\\21,165
$\\\ 6,173
25
N O T E D - B A N K P R E M I S E S A N D E Q U I P M E N T :
Bank premises and equipment are shown as follows (in thousands):
December 31,
Land
Building
Furniture, fixtures and equipment
Totals, at cost
Less: Accumulated depreciation
Totals
Estimated Useful Lives
5 – 40 years\\\\\\\
3 – 10 years\\\\\\\\\\\
$
2014
5,982
30,593
15,511
52,086
28,302
$ 23,784
2013
$ 5,982
30,540
15,272
51,794
26,486
$ 25,308
2012
$ 5,985
30,504
14,487
50,976
24,754
$ 26,222
N O T E E – O T H E R R E A L E S T A T E :
The Company’s other real estate consisted of the following as of December 31, 2014, 2013 and 2012, respectively (in thousands except number of properties):
December 31,
2014
2013
2012
Construction, land development and other land
1-4 family residential properties
Non farm non residential
Other
Total
N O T E F – D E P O S I T S :
Number of
Properties
15
10
14
1
40
Balance
$5,034
431
2,030
151
$7,646
Number of
Properties
18
6
17
Balance
$4,887
180
4,563
41
$9,630
Number of
Properties
11
6
14
1
32
Balance
$ 2,834
576
3,573
25
$ 7,008
At December 31, 2014, the scheduled maturities of time deposits are as follows (in thousands):
2015
2016
2017
2018
2019
Total
$ \\\53,508
7,609
10,333
3,073
2,050
$ \\\\ 76,573
Time deposits of $100,000 or more at December 31, 2014 included brokered deposits of $5,000,000, which mature in 2017.
Time deposits of $250,000 or more totaled approximately $25,321,000, $49,773,000 and $79,423,000 at December 31, 2014, 2013 and 2012, respectively.
Deposits held for related parties amounted to $6,607,646, $7,511,446 and $8,720,550 at December 31, 2014, 2013 and 2012, respectively.
Overdrafts totaling $822,730, $764,262 and $1,435,922 were reclassified as loans at December 31, 2014, 2013 and 2012, respectively.
N O T E G – F E D E R A L F U N D S P U R C H A S E D A N D S E C U R I T I E S S O L D U N D E R A G R E E M E N T S T O R E P U R C H A S E :
At December 31, 2014, the Company had facilities in place to purchase federal funds up to $40,000,000 under established credit arrangements. At December
31, 2014, 2013 and 2012, federal funds purchased and securities sold under agreements to repurchase included only funds invested by customers in a
non-deposit product of the bank subsidiary. 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.
N O T E H – B O R R O W I N G S :
At December 31, 2014, the Company was able to borrow up to $38,845,590 from the Federal Reserve Bank Discount Window Primary Credit Program. The
borrowing limit is based on the amount of collateral pledged, with certain loans from the Bank’s portfolio serving as collateral. 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, 2014.
At December 31, 2014, the Company had $38,707,935 outstanding in advances under a $97,649,565 line of credit with the FHLB. One advance in the amount
of $5,000,000 bears interest at a variable rate of 43.2 basis points above the 1 month LIBOR rate, which was .593% at December 31, 2014, and matures in 2017.
An additional advance in the amount of $30,000,000 bears interest at .08% and matured in January of 2015. New advances may subsequently be obtained
based on the liquidity needs of the bank subsidiary. The remaining balance consists of smaller advances bearing interest from 2.604% to 7.00% with matu-
rity dates from 2015 – 2042. The advances are collateralized by a blanket floating lien on a substantial portion of the Company’s real estate loans.
