PFBX 10-Q Quarter ended March 31, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

001-12103

PEOPLES FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

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

(228) 435-5511

(Registrant's telephone number, including area code)

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

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

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

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

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

Large accelerated filer  ☐	Accelerated filer  ☐	Smaller reporting company  ☒
Non-accelerated filer  ☐		Emerging growth company  ☐

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

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

Yes  ☐  No  ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At April 30, 2021, there were 15,000,000 shares of $1 par value common stock authorized, with 4,878,557 shares issued and outstanding.

		March 31, 2021				December 31, 2020
		(unaudited)				(audited)
Assets
Cash and due from banks		$	105,115			$	91,542
Available for sale securities			239,116				180,130
Held to maturity securities, fair value of $94,485 at March 31, 2021; $78,474 at December 31, 2020			93,221				75,688
Other investments			2,561				2,593
Federal Home Loan Bank Stock, at cost			2,151				2,149
Loans			272,273				278,421
Less: Allowance for loan losses			4,072				4,426
Loans, net			268,201				273,995
Bank premises and equipment, net of accumulated depreciation			15,561				15,679
Other real estate			3,143				3,475
Accrued interest receivable			2,422				2,100
Cash surrender value of life insurance			19,758				19,609
Other assets			1,026				1,066
Total assets		$	752,275			$	668,026

		March 31, 2021				December 31, 2020
		(unaudited)				(audited)
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand, non-interest bearing		$	196,957			$	170,269
Savings and demand, interest bearing			372,335				319,165
Time, $100,000 or more			42,463				38,581
Other time deposits			22,004				22,483
Total deposits			633,759				550,498
Borrowings from Federal Home Loan Bank			932				969
Employee and director benefit plans liabilities			18,906				18,882
Other liabilities			4,218				2,811
Total liabilities			657,815				573,160
Shareholders' Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 4,878,557 shares issued and outstanding at March 31, 2021 and December 31, 2020			4,879				4,879
Surplus			65,780				65,780
Undivided profits			22,177				18,335
Accumulated other comprehensive income			1,624				5,872
Total shareholders' equity			94,460				94,866
Total liabilities and shareholders' equity		$	752,275			$	668,026

		Three Months Ended March 31,
		2021				2020
Interest income:
Interest and fees on loans		$	3,254			$	3,205
Interest and dividends on securities:
U.S. Treasuries			62				291
U.S. Government agencies			26				82
Mortgage-backed securities			451				749
Collateralized mortgage obligations			170				111
States and political subdivisions			780				413
Other investments			2				1
Interest on balances due from depository institutions			36				155
Total interest income			4,781				5,007
Interest expense:
Deposits			260				599
Borrowings from Federal Home Loan Bank			6				12
Total interest expense			266				611
Net interest income			4,515				4,396
Provision for (reduction of) allowance for loan losses			(4,853	)			64
Net interest income after provision for (reduction of) allowance for loan losses		$	9,368			$	4,332

		Three Months Ended March 31,
		2021				2020
Non-interest income:
Trust department income and fees		$	437			$	371
Service charges on deposit accounts			836				911
Gain on sales of available for sale securities							433
Increase in cash surrender value of life insurance			108				108
Other income			129				443
Total non-interest income			1,510				2,266
Non-interest expense:
Salaries and employee benefits			2,516				2,674
Net occupancy			461				487
Equipment rentals, depreciation and maintenance			781				794
FDIC and state banking assessments			109				98
Data processing			350				314
ATM expense			295				185
Other real estate expense			129				136
Loss from other investments			32				38
Other expense			1,875				749
Total non-interest expense			6,548				5,475
Net income		$	4,330			$	1,123
Basic and diluted earnings per share		$	.89			$	.23
Dividends declared per share		$	.10			$

		Three Months Ended March 31,
		2021				2020
Net income		$	4,330			$	1,123
Other comprehensive income (loss):
Net unrealized gain (loss) on available for sale securities			(4,248	)			4,310
Reclassification adjustment for realized gains on available for sale securities sold in current year							(433	)
Total other comprehensive income (loss)			(4,248	)			3,877
Total comprehensive income		$	82			$	5,000

																		Accumulated
		Number of																Other
		Common				Common								Undivided				Comprehensive
		Shares				Stock				Surplus				Profits				Income				Total
Balance, January 1, 2020			4,943,186			$	4,943			$	65,780			$	21,855			$	2,545			$	95,123
Net income															1,123								1,123
Other comprehensive income																			3,877				3,877
Stock retirement			(50,125	)			(50	)							(530	)							(580	)
Balance, March 31, 2020			4,893,061			$	4,893			$	65,780			$	22,448			$	6,422			$	99,543
Balance, January 1, 2021			4,878,557			$	4,879			$	65,780			$	18,335			$	5,872			$	94,866
Net income															4,330								4,330
Other comprehensive loss																			(4,248	)			(4,248	)
Dividend declared ($ .10 per share)															(488	)							(488	)
Balance, March 31, 2021			4,878,557			$	4,879			$	65,780			$	22,177			$	1,624			$	94,460

		Three Months Ended March 31,
		2021				2020
Cash flows from operating activities:
Net income		$	4,330			$	1,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			450				471
Provision for (reduction of) allowance for loan losses			(4,853	)			64
Writedown of other real estate			58				98
Gain on sales of other real estate			(3	)			(42	)
Loss from other investments			32				38
Gain on liquidation and sales of securities							(433	)
Gain from sale of bank premises and equipment							(318	)
Amortization (accretion) of available for sale securities			88				(71	)
Amortization of held to maturity securities			73				63
Change in accrued interest receivable			(322	)			(358	)
Increase in cash surrender value of life insurance			(108	)			(108	)
Change in other assets			41				238
Change in other liabilities			943				(141	)
Net cash provided by operating activities		$	729			$	624

