Mississippi | | | 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) |
(Registrant’sRegistrant's telephone number, including area code) 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 ☒ X No ☐___ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ☒X No ☐___ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one): | | | | | | | Large accelerated filer | | ☐ | ___ | Accelerated filer | | ☐ | | | | Smaller reporting company X | Non-accelerated filer | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☒ | | | | | | | | ____ | 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 Rule12b-2 of the Exchange Act). Yes ☐_____ No ☒X Securities registered pursuant to Section 12(b) of the Act: Title of each class | Trading Symbol(s) | Name of each exchange on which registered | None | PFBX | None |
Indicate the number of shares outstanding of each of the issuer’sissuer's classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At OctoberJuly 31, 2017,2019, there were 15,000,000 shares of $1 par value common stock authorized, with 5,123,1864,943,186 shares issued and outstanding.
Part 1 -– Financial Information Item 1:1: Financial Statements Peoples Financial Corporation and SubsidiariesSubsidiaries Consolidated Statements of Condition (in thousands except share data) | | | | | | June 30, 2019 | | | December 31, 2018 | | | | September 30, 2017 | | | December 31, 2016 | | | (unaudited) | | | (audited) | | | | (unaudited) | | | (audited) | | | | | | | | | | Assets | | | | | | | | | | | | | Cash and due from banks | | $ | 42,278 | | | $ | 41,116 | | | $ | 34,054 | | | $ | 17,191 | | Available for sale securities | | | 245,788 | | | | 233,578 | | | | 218,082 | | | | 222,110 | | Held to maturity securities, fair value of $49,303 at September 30, 2017; $46,935 at December 31, 2016 | | | 49,405 | | | | 48,150 | | | Held to maturity securities, fair value of $54,964 at June 30, 2019; $53,459 at December 31, 2018 | | | | 54,254 | | | | 54,598 | | Other investments | | | 2,729 | | | | 2,693 | | | | 2,699 | | | | 2,811 | | Federal Home Loan Bank Stock, at cost | | | 544 | | | | 539 | | | | 2,103 | | | | 2,069 | | Loans | | | 272,823 | | | | 315,355 | | | | 266,097 | | | | 273,346 | | Less: Allowance for loan losses | | | 6,152 | | | | 5,466 | | | | 4,946 | | | | 5,340 | | | | | | | | | | Loans, net | | | 266,671 | | | | 309,889 | | | | 261,151 | | | | 268,006 | | Bank premises and equipment, net of accumulated depreciation | | | 20,541 | | | | 21,644 | | | | 18,240 | | | | 18,879 | | Other real estate | | | 8,081 | | | | 8,513 | | | | 9,012 | | | | 8,943 | | Accrued interest receivable | | | 1,991 | | | | 1,855 | | | | 1,937 | | | | 1,956 | | Cash surrender value of life insurance | | | 18,153 | | | | 19,249 | | | | 19,123 | | | | 18,841 | | Other assets | | | 806 | | | | 788 | | | | 1,767 | | | | 1,382 | | | | | | | | | | Total assets | | $ | 656,987 | | | $ | 688,014 | | | $ | 622,422 | | | $ | 616,786 | | | | | | | | | |
2
Peoples Financial Corporation and SubsidiariesSubsidiaries Consolidated Statements of Condition (continued)(continued) (in thousands except share data)data) | | | | | | | | | | | September 30, 2017 | | | December 31, 2016 | | | | (unaudited) | | | (audited) | | Liabilities and Shareholders’ Equity Liabilities: | | | | | | | | | Deposits: | | | | | | | | | Demand,non-interest bearing | | $ | 147,975 | | | $ | 132,381 | | Savings and demand, interest bearing | | | 310,725 | | | | 364,975 | | Time, $100,000 or more | | | 55,719 | | | | 38,650 | | Other time deposits | | | 30,648 | | | | 39,010 | | | | | | | | | | | Total deposits | | | 545,067 | | | | 575,016 | | Borrowings from Federal Home Loan Bank | | | 1,216 | | | | 6,257 | | Employee and director benefit plans liabilities | | | 17,217 | | | | 16,768 | | Other liabilities | | | 1,688 | | | | 1,512 | | | | | | | | | | | Total liabilities | | | 565,188 | | | | 599,553 | | Shareholders’ Equity: | | | | | | | | | Common stock, $1 par value, 15,000,000 shares authorized, 5,123,186 shares issued and outstanding at September 30, 2017 and December 31, 2016 | | | 5,123 | | | | 5,123 | | Surplus | | | 65,780 | | | | 65,780 | | Undivided profits | | | 20,730 | | | | 19,318 | | Accumulated other comprehensive income (loss), net of tax | | | 166 | | | | (1,760 | ) | | | | | | | | | | Total shareholders’ equity | | | 91,799 | | | | 88,461 | | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | 656,987 | | | $ | 688,014 | | | | | | | | | | |
See notes to consolidated financial statements.
| | June 30, 2019 | | | December 31, 2018 | | | | (unaudited) | | | (audited) | | Liabilities and Shareholders' Equity | | | | | | | | | Liabilities: | | | | | | | | | Deposits: | | | | | | | | | Demand, non-interest bearing | | $ | 123,571 | | | $ | 114,512 | | Savings and demand, interest bearing | | | 281,954 | | | | 278,772 | | Time, $100,000 or more | | | 61,567 | | | | 52,787 | | Other time deposits | | | 26,543 | | | | 27,435 | | Total deposits | | | 493,635 | | | | 473,506 | | Borrowings from Federal Home Loan Bank | | | 16,052 | | | | 36,142 | | Employee and director benefit plans liabilities | | | 18,669 | | | | 18,415 | | Other liabilities | | | 1,197 | | | | 1,789 | | Total liabilities | | | 529,553 | | | | 529,852 | | Shareholders' Equity: | | | | | | | | | Common stock, $1 par value, 15,000,000 shares authorized, 4,943,186 shares issued and outstanding at June 30, 2019 and December 31, 2018 | | | 4,943 | | | | 4,943 | | Surplus | | | 65,780 | | | | 65,780 | | Undivided profits | | | 20,351 | | | | 20,324 | | Accumulated other comprehensive gain (loss) | | | 1,795 | | | | (4,113 | ) | Total shareholders' equity | | | 92,869 | | | | 86,934 | | Total liabilities and shareholders' equity | | $ | 622,422 | | | $ | 616,786 | |
3
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
(in thousands except per share data) (unaudited)
| | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Interest income: | | | | | | | | | | | | | | | | | Interest and fees on loans | | $ | 3,165 | | | $ | 3,568 | | | $ | 9,734 | | | $ | 10,833 | | Interest and dividends on securities: | | | | | | | | | | | | | | | | | U.S. Treasuries | | | 413 | | | | 283 | | | | 1,203 | | | | 740 | | U.S. Government agencies | | | 126 | | | | 161 | | | | 404 | | | | 728 | | Mortgage-backed securities | | | 343 | | | | 137 | | | | 876 | | | | 414 | | States and political subdivisions | | | 420 | | | | 333 | | | | 1,199 | | | | 954 | | Corporate bonds | | | | | | | 7 | | | | 8 | | | | 23 | | Other investments | | | 8 | | | | 9 | | | | 14 | | | | 19 | | Interest on balances due from depository institutions | | | 148 | | | | 95 | | | | 384 | | | | 212 | | | | | | | | | | | | | | | | | | | Total interest income | | | 4,623 | | | | 4,593 | | | | 13,822 | | | | 13,923 | | | | | | | | | | | | | | | | | | | Interest expense: | | | | | | | | | | | | | | | | | Deposits | | | 381 | | | | 237 | | | | 981 | | | | 661 | | Borrowings from Federal Home Loan Bank | | | 8 | | | | 30 | | | | 32 | | | | 115 | | | | | | | | | | | | | | | | | | | Total interest expense | | | 389 | | | | 267 | | | | 1,013 | | | | 776 | | | | | | | | | | | | | | | | | | | Net interest income | | | 4,234 | | | | 4,326 | | | | 12,809 | | | | 13,147 | | Provision for allowance for loan losses | | | 29 | | | | | | | | 85 | | | | 137 | | | | | | | | | | | | | | | | | | | Net interest income after provision for allowance for loan losses | | $ | 4,205 | | | $ | 4,326 | | | $ | 12,724 | | | $ | 13,010 | | | | | | | | | | | | | | | | | | |
4
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income (continued)
(in thousands except per share data) (unaudited)
| | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Non-interest income: | | | | | | | | | | | | | | | | | Trust department income and fees | | $ | 430 | | | $ | 429 | | | $ | 1,224 | | | $ | 1,192 | | Service charges on deposit accounts | | | 947 | | | | 946 | | | | 2,799 | | | | 2,796 | | Gain on liquidation, sales and calls of securities | | | | | | | 67 | | | | 137 | | | | 158 | | Income (loss) from other investments | | | 7 | | | | (14 | ) | | | 36 | | | | (27 | ) | Increase in cash surrender value of life insurance | | | 98 | | | | 102 | | | | 326 | | | | 295 | | Gain from death benefits from life insurance | | | | | | | | | | | 429 | | | | | | Other income | | | 128 | | | | 236 | | | | 376 | | | | 523 | | | | | | | | | | | | | | | | | | | Totalnon-interest income | | | 1,610 | | | | 1,766 | | | | 5,327 | | | | 4,937 | | | | | | | | | | | | | | | | | | | Non-interest expense: | | | | | | | | | | | | | | | | | Salaries and employee benefits | | | 2,746 | | | | 2,776 | | | | 8,344 | | | | 8,305 | | Net occupancy | | | 493 | | | | 559 | | | | 1,548 | | | | 1,798 | | Equipment rentals, depreciation and maintenance | | | 722 | | | | 763 | | | | 2,251 | | | | 2,229 | | FDIC and state banking assessments | | | 130 | | | | 232 | | | | 327 | | | | 661 | | Data processing | | | 322 | | | | 334 | | | | 972 | | | | 1,006 | | ATM expense | | | 141 | | | | 147 | | | | 399 | | | | 422 | | Other real estate expense | | | 305 | | | | 26 | | | | 635 | | | | 500 | | Other expense | | | 720 | | | | 849 | | | | 2,450 | | | | 2,405 | | | | | | | | | | | | | | | | | | | Totalnon-interest expense | | | 5,579 | | | | 5,686 | | | | 16,926 | | | | 17,326 | | | | | | | | | | | | | | | | | | | Income before income taxes | | | 236 | | | | 406 | | | | 1,125 | | | | 621 | | Income tax expense (benefit) | | | | | | | | | | | (338 | ) | | | 78 | | | | | | | | | | | | | | | | | | | Net income | | $ | 236 | | | $ | 406 | | | $ | 1,463 | | | $ | 543 | | | | | | | | | | | | | | | | | | | Basic and diluted earnings per share | | $ | .05 | | | $ | .08 | | | $ | .29 | | | $ | .10 | | | | | | | | | | | | | | | | | | | Dividends declared per share | | $ | .01 | | | $ | | | | $ | .01 | | | $ | | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements.
5
Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(in thousands) (unaudited)
| | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Net income | | $ | 236 | | | $ | 406 | | | $ | 1,463 | | | $ | 543 | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | Net unrealized gain (loss) on available for sale securities | | | (319 | ) | | | (598 | ) | | | 2,063 | | | | 2,132 | | Reclassification adjustment for realized gain on available for sale securities called or sold | | | | | | | (67 | ) | | | (137 | ) | | | (158 | ) | | | | | | | | | | | | | | | | | | Total other comprehensive income (loss) | | | (319 | ) | | | (665 | ) | | | 1,926 | | | | 1,974 | | | | | | | | | | | | | | | | | | | Total comprehensive income (loss) | | $ | (83 | ) | | $ | (259 | ) | | $ | 3,389 | | | $ | 2,517 | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements.
6
Peoples Financial Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders’ Equity
(in thousands except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Common Shares | | | Common Stock | | | Surplus | | | Undivided Profits | | | Accumulated Other Comprehensive Income (Loss) | | | Total | | Balance, January 1, 2017 | | | 5,123,186 | | | $ | 5,123 | | | $ | 65,780 | | | $ | 19,318 | | | $ | (1,760 | ) | | $ | 88,461 | | Net income | | | | | | | | | | | | | | | 1,463 | | | | | | | | 1,463 | | Dividend declared ($.01 per share) | | | | | | | | | | | | | | | (51 | ) | | | | | | | (51 | ) | Other comprehensive income | | | | | | | | | | | | | | | | | | | 1,926 | | | | 1,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, September 30, 2017 | | | 5,123,186 | | | $ | 5,123 | | | $ | 65,780 | | | $ | 20,730 | | | $ | 166 | | | $ | 91,799 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Note: Balances as of January 1, 2017 were audited.