26
N O T E I - I N C O M E T A X E S :
Deferred taxes (or deferred charges) as of December 31, 2014, 2013 and 2012, included in other assets, were as follows (in thousands):
December 31,
Deferred tax assets:
Allowance for loan losses
Employee benefit plans’ liabilities
Unrealized loss on available for sale securities, charged from equity
Earned retiree health benefits plan liability
General business and AMT credits
Tax net operating loss carry forward
Other
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Unrealized gain on available for sale securities, charged to equity
Unearned retiree health benefits plan asset
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:
Federal
Change in valuation allowance
Total deferred
Totals
2014
2013
2012
$
\\\\3,130
$
3,037
$
\\ 3,011
4,490
210
1,638
1,735
651
1,637
(8,140)
5,351
362
4,760
229
5,351
4,326
3,684
1,638
1,218
13,903
579
5,075
129
5,783
4,135
1,673
1,170
9,989
1,556
948
5,366
92
7,962
$ \\\
0
$ \ 8,120
$
\\ 2,027
2014
2013
2012
$ \\\\\ (137)
$ \\\ (1,717)
$ \\\
1,425
(3,277)
8,140
4,863
(484)
(484)
(1,517)
(1,517)
$ \ 4,726
$ (2,201)
$ \\\ (92)
Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 34.0% for 2014, 2013 and 2012 to income (loss)
before income taxes. The reasons for these differences are shown below (in thousands):
Taxes computed at statutory rate
$ \ (1,794)
2014
Tax
Increase (decrease) resulting from:
Tax-exempt interest income
Income from BOLI
Federal tax credits
Other
Change in valuation allowance
(532)
(200)
(298)
(590)
8,140
Total income tax expence (benefit)
$ \\\ 4,726
Rate
(34)
(10)
(4)
(6)
(10)
154
90
2013
Tax
Rate
2012
Tax
$ \ (931)
(34)
$ 867
(539)
(170)
(298)
(263)
(20)
(6)
(11)
(9)
(532)
(195)
(372)
140
Rate
34
(21)
(8)
(15)
6
$
\\\
(2,201)
(80)
$
(92)
(4)
A valuation allowance is recognized against deferred tax assets when, based on the consideration of all available positive and negative evidence using a
more likely than not criteria, it is determined that all or a portion of these tax benefits may not be realized. This assessment requires consideration of all
sources of taxable income available to realize the deferred tax asset including taxable income in prior carry-back years, future reversals of existing
temporary differences, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. The Company
incurred losses on a cumulative basis for the three-year period ended December 31, 2014, which is considered to be significant negative evidence. The
positive evidence considered in support was insufficient to overcome this negative evidence. As a result, the Company has established a full valuation
allowance for its net deferred tax asset in the amount of $8,140,000 as of December 31, 2014.
If not utilized, the Company's federal net operating loss of $1,900,000 will expire in 2034.
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. The Company currently has no unrecognized tax benefits that,
if recognized, would favorably affect the income tax rate in future periods.
27
N O T E J - S H A R E H O L D E R S ’ E Q U I T Y :
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 written
approval of the Commissioner of Banking and Consumer Finance of the State of Mississippi and the Federal Deposit Insurance Corporation (the “ FDIC” ).
At December 31, 2014, $15,403,607 of undistributed earnings 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 written approval of the Federal Reserve
Bank (“ FRB” ).
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, 47,756 shares have been repurchased and retired through December 31, 2014.
The Company and the bank subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken,
could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, specific capital guidelines must be met that involve quantitative measures of the assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The capital amounts and classification of the bank subsidiary and Company are also subject 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, 2014, the most recent notification from the FDIC 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 capital 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 2014, 2013 and 2012, are as follows (in thousands):
December 31, 2014:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2013:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2012:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
Actual
Amount
Ratio
For Capital Adequacy Purposes
Ratio
Amount
$ \\\100,243
94,493
94,493
$ \\\\ 111,141
105,009
105,009
$\\\\\\\ 112,342
105,728
105,728
21.95%
20.70%
13.29%
22.79%
21.54%
13.48%
21.29%
20.04%
13.07%
$ \\36,528
18,264
28,437
$\\\\\\39,022
19,511
31,170
$ \\\\\\42,216
21,108
32,361
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 and capital amounts and ratios to be well
capitalized for 2014, 2013 and 2012, are as follows (in thousands):
Actual
Amount
Ratio
For Capital Adequacy Purposes
Amount
Ratio
To Be Well Capitalized
Ratio
Amount
December 31, 2014:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2013:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
December 31, 2012:
Total Capital (to Risk Weighted Assets)
Tier 1 Capital (to Risk Weighted Assets)
Tier 1 Capital (to Average Assets)
$ \\\\ 96,427
90,720
90,720
$ \\106,870
100,746
100,746
$ \\\\ 107,885
101,241
101,241
21.28%
20.02%
13.15%
\
21.94%
20.69%
13.02%
20.47%
19.22%
12.62%
$ \\36,247
18,124
27,599
$\\\\\38,968
19,484
30,958
$ \\\\\\42,148
21,074
32,086
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
8.00%
4.00%
4.00%
$ \45,309
27,186
34,499
$\\\\\\\ 48,711
29,227
38,697
$\\\\\\52,685
31,611
40,108
10.00%
6.00%
5.00%
10.00%
6.00%
5.00%
10.00%
6.00%
5.00%
In July 2013, the Federal bank regulatory agencies issued a final rule that will revise their risk-based capital requirements and the method for calculating
components of capital and of computing risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on
Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies
with total consolidated assets of $500 million or more and top-tier savings and loan holding companies. The rule establishes a new common equity Tier 1
minimum capital requirement, increases the minimum capital ratios and assigns a higher risk weight to certain assets based on the risk associated with
these assets. The final rule includes transition periods that generally implement the new regulations over a five year period. These changes will be phased
in beginning in January 2015, and while management continues to evaluate this final rule and its potential impact, preliminary assessments indicate that
the Bank and the Company will continue to exceed all regulatory capital requirements under the new rule.