		Three Months Ended March 31,
		2021				2020
Cash flows from investing activities:
Proceeds from maturities, sales or calls of available for securities		$	9,591			$	57,886
Purchases of available for sale securities			(72,913	)			(96,853	)
Proceeds from maturities of held to maturity securities			1,980				5,950
Purchases of held to maturity securities			(19,586	)			(2,500	)
Purchases of Federal Home Loan Bank stock			(2	)
Proceeds from sales of other real estate			277				747
Proceeds from insurance on other real estate							77
Loans, net change			10,647				(2,059	)
Acquisition of bank premises and equipment			(332	)			(32	)
Proceeds from sale of banking premises and equipment							547
Investment in cash surrender value of life insurance			(42	)			(23	)
Net cash used in investing activities			(70,380	)			(36,260	)
Cash flows from financing activities:
Demand and savings deposits, net change			79,858				60,662
Time deposits, net change			3,403				(10,980	)
Borrowings from Federal Home Loan Bank			22				59,500
Repayments to Federal Home Loan Bank			(59	)			(62,014	)
Retirement of common stock							(580	)
Net cash provided by financing activities			83,224				46,588
Net increase in cash and cash equivalents			13,573				10,952
Cash and cash equivalents, beginning of period			91,542				29,424
Cash and cash equivalents, end of period		$	105,115			$	40,376

1. Basis of Presentation:

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. The Company has two subsidiaries, PFC Service Corp., an inactive company, and The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Bank provides a full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses operating in those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the Bank’s three most outlying locations (the “trade area”).

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company and its subsidiaries as of March 31, 2021 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2020 Annual Report and Form 10-K.

The results of operations for the quarter ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies - The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in our Form 10-K for the year ended December 31, 2020.

Accounting Standards Update – The Financial Accounting Standards Board issued several Accounting Standards Updates during the first quarter of 2021, none of which will impact the Company.

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 4,878,557 and 4,927,616 for the three months ended March 31, 2021 and 2020, respectively.

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $258,500 and $611,708 for the three months ended March 31, 2021 and 2020, respectively, for interest on deposits and borrowings. No income tax payments were made during the three months ended March 31, 2021 and 2020. No loans were transferred to other real estate during the three months ended March 31, 2021 and 2020.

4.	Investments:

The amortized cost and fair value of securities at March 31, 2021 and December 31, 2020, are as follows (in thousands):

The amortized cost and fair value of debt securities at March 31, 2021 (in thousands), by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available for sale and held to maturity securities with gross unrealized losses at March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):

At March 31, 2021, 5 of the 46 mortgage-backed securities, 4 of the 18 collateralized mortgage obligations and 59 of the 166 securities issued by states and political subdivisions contained unrealized losses.

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

Proceeds from sales of available for sale debt securities were $22,360,747 for the three months ended March 31, 2020 for a realized gain of $432,779. There were no sales of available for sale debit securities for the three months ended March 31, 2021.

Securities with a fair value of $296,705,292 and $206,544,282 at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law.

5. Loans:

The composition of the loan portfolio at March 31, 2021 and December 31, 2020, is as follows (in thousands):

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), a stimulus package intended to provide relief to businesses and consumers in the United States struggling as a result of COVID-19, was signed into law. A provision in the CARES Act included funding for the creation of the Paycheck Protection Program (“PPP”). PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest and utilities. The Company worked with its customers to close 363 PPP loans for a total outstanding balance of $22,445,026 as of June 30, 2020. As of March 31, 2021, 127 loans with a balance of $8,693,897 were outstanding. Additional funds were provided in 2021 legislation for another round of PPP loans. Under this new round, as of March 31, 2021, 134 loans with a balance of $8,260,123 were outstanding. All PPP loans are reported in the commercial and industrial segment within the loan portfolio.

The age analysis of the loan portfolio, segregated by class of loans, as of March 31, 2021 and December 31, 2020, is as follows (in thousands):

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

An analysis of the loan portfolio by loan grade, segregated by class of loans, as of March 31, 2021 and December 31, 2020, is as follows (in thousands):

A loan may be impaired but not on nonaccrual status when the loan is well secured and in the process of collection. Total loans on nonaccrual as of March 31, 2021 and December 31, 2020, are as follows (in thousands):

The CARES Act also addressed COVID-19-related loan modifications and specified that such modifications executed between March 1, 2020 and the earlier of (i) 60 days after the date of the termination of the national emergency declared by the President and (ii) December 31, 2020, on loans that were current as of December 31, 2019, are not TDR’s. Additionally, under guidance from the federal banking agencies encouraging financial institutions to work prudently with borrowers, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief are not TDRs. During 2020, the Company modified 249 loans with a total balance of $95,010,325 for certain customers by extending payments for 90 days or granting interest only payments for 3 – 6 months as a result of the impact of COVID-19. Accordingly, such loans were not classified as troubled debt restructurings. As of March 31, 2021, the extension period for 6 loans with a total balance of $656,893 had expired. While these loans had resumed making regular payments, they are currently past due. As of March 31, 2021, the Company renewed the modification for 3 loans with a balance of $500,611. All other loans modified due to COVID-19 have either been paid off by the customer or are current.

Prior to 2019, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During 2020 and 2021, the Company did not restructure any additional loans. Specific reserves of $50,000 were allocated to troubled debt restructurings as of March 31, 2021 and December 31, 2020. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of March 31, 2021 and December 31, 2020.

Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of March 31, 2021 and December 31, 2020, are as follows (in thousands):