See notes to consolidated financial statements. 7
Peoples Financial Corporation and Subsidiaries Consolidated Statements of Cash FlowsOperations (in thousands) (unaudited)thousands except per share data)(unaudited) | | | | | | | | | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | Cash flows from operating activities: | | | | | | | | | Net income | | $ | 1,463 | | | $ | 543 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | Depreciation | | | 1,426 | | | | 1,356 | | Provision for allowance for loan losses | | | 85 | | | | 137 | | Writedown of other real estate | | | 397 | | | | 420 | | (Gains) losses on sales of other real estate | | | 95 | | | | (199 | ) | (Income) loss from other investments | | | (36 | ) | | | 27 | | Gain from death benefits from life insurance | | | (429 | ) | | | | | Amortization of held to maturity securities | | | 190 | | | | 111 | | Amortization of available for sale securities | | | 130 | | | | 17 | | Gain on sales and calls of securities | | | (137 | ) | | | (158 | ) | Change in accrued interest receivable | | | (136 | ) | | | 155 | | Increase in cash surrender value of life insurance | | | (326 | ) | | | (295 | ) | Change in other assets | | | (18 | ) | | | (274 | ) | Change in other liabilities | | | 574 | | | | 217 | | | | | | | | | | | Net cash provided by operating activities | | $ | 3,278 | | | $ | 2,057 | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Interest income: | | | | | | | | | | | | | | | | | Interest and fees on loans | | $ | 3,415 | | | $ | 3,230 | | | $ | 7,104 | | | $ | 6,463 | | Interest and dividends on securities: | | | | | | | | | | | | | | | | | U.S. Treasuries | | | 295 | | | | 368 | | | | 589 | | | | 747 | | U.S. Government agencies | | | 117 | | | | 114 | | | | 242 | | | | 236 | | Mortgage-backed securities | | | 796 | | | | 623 | | | | 1,618 | | | | 1,173 | | States and political subdivisions | | | 436 | | | | 440 | | | | 896 | | | | 879 | | Collateralized mortgage obligations | | | 38 | | | | | | | | 50 | | | | | | Other investments | | | 29 | | | | 7 | | | | 40 | | | | 10 | | Interest on balances due from depository institutions | | | 104 | | | | 60 | | | | 191 | | | | 99 | | Total interest income | | | 5,230 | | | | 4,842 | | | | 10,730 | | | | 9,607 | | Interest expense: | | | | | | | | | | | | | | | | | Deposits | | | 810 | | | | 536 | | | | 1,612 | | | | 1,007 | | Federal funds purchased | | | | | | | 2 | | | | | | | | 7 | | Borrowings from Federal Home Loan Bank | | | 80 | | | | 85 | | | | 158 | | | | 105 | | Total interest expense | | | 890 | | | | 623 | | | | 1,770 | | | | 1,119 | | Net interest income | | | 4,340 | | | | 4,219 | | | | 8,960 | | | | 8,488 | | Provision for allowance for loan losses | | | 56 | | | | 28 | | | | 110 | | | | 63 | | Net interest income after provision for allowance for loan losses | | $ | 4,284 | | | $ | 4,191 | | | $ | 8,850 | | | $ | 8,425 | |
8
Peoples Financial Corporation and Subsidiaries Consolidated Statements of Operations (continued) (in thousands except per share data)(unaudited) | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Non-interest income: | | | | | | | | | | | | | | | | | Trust department income and fees | | $ | 415 | | | $ | 452 | | | $ | 786 | | | $ | 885 | | Service charges on deposit accounts | | | 918 | | | | 919 | | | | 1,800 | | | | 1,830 | | Increase in cash surrender value of life insurance | | | 111 | | | | 133 | | | | 216 | | | | 240 | | Other income | | | 155 | | | | 130 | | | | 263 | | | | 241 | | Total non-interest income | | | 1,599 | | | | 1,634 | | | | 3,065 | | | | 3,196 | | Non-interest expense: | | | | | | | | | | | | | | | | | Salaries and employee benefits | | | 2,777 | | | | 2,725 | | | | 5,511 | | | | 5,554 | | Net occupancy | | | 542 | | | | 450 | | | | 1,016 | | | | 890 | | Equipment rentals, depreciation and maintenance | | | 839 | | | | 841 | | | | 1,672 | | | | 1,599 | | FDIC and state banking assessments | | | 88 | | | | 97 | | | | 190 | | | | 211 | | Data processing | | | 310 | | | | 330 | | | | 657 | | | | 657 | | ATM expense | | | 161 | | | | 134 | | | | 330 | | | | 272 | | Other real estate expense | | | 440 | | | | 364 | | | | 490 | | | | 484 | | Loss from other investments | | | 52 | | | | 60 | | | | 112 | | | | 99 | | Other expense | | | 1,002 | | | | 761 | | | | 1,860 | | | | 1,500 | | Total non-interest expense | | | 6,211 | | | | 5,762 | | | | 11,838 | | | | 11,266 | | Income (loss) before income taxes | | | (328 | ) | | | 63 | | | | 77 | | | | 355 | | Income tax | | | | | | | | | | | | | | | | | Net income (loss) | | $ | (328 | ) | | $ | 63 | | | $ | 77 | | | $ | 355 | | Basic and diluted earnings (loss) per share | | $ | ( .06 | ) | | $ | .01 | | | $ | .02 | | | $ | .07 | | Dividends declared per share | | $ | .01 | | | $ | .01 | | | $ | .01 | | | $ | .01 | |
See notes to consolidated financial statements. Peoples Financial Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (in thousands)(unaudited) | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | Net income (loss) | | $ | (328 | ) | | $ | 63 | | | $ | 77 | | | $ | 355 | | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | Net unrealized gain (loss) on available for sale securities | | | 2,562 | | | | (491 | ) | | | 5,908 | | | | (3,085 | ) | Total other comprehensive income (loss) | | | 2,562 | | | | (491 | ) | | | 5,908 | | | | (3,085 | ) | Total comprehensive income (loss) | | $ | 2,234 | | | $ | (428 | ) | | $ | 5,985 | | | $ | (2,730 | ) |
See notes to consolidated financial statements. Peoples Financial Corporation and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (in thousands except share data) | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | Number of | | | | | | | | | | | | | | | Other | | | | | | | | Common | | | Common | | | | | | | Undivided | | | Comprehensive | | | | | | | | Shares | | | Stock | | | Surplus | | | Profits | | | Gain (Loss) | | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2018 | | | 5,083,186 | | | $ | 5,083 | | | $ | 65,780 | | | $ | 21,563 | | | $ | (2,927 | ) | | $ | 89,499 | | Net income | | | | | | | | | | | | | | | 292 | | | | | | | | 292 | | Other comprehensive loss | | | | | | | | | | | | | | | | | | | (2,594 | ) | | | (2,594 | ) | Retirement of stock | | | (10,392 | ) | | | (10 | ) | | | | | | | (135 | ) | | | | | | | (145 | ) | Balance, March 31, 2018 | | | 5,072,794 | | | | 5,073 | | | | 65,780 | | | | 21,720 | | | | (5,521 | ) | | | 87,052 | | Net income | | | | | | | | | | | | | | | 63 | | | | | | | | 63 | | Other comprehensive loss | | | | | | | | | | | | | | | | | | | (491 | ) | | | (491 | ) | Dividends ($ .01 per share) | | | | | | | | | | | | | | | (51 | ) | | | | | | | (51 | ) | Retirement of stock | | | (35,075 | ) | | | (35 | ) | | | | | | | (452 | ) | | | | | | | (487 | ) | Balance, June 30, 2018 | | | 5,037,719 | | | $ | 5,038 | | | $ | 65,780 | | | $ | 21,280 | | | $ | (6,012 | ) | | $ | 86,086 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, January 1, 2019 | | | 4,943,186 | | | $ | 4,943 | | | $ | 65,780 | | | $ | 20,324 | | | $ | (4,113 | ) | | $ | 86,934 | | Net income | | | | | | | | | | | | | | | 405 | | | | | | | | 405 | | Other comprehensive gain | | | | | | | | | | | | | | | | | | | 3,346 | | | | 3,346 | | Balance, March 31, 2019 | | | 4,943,186 | | | | 4,943 | | | | 65,780 | | | | 20,729 | | | | (767 | ) | | | 90,685 | | Net income | | | | | | | | | | | | | | | (328 | ) | | | | | | | (328 | ) | Other comprehensive gain | | | | | | | | | | | | | | | | | | | 2,562 | | | | 2,562 | | Dividends ($ .01 per share) | | | | | | | | | | | | | | | (50 | ) | | | | | | | (50 | ) | Balance, June 30, 2019 | | | 4,943,186 | | | $ | 4,943 | | | $ | 65,780 | | | $ | 20,351 | | | $ | 1,795 | | | $ | 92,869 | |