28
N O T E K - O T H E R I N C O M E A N D E X P E N S E S :
\
Other income consisted of the following (in thousands):
Years Ended December 31,
Other service charges, commissions and fees
Rentals
Other
Totals
Other expenses consisted of the following (in thousands):
Years Ended December 31,
Advertising
Data processing
FDIC and state banking assessments
Legal and accounting
Other real estate
ATM expense
Trust expense
Other
Totals
2014
$ \\\\\\ 84
435
113
$ \\\\\\ 632
2014
$
\\\ 552
1,339
1,033
493
1,610
2,409
323
1,890
$ \\\\9,649
$
2013
74
433
100
$ 607
2013
$ 596
1,254
870
535
963
2,367
332
1,876
$ 8,793
$
2012
83
442
142\\
$ 667
2012
$ 489
1,434
503
511
648
2,033
314
1,813
$ 7,745
N O T E L - F I N A N C I A L I N S T R U M E N T S W I T H O F F - B A L A N C E - S H E E T R I S K :
The Company is a party to financial instruments with off-balance-sheet 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,
elements 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
nonperformance by the other party to the financial instrument for commitments to extend credit and irrevocable letters of credit is represented by the
contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for
on-balance-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 trade area.
At December 31, 2014, 2013 and 2012, the Company had outstanding irrevocable letters of credit aggregating $1,879,678, $3,059,011 and $3,599,011,
respectively. At December 31, 2014, 2013 and 2012, the Company had outstanding unused loan commitments aggregating $66,663,320, $68,171,024 and
$80,741,699, respectively. Approximately $35,753,000, $38,324,000 and $46,956,000 of outstanding commitments were at fixed rates and the remainder
was at variable rates at December 31, 2014, 2013 and 2012, respectively.
N O T E M - C O N T I N G E N C I E S :
The Bank is involved in various legal matters and claims which are being defended and handled in the ordinary course of business. None of these
matters is expected, in the opinion of Management, to have a material adverse effect upon the financial position or results of operations of the Company.
29
N O T E N - C O N D E N S E D P A R E N T C O M P A N Y O N L Y F I N A N C I A L I N F O R M A T I O N :
Peoples Financial Corporation began its operations September 30, 1985, when it acquired all the outstanding stock of The Peoples Bank, Biloxi, Mississippi.
A condensed summary of its financial information is shown below.
C O N D E N S E D B A L A N C E S H E E T S ( I N T H O U S A N D S ) :
December 31,
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
2014
2013
2012
$\\ 91,179
$ \\\ 94,883
$ \\\\
106,266
1
160
3,611
1
487
3,937
1
360
4,288
$ \\ 94,951
$ \\\\ 99,308
$ \\\\\\\
110,915
$ \\ \
$ \\\\
161
161
94,951
$ \\ 94,951
99,147
$ \\\\\ 99,308
$ \\\\\\
161
161
110,754
$ \\\\\\
110,915
C O N D E N S E D S T A T E M E N 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 ) :
Years Ended December 31,
Income
Earnings of unconsolidated bank subsidiary:
Distributed earnings
Undistributed earnings (loss)
Loss on impairment of other investments
Other income
Total income (loss)
Expenses
Other
Total expenses
Income (loss) before income taxes
Income tax benefit
Net income (loss)
2014
2013
2012
$ \\\ j
(10,025)
(53)
(10,078)
124
124
(10,202)
(198)
$
h
$ \ 1,150
(494)
57
(437)
122
122
(559)
(21)
1,845
(360)
(71)
2,564
105
105
2,459
(182)
$\\ (10,004)
$ \\\ (538)
$ 2,641
30
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 (loss)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
(Income) loss on other investments
Loss on impairment of other investments
Undistributed (income) loss of unconsolidated subsidiaries
Other assets
Other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Redemption of equity securities
Net cash provided by investing activities
Cash flows from financing activities:
Retirement of stock
Dividends paid
Net cash used in financing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
2014
2013
2012
$ \ (10,004)
$ (538)
$ 2,641
64
10,025
25
(161)
(51)
236
236
(512)
(512)
(327)
487
(42)
494
164
78
230
230
(181)
(181)
127
360
$
\\\ 160
$
\\ 487
$
84
360
(1,845)
(182)
(1)
1,057
36
36
(1,541)
(1,541)
(448)
808
360
The Company paid income taxes of $320,000, $810,000 and $835,000 in 2014, 2013 and 2012, respectively. No interest was paid during the three years ended
December 31, 2014.