Note: Balances as of January 1, 2018 and 2019 were audited. See notes to consolidated financial statements. Peoples Financial Corporation and Subsidiaries Consolidated Statements of Cash Flows (continued) (in thousands) (unaudited)(unaudited) | | | | | | | | | | | Nine Months Ended September 30, | | | | 2017 | | | 2016 | | Cash flows from investing activities: | | | | | | | | | Proceeds from maturities, sales and calls of available for sale securities | | $ | 58,201 | | | $ | 141,834 | | Proceeds from maturities of held to maturity securities | | | 7,725 | | | | 510 | | Purchases of available for sale securities | | | (68,478 | ) | | | (145,832 | ) | Purchases of held to maturity securities | | | (9,170 | ) | | | (17,120 | ) | (Purchase) redemption of Federal Home Loan Bank stock | | | (5 | ) | | | 1,101 | | Proceeds from sales of other real estate | | | 1,296 | | | | 2,017 | | Loans, net change | | | 41,777 | | | | 10,431 | | Acquisition of bank premises and equipment | | | (323 | ) | | | (583 | ) | Investment in cash surrender value of life insurance | | | (78 | ) | | | (85 | ) | Proceeds from death benefits from life insurance | | | 1,929 | | | | | | | | | | | | | | | Net cash provided by (used in) investing activities | | | 32,874 | | | | (7,727 | ) | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Demand and savings deposits, net change | | | (38,656 | ) | | | 47,707 | | Time deposits, net change | | | 8,707 | | | | 3,146 | | Borrowings from Federal Home Loan Bank | | | | | | | 98,920 | | Repayments to Federal Home Loan Bank | | | (5,041 | ) | | | (110,990 | ) | | | | | | | | | | Net cash provided by (used in) financing activities | | | (34,990 | ) | | | 38,783 | | | | | | | | | | | Net increase in cash and cash equivalents | | | 1,162 | | | | 33,113 | | Cash and cash equivalents, beginning of period | | | 41,116 | | | | 31,396 | | | | | | | | | | | Cash and cash equivalents, end of period | | $ | 42,278 | | | $ | 64,509 | | | | | | | | | | | See notes to consolidated financial statements. | | | | | | | | |
| | Six Months Ended June 30, | | | | 2019 | | | 2018 | | Cash flows from operating activities: | | | | | | | | | Net income | | $ | 77 | | | $ | 355 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | Depreciation | | | 964 | | | | 985 | | Provision for allowance for loan losses | | | 110 | | | | 63 | | Writedown of other real estate | | | 442 | | | | 257 | | (Gain) loss on sales of other real estate | | | (58 | ) | | | 5 | | Loss from other investments | | | 112 | | | | 99 | | Amortization of held to maturity securities | | | 133 | | | | 126 | | Amortization of available for sale securities | | | 93 | | | | 208 | | Change in accrued interest receivable | | | 19 | | | | 105 | | Increase in cash surrender value of life insurance | | | (216 | ) | | | (240 | ) | Change in other assets | | | (385 | ) | | | (154 | ) | Change in employee and director benefit plan liabilities and other liabilities | | | (338 | ) | | | (395 | ) | Net cash provided by operating activities | | $ | 953 | | | $ | 1,414 | |
Peoples Financial Corporation and Subsidiaries Consolidated Statements of Cash Flows (continued) (in thousands) (unaudited) | | Six Months Ended June 30, | | | | 2019 | | | 2018 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Proceeds from maturities, sales and calls of available for sale securities | | $ | 19,642 | | | $ | 26,989 | | Proceeds from maturities of held to maturity securities | | | 1,740 | | | | 435 | | Purchases of available for sale securities | | | (9,799 | ) | | | (15,638 | ) | Purchases of held to maturity securities | | | (1,529 | ) | | | (2,155 | ) | Purchases of Federal Home Loan Bank stock | | | (34 | ) | | | (68 | ) | Proceeds from sales of other real estate | | | 1,205 | | | | 1,468 | | Loans, net change | | | 5,087 | | | | 4,560 | | Acquisition of bank premises and equipment | | | (325 | ) | | | (355 | ) | Investment in cash surrender value of life insurance | | | (66 | ) | | | (53 | ) | Net cash provided by investing activities | | | 15,921 | | | | 15,183 | | Cash flows from financing activities: | | | | | | | | | Demand and savings deposits, net change | | | 12,241 | | | | (8,011 | ) | Time deposits, net change | | | 7,888 | | | | 1,704 | | Borrowings from Federal Home Loan Bank | | | 649,550 | | | | 629,900 | | Repayments to Federal Home Loan Bank | | | (669,640 | ) | | | (628,928 | ) | Cash dividends paid | | | (50 | ) | | | (51 | ) | Stock repurchase | | | | | | | (632 | ) | Net cash used in financing activities | | | (11 | ) | | | (6,018 | ) | Net increase in cash and cash equivalents | | | 16,863 | | | | 10,579 | | Cash and cash equivalents, beginning of period | | | 17,191 | | | | 25,281 | | Cash and cash equivalents, end of period | | $ | 34,054 | | | $ | 35,860 | |
9
See notes to consolidated financial statements.PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS For the NineSix Months Ended SeptemberJune 30, 20172019 and 20162018 1. Basis of Presentation: Peoples Financial Corporation (the “Company”) is aone-bank holding company headquartered in Biloxi, Mississippi. It has two operating 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 SeptemberJune 30, 20172019 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 20162018 Annual Report and Form10-K. The results of operations for the quarter or ninesix months ended SeptemberJune 30, 2017,2019, 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 reporting 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 Form10-K for the year ended December 31, 2016.2018. New Accounting Pronouncements -
In January 2017,April 2019, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued Accounting Standards Update 2019-04 (“ASU”ASU 2019-04”)2017-03,, Accounting ChangesCodification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Error Corrections (Topic 250)Hedging, and Investments - Equity MethodTopic 825, Financial Instruments.ASU 2019-04 includes technical corrections relating to scope, held to maturity disclosures, measurement alternative and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 andNovember 17, 2016 EITF Meetings.ASU2017-03 incorporates into the Accounting Standards 10
Codification recent SEC guidance about disclosing the effect on financial statementsremeasurement of adopting the revenue, leases and credit losses standards. This updateequity securities. The effective date is effective upon issuance.for fiscal years beginning after December 31, 2019, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, resultsresult of operations or cash flows.
In February 2017,
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losseson Financial Instruments, is intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the FASB issuedcurrent incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU2017-05,Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.ASU 2017-05 conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. This update will be 2016-13 is effective for fiscal years,the Company for interim and interimannual periods within those fiscal years, beginning after December 15, 2017.2019 and the Company intends to adopt ASU 2016-13 during the first quarter of 2020. The adoption ofCompany’s Current Expected Credit Loss (CECL) Committee continues to evaluate the impact this ASU is not expected towill have a material effect on the Company’s financial position, results of operations or cash flows. In March 2017,and financial statement disclosures and determine the FASB issued ASU2017-07,Compensation - Retirement Benefits (Topic 715): Improvingmost appropriate method of implementing this ASU. Management will continue to evaluate the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement BenefitCost. ASU2017-07 amends the requirements related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption ofimpact this ASU is not expected towill have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
statements through its effective date. In March 2017, theJuly, FASB issued ASU2017-08,Receivables - Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities. ASU2017-08 shortensa proposal to delay the amortization periodeffective date of ASU 2016-13 for the premium on such securitiescertain entities, which might apply to the earliest call date. This updateCompany. The Company will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption ofmonitor this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.development.