N O T E O - E M P L O Y E E A N D D I R E C T O R B E N E F I T P L A N S :
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 $280,000, $220,000 and $330,000 in 2014, 2013 and 2012, respectively.
Compensation expense of $7,678,640, $7,594,790 and $7,691,059 was the basis for determining the ESOP contribution allocation to participants for 2014,
2013 and 2012, respectively. The ESOP held 315,269, 359,030 and 383,141 allocated shares at December 31, 2014, 2013 and 2012, 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 of 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, 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 $16,370,384, $15,824,497 and $15,363,241 at December 31, 2014, 2013 and 2012, respectively. The present value of accumulated benefits under
these plans, using an interest rate of 4.50% in 2014 and 2013 and 5.25% in 2012, and the interest ramp-up method in 2014, 2013 and 2012, has been accrued.
The accrual amounted to $11,465,119, $11,004,738 and $10,572,681 at December 31, 2014, 2013 and 2012, respectively, and is included in Employee and
director benefit plans liabilities.
The Company also has additional plans for non-vested 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 $1,346,910, $1,218,175 and $1,105,741 at December 31, 2014, 2013 and 2012, respectively. The
present value of accumulated benefits under these plans using an interest rate of 4.50% in 2014 and 2013 and 5.25% in 2012, and the projected unit cost
method has been accrued. The accrual amounted to $1,450,280, $1,435,554, and $1,328,657 at December 31, 2014, 2013 and 2012, respectively, and is
included in Employee and director benefit plans liabilities.
31
Additionally, there are two endorsement split dollar policies, with the bank subsidiary as owner and beneficiary, which provide a guaranteed death
benefit to the participants’ beneficiaries. These contracts are carried at their cash surrender value, which amounted to $277,278, $269,271 and $262,466
at December 31, 2014, 2013 and 2012, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.50% in 2014 and
2013, and 5.25% in 2012, and the projected unit cost method has been accrued. The accrual amounted to $80,997, $78,759 and $68,253 at December 31,
2014, 2013 and 2012, respectively, and is included in Employee and director benefit plans liabilities.
The Company has additional plans for non-vested post-retirement benefits for directors. 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 $150,687, $138,001 and $129,367 at December 31, 2014, 2013 and 2012, respectively. The present value of
accumulated benefits under these plans using an interest rate of 4.50% in 2014 and 2013 and 5.25% in 2012, and the projected unit cost method has been
accrued. The accrual amounted to $210,207, $206,650 and $192,528 at December 31, 2014, 2013 and 2012, respectively, and is included in Employee and
director benefit plans 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
addition, the employee must have at least 25 continuous years of service with the Company immediately preceding retirement. However, any active
employee 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 obligation 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 eliminate 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. Effective January 1, 2012, the Company amended the retiree health plan. This amendment requires that employees
who are eligible and enroll in the bank subsidiary’s group medical and dental health care plans upon their retirement must enroll in Medicare Parts A, B
and D when first eligible upon their retirement from the bank subsidiary. This results in the bank subsidiary’s programs being secondary insurance
coverage for retired employees and any dependent(s), if applicable, while Medicare Parts A and B will be their primary coverage, and Medicare Part D
will be the sole and exclusive prescription drug benefit plan for retired employees. This amendment reduced the accumulated post-retirement benefit
obligation by $3,799,308 as of December 31, 2011. Effective January 1, 2014, the Company amended the retiree health plan. This amendment reduces the
age for eligibility to 60 for those employees meeting all other eligibility requirements. This amendment increased the accumulated post-retirement
benefit obligation by $1,150,229 as of December 31, 2013.
The following is a summary of the components of the net periodic post-retirement benefit cost (credit)(in thousands):
Years Ended December 31,
Service cost
Interest cost
Amortization of net gain
Amortization of prior service credit
$ \
2014
105
132
(14)
(81)
$
2013
55
82
(2)
(183)
$
2012
45
72
(16)
(203)
Net periodic post-retirement benefit cost (credit)
$
\\
142
$
(48)
$
(102)
The discount rate used in determining the accumulated post-retirement benefit obligation was 4.00% in 2014, 4.80% in 2013 and 4.00% in 2012. The
assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation was 7.00% in 2014. The rate was assumed to
decrease gradually to 5.00% for 2022 and remain at that level thereafter. If the health care cost trend rate assumptions were increased 1.00%, the
accumulated post-retirement benefit obligation as of December 31, 2014, would be increased by 16.45%, and the aggregate of the service and interest cost
components of the net periodic post-retirement benefit cost for the year then ended would have increased by 16.78%. If the health care cost trend rate
assumptions were decreased 1.00%, the accumulated post-retirement benefit obligation as of December 31, 2014, would be decreased by 13.02%, and the
aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for the year then ended would have
decreased by 13.54%.
The following table presents the estimated benefit payments for each of the next five years and in the aggregate for the next five years (in thousands):
2015
2016
2017
2018
2019
2020 – 2024
$222
191
171
147
87
828
The following is a reconciliation of the accumulated post-retirement benefit obligation, which is included in Employee and director benefit plans
liabilities (in thousands):
Accumulated post-retirement benefit obligation as of December 31, 2013
Service cost
Interest cost
Actuarial loss
Benefits paid
Accumulated post-retirement benefit obligation as of December 31, 2014
$ 2,853
105
132
544
(64)
$ 3,570
32
The following is a summary of the change in plan assets (in thousands):
Fair value of plan assets at beginning of year
Actual return on assets
Employer contribution
Benefits paid, net
Fair value of plan assets at end of year
2014
2013
2012
$
$
64
(64)
$
$\\\
$ \\j
$ l
67
(67)
90
(90)
Amounts recognized in the Accumulated Other Comprehensive Income (Loss), net of tax, were (in thousands):
For the year ended December 31,
2014
2013
2012
Net gain (loss)
Prior service charge
Total accumulated other comprehensive income
$ (80)
783
\\\\\\ 703
$
$ 288
837
1,125
$
$ 123
1,718
\\\ 1,841
$
Amounts recognized in the accumulated post-retirement benefit obligation and other comprehensive income (loss) were (in thousands):
For the year ended December 31,
Unrecognized actuarial loss
Amortization of prior service cost
Total accumulated other comprehensive loss
2014
$ \ 557
81
$ \ 638
The prior service credit that will be recognized in accumulated other comprehensive income during 2015 is $81,381.
N O T E P - F A I R V A L U E M E A S U R E M E N T S A N D D I S C L O S U R E S :
The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
Available for sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record other
assets at fair value on a non-recurring basis, such as impaired loans and ORE. These non-recurring fair value adjustments typically involve the
application of lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is required to disclose, but not record,
the fair value of other financial instruments.
Fair Value Hierarchy
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value. These levels are:
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 – Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These
unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques
include the use of option pricing models, discounted cash flow models and similar techniques.
Following is a description of valuation methodologies used to determine the fair value of financial assets and liabilities.
Cash and Due from Banks
The carrying amount shown as cash and due from banks approximates fair value.
Available for Sale Securities
The fair value of available for sale securities is based on quoted market prices. The Company’s available for sale securities are reported at their estimat-
ed fair value, which is determined utilizing several sources. The primary source is Interactive Data Corporation, which utilizes pricing models that vary
based by 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 indus-
try to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to
other benchmark securities. All of the Company’s available for sale securities are Level 2 assets.
Held to Maturity Securities
The fair value of held to maturity securities is based on quoted market prices.
Other Investments
The carrying amount shown as other investments approximates fair value.
Federal Home Loan Bank Stock
The carrying amount shown as Federal Home Loan Bank Stock approximates fair value.
Loans
The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings for the remaining maturities. The cash flows considered in computing the fair value of such loans are segmented into
categories relating to the nature of the contract and collateral based on contractual principal maturities. Appropriate adjustments are made to reflect
probable credit losses. Cash flows have not been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value
of floating rate loans is estimated to be its carrying value. At each reporting period, the Company determines which loans are impaired. Accordingly, the
Company’s impaired loans are reported at their estimated 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 assumptions 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 are non-recurring Level 3 assets.
33
Other Real Estate
In the course of lending operations, Management may determine that it is necessary to foreclose on the related collateral. 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. If the current
appraisal is more than one year old and/or the loan balance is more than $200,000, a new appraisal is obtained. Otherwise, the Bank’s in-house
property evaluator and Management will determine the fair value of the collateral, based on comparable sales, market conditions, Management's plans
for disposition and other estimates of fair value obtained from principally independent sources, adjusted for estimated selling costs. Other real estate is
a non-recurring Level 3 asset.
Cash Surrender Value of Life Insurance
The carrying amount of cash surrender value of bank-owned life insurance approximates fair value.
Deposits
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 for 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
automatic renewal at current interest rates.
Federal Funds Purchased and Securities Sold under Agreements to Repurchase
The carrying amount shown as federal funds purchased and securities sold under agreements to repurchase approximates fair value.
Borrowings from Federal Home Loan Bank
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 fair value of FHLB variable rate borrowings is estimated to be its carrying value.
The balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level within the fair value hierarchy
and by investment type, as of December 31, 2014, 2013 and 2012, were as follows (in thousands):
Level 1
$287,078
$287,078
Level 1
$287,078
$287,078
Level 1
$287,078
Level 3
$287 ,078
Fair Value Measurements Using
Level 2
$ \\\\\\\29,654
117,989
35,817
31,012
650
$ \\\\\\\\ 215,122
Fair Value Measurements Using
Level 2
$ 43,648
145,805
50,326
35,011
650
$ \\\ 275,440
$28 7,078
Level 3
$28 7,078
$28 7,078
Fair Value Measurements Using
Level 2
$ \ 54,096
149,098
17,441
37,591
Level 3
$28 7,078
650
$287,078
$
258,876
$28 7,078
December 31, 2014:
U.S. Treasuries
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Equity securities
Total
December 31, 2013:
U.S. Treasuries
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Equity securities
Total
December 31, 2012:
U.S. Treasuries
U.S. Government agencies
Mortgage-backed securities
States and political subdivisions
Equity securities
Total
Total
$ 29,654
117,989
35,817
31,012
650
$ \\\\\ 215,122
Total
$ \\\ 43,648
145,805
50,326
35,011
650
$ 275,440
Total
$ \\\ 54,096
149,098
17,441
37,591
650
258,876
$
34
Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of December 31, 2014, 2013 and 2012
were as follows (in thousands):
December 31:
2014
2013
2012
$
Total
\\\\ 10,610
18,831
16,030
Fair Value Measurements Using
Level 2
$ \\\7,078
Level 1
$87,\\\78
287,07820
7,078
87,078
Level 3
$\\\ 10,610
18,831
16,030
Other real estate, which is measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of December 31, 2014, 2013 and 2012
are as follows (in thousands):
December 31:
2014
2013
2012
Level 1
287,078$$$$ \\ \k
Fair Value Measurements Using
Level 2
$ \ j
Total
$ \ 7,646
9,630
7,008
The following table presents a summary of changes in the fair value of other real estate which is measured using Level 3 inputs (in thousands):
For the year ended December 31,
Balance, beginning of year
Loans transferred to ORE
Sales
Writedowns
Insurance proceeds from casualty loss
Balance, end of year
2014
$ \\\\ 9,630
1,345
(2,068)
(1,261)
$ \ 7,646
2013
$ 7,008
4,537
(1,188)
(670)
(57)
$ \9,630
Level 3
$ 7,646
9,630
7,008
2012
$ \ 6,153
2,576
(1,568)
(153)
$ 7,008
35
The carrying value and estimated fair value of assets and liabilities, by level within the fair value hierarchy, at December 31, 2014, 2013 and 2012, are as
follows (in thousands):
December 31,2014:
Financial Assets:
Cash and due from banks
Available for sale securities
Held to maturity securities
Other Investments
Federal Home Loan Bank stock
Loans, net
Other real estate
Cash surrender value of life insurance
Financial Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Federal funds purchased and
securities sold under
agreements to repurchase
Borrowings from
Federal Home Loan Bank
December 31,2013:
Financial Assets:
Cash and due from banks
Available for sale securities
Held to maturity securities
Other Investments
Federal Home Loan Bank stock
Loans, net
Other real estate
Cash surrender value of life insurance
Financial Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Federal funds purchased and
securities sold under
agreements to repurchase
Borrowings from
Federal Home Loan Bank
December 31,2012:
Financial Assets:
Cash and due from banks
Available for sale securities
Held to maturity securities
Other Investments
Federal Home Loan Bank stock
Loans, net
Other real estate
Cash surrender value of life insurance
Financial Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Federal funds purchased and
securities sold under
agreements to repurchase
Borrowings from
Federal Home Loan Bank
Carrying Amount
Level 1
Fair Value Measurements Using
Level 2
Level 3
$287,078
355,004
7,646
289,466
$287,078
369,117
9,630
322,535
$287,078
425,627
7,008
376,209
$287,078
215,122
17,859
2,504
18,145
40,720
$287,078
275,440
10,686
3,834
17,456
79,051
$287,078
258,876
7,225
2,380
16,861
10,271
$ 23,556
215,122
17,784
2,962
2,504
353,201
7,646
18,145
103,607
289,107
124,206
38,708
$ 36,264
275,440
11,142
3,262
3,834
366,415
9,630
17,456
107,117
321,441
139,639
77,684
$ 54,020
258,876
7,125
3,450
2,380
422,226
7,008
16,861
102,609
373,110
194,234
7,912
$ 23,556
2,962
103,607
124,206
$ 36,264
3,262
107,117
139,639
$ 54,020
3,450
102,609
194,234
36
Total
$ 23,556
215,122
17,859
2,962
2,504
355,004
7,646
18,145
103,607
289,466
40,720
$ 36,264
275,440
10,686
3,262
3,834
369,117
9,630
17,456
107,117
322,535
139,639
79,051
$ 54,020
258,876
7,225
3,450
2,380
425,627
7,008
16,861
102,609
376,209
194,234
10,271
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 and Shareholders
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, 2014, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), 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. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion of the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2014, 2013 and 2012, 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.