2. Earnings Per Share: Per share data is based on the weighted average shares of common stock outstanding of 5,123,1864,943,186 and 5,067,208 for the six months ended June 30, 2019 and 2018, respectively. Per share data is based on the weighted average shares of common stock outstanding of 4,943,186 and 5,054,047 for the quarters ended June 30, 2019 and nine months ended September 30, 2017 and 2016.2018, respectively. 3. Statements of Cash Flows: The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $1,006,350$1,765,203 and $761,440$1,120,269 for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively, for interest on deposits and borrowings. No income tax payments were made during the ninesix months ended SeptemberJune 30, 2017. Income tax payments of $78,435 were made during the nine months ended September 30, 2016.2019 and 2018. Loans transferred to other real estate amounted to $1,355,642$1,658,274 and $1,758,764$3,385,724 during the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. 4. Investments: The amortized cost and fair value of securities at SeptemberJune 30, 20172019 and December 31, 2016,2018, are as follows (in thousands): 11
| | | | | | | | | | | | | | | | | September 30, 2017 | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | Available for sale securities: | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 134,806 | | | $ | 5 | | | $ | (1,234 | ) | | $ | 133,577 | | U.S. Government agencies | | | 19,988 | | | | 70 | | | | (86 | ) | | | 19,972 | | Mortgage-backed securities | | | 77,415 | | | | 349 | | | | (561 | ) | | | 77,203 | | States and political subdivisions | | | 14,176 | | | | 402 | | | | | | | | 14,578 | | | | | | | | | | | | | | | | | | | Total debt securities | | | 246,385 | | | | 826 | | | | (1,881 | ) | | | 245,330 | | Equity securities | | | 458 | | | | | | | | | | | | 458 | | | | | | | | | | | | | | | | | | | Total available for sale securities | | $ | 246,843 | | | $ | 826 | | | $ | (1,881 | ) | | $ | 245,788 | | | | | | | | | | | | | | | | | | | Held to maturity securities: | | | | | | | | | | | | | | | | | U.S. Government agencies | | $ | 8,185 | | | $ | | | | $ | (220 | ) | | $ | 7,965 | | States and political subdivisions | | | 41,220 | | | | 424 | | | | (306 | ) | | | 41,338 | | | | | | | | | | | | | | | | | | | Total held to maturity securities | | $ | 49,405 | | | $ | 424 | | | $ | (526 | ) | | $ | 49,303 | | | | | | | | | | | | | | | | | | |
| | | | | | Gross | | | Gross | | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | June 30, 2019 | | Amortized Cost | | | Gains | | | Losses | | | Fair Value | | Available for sale securities: | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 80,889 | | | $ | 19 | | | $ | (600 | ) | | $ | 80,308 | | U.S. Government agencies | | | 12,493 | | | | 56 | | | | (26 | ) | | | 12,523 | | Mortgage-backed securities | | | 110,224 | | | | 1,627 | | | | (102 | ) | | | 111,749 | | Collateralized mortgage obligations | | | 4,827 | | | | 231 | | | | | | | | 5,058 | | States and political subdivisions | | | 8,375 | | | | 69 | | | | | | | | 8,444 | | Total available for sale securities | | $ | 216,808 | | | $ | 2,002 | | | $ | (728 | ) | | $ | 218,082 | | Held to maturity securities: | | | | | | | | | | | | | | | | | U.S. Government agencies | | $ | 8,185 | | | $ | | | | $ | (3 | ) | | $ | 8,182 | | States and political subdivisions | | | 46,069 | | | | 776 | | | | (63 | ) | | | 46,782 | | Total held to maturity securities | | $ | 54,254 | | | $ | 776 | | | $ | (66 | ) | | $ | 54,964 | |
12
| | | | | | Gross | | | Gross | | | | | | | | | | | | Unrealized | | | Unrealized | | | | | | December 31, 2018 | | Amortized Cost | | | Gains | | | Losses | | | Fair Value | | Available for sale securities: | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 85,866 | | | $ | | | | $ | (2,443 | ) | | $ | 83,423 | | U.S. Government agencies | | | 17,492 | | | | 14 | | | | (259 | ) | | | 17,247 | | Mortgage-backed securities | | | 112,391 | | | | 231 | | | | (2,278 | ) | | | 110,344 | | States and political subdivisions | | | 10,994 | | | | 102 | | | | | | | | 11,096 | | Total available for sale securities | | $ | 226,743 | | | $ | 347 | | | $ | (4,980 | ) | | $ | 222,110 | | Held to maturity securities: | | | | | | | | | | | | | | | | | U.S. Government agencies | | $ | 8,185 | | | $ | | | | $ | (371 | ) | | $ | 7,814 | | States and political subdivisions | | | 46,413 | | | | 89 | | | | (857 | ) | | | 45,645 | | Total held to maturity securities | | $ | 54,598 | | | $ | 89 | | | $ | (1,228 | ) | | $ | 53,459 | |
| | | | | | | | | | | | | | | | | December 31, 2016 | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | Available for sale securities: | | | | | | | | | | | | | | | | | Debt securities: | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 149,676 | | | $ | 39 | | | $ | (2,091 | ) | | $ | 147,624 | | U.S. Government agencies | | | 24,973 | | | | 58 | | | | (206 | ) | | | 24,825 | | Mortgage-backed securities | | | 43,939 | | | | 74 | | | | (1,305 | ) | | | 42,708 | | States and political subdivisions | | | 17,513 | | | | 450 | | | | | | | | 17,963 | | | | | | | | | | | | | | | | | | | Total debt securities | | | 236,101 | | | | 621 | | | | (3,602 | ) | | | 233,120 | | Equity securities | | | 458 | | | | | | | | | | | | 458 | | | | | | | | | | | | | | | | | | | Total available for sale securities | | $ | 236,559 | | | $ | 621 | | | $ | (3,602 | ) | | $ | 233,578 | | | | | | | | | | | | | | | | | | | Held to maturity securities: | | | | | | | | | | | | | | | | | U.S. Government agencies | | $ | 10,009 | | | $ | | | | $ | (315 | ) | | $ | 9,694 | | States and political subdivisions | | | 36,677 | | | | 29 | | | | (927 | ) | | | 35,779 | | Corporate bond | | | 1,464 | | | | | | | | (2 | ) | | | 1,462 | | | | | | | | | | | | | | | | | | | Total held to maturity securities | | $ | 48,150 | | | $ | 29 | | | $ | (1,244 | ) | | $ | 46,935 | | | | | | | | | | | | | | | | | | |
The amortized cost and fair value of debt securities at SeptemberJune 30, 20172019 (in thousands), by contractual maturity, are shown on the following page. 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. 13
| | Amortized Cost | | | Fair Value | | Available for sale securities: | | | | | | | | | Due in one year or less | | $ | 31,850 | | | $ | 31,744 | | Due after one year through five years | | | 62,000 | | | | 61,642 | | Due after five years through ten years | | | 9,900 | | | | 10,050 | | Due after ten years | | | 2,834 | | | | 2,897 | | Mortgage-backed securities | | | 110,224 | | | | 111,749 | | Totals | | $ | 216,808 | | | $ | 218,082 | | | | | | | | | | | Held to maturity securities: | | | | | | | | | Due in one year or less | | $ | 2,718 | | | $ | 2,728 | | Due after one year through five years | | | 18,470 | | | | 18,626 | | Due after five years through ten years | | | 19,349 | | | | 19,623 | | Due after ten years | | | 13,717 | | | | 13,987 | | Totals | | $ | 54,254 | | | $ | 54,964 | |
| | | | | | | | | | | Amortized Cost | | | Fair Value | | Available for sale securities: | | | | | | | | | Due in one year or less | | $ | 46,961 | | | $ | 46,895 | | Due after one year through five years | | | 98,693 | | | | 98,384 | | Due after five years through ten years | | | 22,983 | | | | 22,496 | | Due after ten years | | | 333 | | | | 352 | | Mortgage-backed securities | | | 77,415 | | | | 77,203 | | | | | | | | | | | Totals | | $ | 246,385 | | | $ | 245,330 | | | | | | | | | | | Held to maturity securities: | | | | | | | | | Due in one year or less | | $ | 696 | | | $ | 697 | | Due after one year through five years | | | 11,641 | | | | 11,724 | | Due after five years through ten years | | | 20,588 | | | | 20,576 | | Due after ten years | | | 16,480 | | | | 16,306 | | | | | | | | | | | Totals | | $ | 49,405 | | | $ | 49,303 | | | | | | | | | | |
Available for sale and held to maturity securities with gross unrealized losses at SeptemberJune 30, 20172019 and December 31, 2016,2018, 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 | | | | | | | | Gross | | | | | | | Gross | | | | | | | Gross | | | | | | | | Unrealized | | | | | | | Unrealized | | | | | | | Unrealized | | June 30, 2019: | | Fair Value | | | Losses | | | Fair Value | | | Losses | | | Fair Value | | | Losses | | U.S. Treasuries | | $ | | | | $ | | | | $ | 74,300 | | | $ | 600 | | | $ | 74,300 | | | $ | 600 | | U.S. Government agencies | | | | | | | | | | | 9,963 | | | | 29 | | | | 9,963 | | | | 29 | | Mortgage-backed securities | | | | | | | | | | | 14,872 | | | | 102 | | | | 14,872 | | | | 102 | | States and political subdivisions | | | 384 | | | | 1 | | | | 5,854 | | | | 62 | | | | 6,238 | | | | 63 | | TOTAL | | $ | 384 | | | $ | 1 | | | $ | 104,989 | | | $ | 793 | | | $ | 105,373 | | | $ | 794 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 999 | | | $ | 1 | | | $ | 82,424 | | | $ | 2,442 | | | $ | 83,423 | | | $ | 2,443 | | U.S. Government agencies | | | 4,939 | | | | 61 | | | | 17,608 | | | | 569 | | | | 22,547 | | | | 630 | | Mortgage-backed securities | | | 24,834 | | | | 293 | | | | 55,649 | | | | 1,985 | | | | 80,483 | | | | 2,278 | | States and political subdivisions | | | 8,470 | | | | 122 | | | | 19,678 | | | | 735 | | | | 28,148 | | | | 857 | | TOTAL | | $ | 39,242 | | | $ | 477 | | | $ | 175,359 | | | $ | 5,731 | | | $ | 214,601 | | | $ | 6,208 | |
14
| | | | | | | | | | | | | | | | | | | | | | | | | | | Less Than Twelve Months | | | Over Twelve Months | | | Total | | September 30, 2017: | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | U.S. Treasuries | | $ | 113,777 | | | $ | 1,058 | | | $ | 9,815 | | | $ | 176 | | | $ | 123,592 | | | $ | 1,234 | | U.S. Government agencies | | | 8,085 | | | | 90 | | | | 9,783 | | | | 216 | | | | 17,868 | | | | 306 | | Mortgage-backed securities | | | 31,326 | | | | 382 | | | | 3,902 | | | | 179 | | | | 35,228 | | | | 561 | | States and political subdivisions | | | 4,729 | | | | 168 | | | | 4,054 | | | | 138 | | | | 8,783 | | | | 306 | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL | | $ | 157,917 | | | $ | 1,698 | | | $ | 27,554 | | | $ | 709 | | | $ | 185,471 | | | $ | 2,407 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 97,634 | | | $ | 2,091 | | | $ | | | | $ | | | | $ | 97,634 | | | $ | 2,091 | | U.S. Government agencies | | | 24,478 | | | | 521 | | | | | | | | | | | | 24,478 | | | | 521 | | Mortgage-backed securities | | | 37,663 | | | | 1,305 | | | | | | | | | | | | 37,663 | | | | 1,305 | | States and political subdivisions | | | 24,627 | | | | 926 | | | | 589 | | | | 1 | | | | 25,216 | | | | 927 | | Corporate bond | | | | | | | | | | | 1,462 | | | | 2 | | | | 1,462 | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | TOTAL | | $ | 184,402 | | | $ | 4,843 | | | $ | 2,051 | | | $ | 3 | | | $ | 186,453 | | | $ | 4,846 | | | | | | | | | | | | | | | | | | | | | | | | | | |
At SeptemberJune 30, 2017, 252019, 15 of 2717 securities issued by the U.S. Treasury, 42 of the 65 securities issued by U.S. Government agencies, 2720 of the 155136 securities issued by states and political subdivisions and 167 of the 3246 mortgage-backed securities 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. 15
Proceeds fromThere were no sales andor calls of available for sale securities were $23,703,484 and $29,250,806 during the ninesix months ended SeptemberJune 30, 20172019 and 2016, respectively. Available for sale debt securities were sold or called for a realized gain of $136,781 and $157,918 for the nine months ended September 30, 2017 and 2016, respectively.2018.