Atlanta, Georgia
March 18, 2015
37
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 (loss) before taxes
Income tax expense (benefit)
Net income (loss)
Per Share Data
2014
2013
2012
2011
2010
$ 668,895
$ 762,264
$ 804,912
$ 804,152
$ 786,545
215,122
17,784
362,407
392,714
38,708
94,951
275,440
11,142
375,349
428,558
77,684
99,147
258,875
7,125
431,083
475,719
7,912
110,754
278,918
1,428
432,407
468,439
53,324
109,452
287,078
1,915
409,899
484,140
42,957
101,357
$
22,156
$ 24,956
$ 24,628
$ 25,033
$
29,675
1,441
20,715
7,404
13,311
8,619
27,208
(5,278)
4,726
1,447
23,509
9,661
13,848
9,067
25,654
(2,739)
(2,201)
2,067
22,561
4,264
18,297
9,529
25,277
2,549
(92)
3,178
21,855
2,935
18,920
9,860
28,781
(1)
(1,204)
4,601
25,074
6,845
18,229
10,114
27,581
762
(723)
$ \\\ (10,004)
$
(538)
$
2,641
$
1,203
$
1,485
Basic and diluted earnings per share
$ \\ (1.95)
$
(.10)
$
Dividends per share
Book value
.10
18.53
19.35
.51
.20
21.56
$
.23
.19
21.31
Weighted average number of shares
5,123,186
5,128,889
5,136,918
5,136,918
Selected Ratios
Return on average assets
Return on average equity
Primary capital to average assets
Risk-based capital ratios:
Tier 1
Total
(1.38)%
(10.31)%
14.64%
20.70%
21.95%
(.07)%
(.51)%
13.64%
21.54%
22.79%
.32%
2.40%
14.71%
20.04%
21.29%
.15%
1.14%
14.59%
19.61%
20.86%
$
.29
.20
19.68
5,151,661
.18%
1.45%
12.96%
21.01%
22.26%
38
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
Summary of Quarterly Results of Operations (In Thousands Except per Share Data):
Quarter Ended, 2014
Interest income
Net interest income
Provision for loan losses
Income (loss) before income taxes
Net income (loss)
Basic and diluted earnings (loss) per share
March 31
$ 5,847
5,561
537
490
579
.11
Quarter Ended, 2013
Interest income
Net interest income
Provision for loan losses
Income (loss) before income taxes
Net income (loss)
Basic and diluted earnings (loss) per share
March 31
$ 5,854
5,447
539
617
606
.12
June 30
$ 5,750
5,389
537
100
335
.07
June 30
$ 5,750
5,352
3,538
(1,989)
(1,147)
(.23)
September 30
$\\\\\\\\\ 5,467
4,896
3,541
(3,053)
(1,799)
(.35)
September 30
$ \\\\\\ 5,805
5,431
542
781
886
.18
December 31
$ \\\\ 5,092
4,869
2,789
(2,815)
(9,119)
(1.78)
December 31
$ \\ 7,547
7,279
5,042
(2,148)
(883)
(.17)
Market Information
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
2014
$
Quarter
1st
2nd
3rd
4th
High
$ 13.75
13.75
13.66
13.59
Low
12.91
12.12
12.86
12.35
Dividend per share
$ \\ -
.10
-
-
2013
1st
2nd
3rd
4th
$ 12.75
13.44
13.14
13.24
$ 9.27
12.02
11.17
11.53
$ .
Performance Graph
The graph below compares the Company's annual percentage change in cumulative total shareholder return on common shares over the last five years
with the cumulative total return of a broad equity market index of companies, the NASDAQ Market Index, and a peer group consisting of the Morningstar
Industry Group, Regional - Southeast Banks (“ Morningstar” ). This presentation assumes $100 was invested in shares of the relevant issuers on January 1,
2010, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at
one year intervals. For purposes of constructing this data, the returns of each component issuer have been weighted according to that issuer's
market capitalization.
39
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 Registered Public Accounting Firm
Porter Keadle Moore, LLC
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 LLC
Hovde Capital Advisors
Knight Equity Markets, L.P.