Securities with a fair value of $180,107,293$251,813,256 and $180,659,168$206,017,056 at SeptemberJune 30, 20172019 and December 31, 2016,2018, 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 SeptemberJune 30, 20172019 and December 31, 2016,2018, is as follows (in thousands): | | | | | | June 30, 2019 | | | December 31, 2018 | | | | September 30, 2017 | | | December 31, 2016 | | | | | | | | | | Gaming | | $ | 18,824 | | | $ | 31,311 | | | $ | 20,703 | | | $ | 25,767 | | Residential and land development | | | 273 | | | | 291 | | | Hotel/Motel | | | | 48,295 | | | | 44,112 | | Real estate, construction | | | 30,998 | | | | 32,503 | | | | 24,699 | | | | 31,597 | | Real estate, mortgage | | | 190,003 | | | | 206,172 | | | | 136,633 | | | | 137,437 | | Commercial and industrial | | | 26,009 | | | | 37,035 | | | | 28,205 | | | | 27,505 | | Other | | | 6,716 | | | | 8,043 | | | | 7,562 | | | | 6,928 | | | | | | | | | | Total | | $ | 272,823 | | | $ | 315,355 | | | $ | 266,097 | | | $ | 273,346 | | | | | | | | | |
The age analysis of the loan portfolio, segregated by class of loans, as of SeptemberJune 30, 20172019 and December 31, 2016,2018, is as follows (in thousands): 16
| | | | | | | | | | | | | | | | | | | | | | | | | | Loans Past | | | | | | | | | | | | | | | | | | | | | | | | | | | | Due Greater | | | | Number of Days Past Due | | | | | | | | | | | | | | | Than 90 | | | | | | | | | | | | Greater | | | Total | | | | | | | Total | | | Days & | | | | | 30 - 59 | | | | 60 - 89 | | | Than 90 | | | Past Due | | | Current | | | Loans | | | Still Accruing | | June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 20,703 | | | $ | 20,703 | | | $ | | | Hotel/Motel | | | | | | | | | | | | | | | | | | | 48,295 | | | | 48,295 | | | | | | Real estate, construction | | | 1,358 | | | | | | | | 46 | | | | 1,404 | | | | 23,295 | | | | 24,699 | | | | | | Real estate, mortgage | | | 3,245 | | | | 958 | | | | 4,904 | | | | 9,107 | | | | 127,526 | | | | 136,633 | | | | | | Commercial and industrial | | | 239 | | | | 5 | | | | 789 | | | | 1,033 | | | | 27,172 | | | | 28,205 | | | | | | Other | | | 64 | | | | 4 | | | | | | | | 68 | | | | 7,494 | | | | 7,562 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 4,906 | | | $ | 967 | | | $ | 5,739 | | | $ | 11,612 | | | $ | 254,485 | | | $ | 266,097 | | | $ | | | December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 25,767 | | | $ | 25,767 | | | $ | | | Hotel/Motel | | | | | | | | | | | | | | | | | | | 44,112 | | | | 44,112 | | | | | | Real estate, construction | | | 1,987 | | | | 340 | | | | 860 | | | | 3,187 | | | | 28,410 | | | | 31,597 | | | | | | Real estate, mortgage | | | 2,866 | | | | 7,129 | | | | 1,730 | | | | 11,725 | | | | 125,712 | | | | 137,437 | | | | | | Commercial and industrial | | | 9 | | | | 110 | | | | 1,661 | | | | 1,780 | | | | 25,725 | | | | 27,505 | | | | | | Other | | | 107 | | | | 3 | | | | | | | | 110 | | | | 6,818 | | | | 6,928 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 4,969 | | | $ | 7,582 | | | $ | 4,251 | | | $ | 16,802 | | | $ | 256,544 | | | $ | 273,346 | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Days Past Due | | | | | | | | | | | | Loans Past Due Greater Than 90 Days & Still Accruing | | | | 30 - 59 | | | 60 - 89 | | | Greater Than 90 | | | Total Past Due | | | Current | | | Total Loans | | | September 30, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 18,824 | | | $ | 18,824 | | | $ | | | Residential and land development | | | | | | | | | | | 273 | | | | 273 | | | | | | | | 273 | | | | | | Real estate, construction | | | 1,343 | | | | 130 | | | | 747 | | | | 2,220 | | | | 28,778 | | | | 30,998 | | | | | | Real estate, mortgage | | | 4,640 | | | | 139 | | | | 7,815 | | | | 12,594 | | | | 177,409 | | | | 190,003 | | | | 256 | | Commercial and industrial | | | 882 | | | | 1,364 | | | | 668 | | | | 2,914 | | | | 23,095 | | | | 26,009 | | | | | | Other | | | 45 | | | | 8 | | | | | | | | 53 | | | | 6,663 | | | | 6,716 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 6,910 | | | $ | 1,641 | | | $ | 9,503 | | | $ | 18,054 | | | $ | 254,769 | | | $ | 272,823 | | | $ | 256 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 31,311 | | | $ | 31,311 | | | $ | | | Residential and land development | | | | | | | | | | | 291 | | | | 291 | | | | | | | | 291 | | | | | | Real estate, construction | | | 902 | | | | 216 | | | | 1,082 | | | | 2,200 | | | | 30,303 | | | | 32,503 | | | | | | Real estate, mortgage | | | 4,608 | | | | 1,923 | | | | 4,471 | | | | 11,002 | | | | 195,170 | | | | 206,172 | | | | | | Commercial and industrial | | | 867 | | | | | | | | 8 | | | | 875 | | | | 36,160 | | | | 37,035 | | | | | | Other | | | 44 | | | | 36 | | | | 80 | | | | 160 | | | | 7,883 | | | | 8,043 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 6,421 | | | $ | 2,175 | | | $ | 5,932 | | | $ | 14,528 | | | $ | 300,827 | | | $ | 315,355 | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 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 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 17
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 SeptemberJune 30, 20172019 and December 31, 2016,2018, is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans With A Grade Of: | | | | | | | A, B or C | | | S | | | D | | | E | | | F | | | Total | | September 30, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | 18,824 | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 18,824 | | Residential and land development | | | | | | | | | | | | | | | 273 | | | | | | | | 273 | | Real estate, construction | | | 29,323 | | | | | | | | 368 | | | | 1,307 | | | | | | | | 30,998 | | Real estate, mortgage | | | 142,805 | | | | 15,833 | | | | 20,861 | | | | 10,504 | | | | | | | | 190,003 | | Commercial and industrial | | | 13,720 | | | | 9,132 | | | | 271 | | | | 2,886 | | | | | | | | 26,009 | | Other | | | 6,688 | | | | | | | | 24 | | | | 4 | | | | | | | | 6,716 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 211,360 | | | $ | 24,965 | | | $ | 21,524 | | | $ | 14,974 | | | $ | | | | $ | 272,823 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | 31,311 | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 31,311 | | Residential and land development | | | | | | | | | | | | | | | 291 | | | | | | | | 291 | | Real estate, construction | | | 29,954 | | | | 435 | | | | 517 | | | | 1,597 | | | | | | | | 32,503 | | Real estate, mortgage | | | 155,671 | | | | 17,651 | | | | 22,901 | | | | 9,949 | | | | | | | | 206,172 | | Commercial and industrial | | | 13,926 | | | | 21,680 | | | | 867 | | | | 562 | | | | | | | | 37,035 | | Other | | | 7,996 | | | | | | | | 42 | | | | 5 | | | | | | | | 8,043 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 238,858 | | | $ | 39,766 | | | $ | 24,327 | | | $ | 12,404 | | | $ | | | | $ | 315,355 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans With A Grade Of: | | | | | | | | A, B or C | | | S | | | D | | | E | | | F | | | Total | | June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | 20,703 | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | 20,703 | | Hotel/Motel | | | 48,295 | | | | | | | | | | | | | | | | | | | | 48,295 | | Real estate, construction | | | 23,911 | | | | | | | | 208 | | | | 580 | | | | | | | | 24,699 | | Real estate, mortgage | | | 106,992 | | | | 15,027 | | | | 5,973 | | | | 8,641 | | | | | | | | 136,633 | | Commercial and industrial | | | 18,084 | | | | 8,882 | | | | 148 | | | | 1,091 | | | | | | | | 28,205 | | Other | | | 7,548 | | | | | | | | 12 | | | | 2 | | | | | | | | 7,562 | | Total | | $ | 225,533 | | | $ | 23,909 | | | $ | 6,341 | | | $ | 10,314 | | | $ | | | | $ | 266,097 | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | $ | 21,080 | | | $ | | | | $ | 4,687 | | | $ | | | | $ | | | | $ | 25,767 | | Hotel/Motel | | | 44,112 | | | | | | | | | | | | | | | | | | | | 44,112 | | Real estate, construction | | | 29,930 | | | | | | | | 217 | | | | 1,450 | | | | | | | | 31,597 | | Real estate, mortgage | | | 108,885 | | | | 10,430 | | | | 12,992 | | | | 5,130 | | | | | | | | 137,437 | | Commercial and industrial | | | 25,335 | | | | | | | | 218 | | | | 1,952 | | | | | | | | 27,505 | | Other | | | 6,904 | | | | | | | | 20 | | | | 4 | | | | | | | | 6,928 | | Total | | $ | 236,246 | | | $ | 10,430 | | | $ | 18,134 | | | $ | 8,536 | | | $ | | | | $ | 273,346 | |