Securities and Exchange Commission, may be obtained without
charge by directing a written request to:
Lauri A. Wood, Chief Financial Officer and Controller
RAYMOND JAMES Morgan Keegan
Peoples Financial Corporation
Stifel Nicolaus & Co.
Sterne, Agee & Leach, Inc.
P. O. Drawer 529, Biloxi, Mississippi 39533-0529
(228) 435-8412, e-mail: lwood@thepeoples.com
40
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
B R A N C H L O C A T I O N S
The Peoples Bank, Biloxi, Mississippi
Biloxi Branches
Main Office
Other Branches
Bay St. Louis Office
152 Lameuse Street, Biloxi, Mississippi 39530
408 Highway 90 East, Bay St. Louis, Mississippi 39520
(228) 435-5511
(228) 897-8710
Asset Management and Trust Services Department
Diamondhead Office
Personal and Corporate Trust Services
758 Vieux Marche, Biloxi, Mississippi 39530
5429 West Aloha Drive, Diamondhead, Mississippi 39525
(228) 897-8714
(228) 435-8208
Cedar Lake Office
D’ Iberville-St. Martin Office
10491 Lemoyne Boulevard, D’ Iberville, Mississippi 39532
1740 Popps Ferry Road, Biloxi, Mississippi 39532
(228) 435-8202
(228) 435-8688
Keesler AFB Office
1507 Meadows Drive
Keesler AFB, MS 39534
(228) 435-8690
West Biloxi Office
2560 Pass Road, Biloxi, Mississippi 39531
(228) 435-8203
Gulfport Branches
Armed Forces Retirement Home Office
Gautier Office
2609 Highway 90, Gautier, Mississippi 39553
(228) 497-1766
Long Beach Office
298 Jeff Davis Avenue, Long Beach, Mississippi 39560
(228) 897-8712
Ocean Springs Office
2015 Bienville Boulevard, Ocean Springs, Mississippi 39564
(228) 435-8204
1800 Beach Drive, Gulfport, Mississippi 39507
Pass Christian Office
(228) 897-8724
301 East Second Street, Pass Christian, Mississippi 39571
Downtown Gulfport Office
1105 30th Avenue, Gulfport, Mississippi 39507
Saucier Office
(228) 897-8719
(228) 897-8715
Handsboro Office
17689 Second Street, Saucier, Mississippi 39574
(228) 897-8716
0412 E. Pass Road, Gulfport, Mississippi 39507
Waveland Office
(228) 897-8717
Orange Grove Office
470 Highway 90, Waveland, Mississippi 39576
(228) 467-7257
12020 Highway 49 North, Gulfport, Mississippi 39503
Wiggins Office
(228) 897-8718
1312 S. Magnolia Drive, Wiggins, Mississippi 39577
(228) 897-8722
41
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
B O A R D O F D I R E C T O R S
B O A R D O F D I R E C T O R S
Peoples Financial Corporation
B O A R D O F D I R E C T O R S
The Peoples Bank, Biloxi, Mississippi
Chevis C. Swetman, Chairman of the Board
Chevis C. Swetman, Chairman
Dan Magruder, Vice Chairman; President, Rex Distributing Co., Inc.
Tyrone J. Gollott, Vice-Chairman; President, G & W Enterprises, Inc.
Drew Allen, President,Allen Beverages, Inc.
Drew Allen, President, Allen Beverages, Inc.
Rex E. Kelly, Principal, Strategic Communications
A. Wes Fulmer, Executive Vice-President
Jeffrey H. O’Keefe, President, Bradford-O’Keefe Funeral Homes, Inc.
Liz Corso Joachim, President, Frank P. Corso, Inc.
O F F I C E R S
Rex E. Kelly, Principal, Strategic Communications
Dan Magruder, President, Rex Distributing Co., Inc.
Peoples Financial Corporation
Jeffrey H. O’Keefe, President, Bradford-O’Keefe Funeral Homes, Inc.
Chevis C. Swetman, President and CEO
A. Wes Fulmer, Executive Vice-President
S E N I O R M A N A G E M E N T
Ann F. Guice, First Vice-President
The Peoples Bank, Biloxi, Mississippi
J. Patrick Wild, Second Vice-President
Chevis C. Swetman, President and CEO
Evelyn R. Herrington, Vice-President and Secretary
A. Wes Fulmer, Executive Vice-President
John J. Theiler, Vice-President
Lauri A. Wood, Senior Vice-President and Cashier
Lauri A. Wood, Chief Financial Officer and Controller
Ann F. Guice, Senior Vice-President
J. Patrick Wild, Senior Vice-President
Evelyn R. Herrington, Senior Vice-President
John J. Theiler, Senior Vice-President
42
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