18
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 SeptemberJune 30, 20172019 and December 31, 2016,2018, are as follows (in thousands): | | | | | | June 30, 2019 | | | December 31, 2018 | | | | September 30, 2017 | | | December 31, 2016 | | | | | | | | | | Residential and land development | | $ | 273 | | | $ | 291 | | | Real estate, construction | | | 1,307 | | | | 1,598 | | | $ | 580 | | | $ | 1,439 | | Real estate, mortgage | | | 9,992 | | | | 9,445 | | | | 8,554 | | | | 4,954 | | Commercial and industrial | | | 2,808 | | | | 515 | | | | 1,007 | | | | 1,855 | | Other | | | 4 | | | | 5 | | | | 2 | | | | 2 | | | | | | | | | | Total | | $ | 14,384 | | | $ | 11,854 | | | $ | 10,143 | | | $ | 8,250 | | | | | | | | | |
Prior to 2016,2018, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During 20162018 and 2017,2019, the Company did not restructure any additional loans. Specific reserves of $88,000$63,106 and $100,000$69,000 were allocated to troubled debt restructurings as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of SeptemberJune 30, 20172019 and December 31, 2016.2018. Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of SeptemberJune 30, 20172019 and December 31, 2016,2018, are as follows (in thousands): 19
| | | | | | | | | | | | | | | | | | | | | | | Unpaid Principal Balance | | | Recorded Investment | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized | | September 30, 2017: | | | | | | | | | | | | | | | | | | | | | With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | $ | 1,562 | | | $ | 1,088 | | | $ | | | | $ | 1,132 | | | $ | | | Real estate, mortgage | | | 9,354 | | | | 8,382 | | | | | | | | 9,053 | | | | 21 | | Commercial and industrial | | | 2,797 | | | | 2,758 | | | | | | | | 2,780 | | | | | | Other | | | 4 | | | | 4 | | | | | | | | 4 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 13,717 | | | | 12,232 | | | | | | | | 12,969 | | | | 21 | | | | | | | | | | | | | | | | | | | | | | | With a related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Residential and land development | | | 273 | | | | 273 | | | | 49 | | | | 278 | | | | | | Real estate, construction | | | 219 | | | | 219 | | | | 112 | | | | 230 | | | | | | Real estate, mortgage | | | 3,653 | | | | 2,769 | | | | 722 | | | | 2,751 | | | | 23 | | Commercial and industrial | | | 50 | | | | 50 | | | | 15 | | | | 49 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 4,195 | | | | 3,311 | | | | 898 | | | | 3,308 | | | | 23 | | | | | | | | | | | | | | | | | | | | | | | Total by class of loans: | | | | | | | | | | | | | | | | | | | | | Residential and land development | | | 273 | | | | 273 | | | | 49 | | | | 278 | | | | | | Real estate, construction | | | 1,781 | | | | 1,307 | | | | 112 | | | | 1,362 | | | | | | Real estate, mortgage | | | 13,007 | | | | 11,151 | | | | 722 | | | | 11,804 | | | | 44 | | Commercial and industrial | | | 2,847 | | | | 2,808 | | | | 15 | | | | 2,829 | | | | | | Other | | | 4 | | | | 4 | | | | | | | | 4 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 17,912 | | | $ | 15,543 | | | $ | 898 | | | $ | 16,277 | | | $ | 44 | | | | | | | | | | | | | | | | | | | | | | |
| | Unpaid Principal Balance | | | Recorded Investment | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized | | June 30, 2019: | | | | | | | | | | | | | | | | | | | | | With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | $ | 349 | | | $ | 349 | | | $ | | | | $ | 362 | | | $ | | | Real estate, mortgage | | | 8,782 | | | | 8,782 | | | | | | | | 8,858 | | | | 15 | | Commercial and industrial | | | 1,189 | | | | 962 | | | | | | | | 1,120 | | | | | | Other | | | 2 | | | | 2 | | | | | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 10,322 | | | | 10,095 | | | | | | | | 10,342 | | | | 15 | | | | | | | | | | | | | | | | | | | | | | | With a related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | | 231 | | | | 231 | | | | 20 | | | | 232 | | | | | | Real estate, mortgage | | | 838 | | | | 838 | | | | 99 | | | | 842 | | | | 14 | | Commercial and industrial | | | 45 | | | | 45 | | | | 4 | | | | 40 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 1,114 | | | | 1,114 | | | | 123 | | | | 1,114 | | | | 14 | | | | | | | | | | | | | | | | | | | | | | | Total by class of loans: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | | 580 | | | | 580 | | | | 20 | | | | 594 | | | | | | Real estate, mortgage | | | 9,620 | | | | 9,620 | | | | 99 | | | | 9,700 | | | | 29 | | Commercial and industrial | | | 1,234 | | | | 1,007 | | | | 4 | | | | 1,160 | | | | | | Other | | | 2 | | | | 2 | | | | | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 11,436 | | | $ | 11,209 | | | $ | 123 | | | $ | 11,456 | | | $ | 29 | |
20
| | | | | | | | | | | | | | | | | | | | | | | Unpaid Principal Balance | | | Recorded Investment | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized | | December 31, 2016: | | | | | | | | | | | | | | | | | | | | | With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | $ | 2,023 | | | $ | 1,331 | | | $ | | | | $ | 1,395 | | | $ | | | Real estate, mortgage | | | 11,811 | | | | 9,282 | | | | | | | | 10,582 | | | | 23 | | Commercial and industrial | | | 553 | | | | 515 | | | | | | | | 538 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 14,387 | | | | 11,128 | | | | | | | | 12,515 | | | | 23 | | | | | | | | | | | | | | | | | | | | | | | With a related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Residential and land development | | | 291 | | | | 291 | | | | 66 | | | | 304 | | | | | | Real estate, construction | | | 267 | | | | 267 | | | | 141 | | | | 283 | | | | | | Real estate, mortgage | | | 1,347 | | | | 1,347 | | | | 195 | | | | 1,080 | | | | 30 | | Other | | | 5 | | | | 5 | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 1,910 | | | | 1,910 | | | | 403 | | | | 1,668 | | | | 30 | | | | | | | | | | | | | | | | | | | | | | | Total by class of loans: | | | | | | | | | | | | | | | | | | | | | Residential and land development | | | 291 | | | | 291 | | | | 66 | | | | 304 | | | | | | Real estate, construction | | | 2,290 | | | | 1,598 | | | | 141 | | | | 1,678 | | | | | | Real estate, mortgage | | | 13,158 | | | | 10,629 | | | | 195 | | | | 11,662 | | | | 53 | | Commercial and industrial | | | 553 | | | | 515 | | | | | | | | 538 | | | | | | Other | | | 5 | | | | 5 | | | | 1 | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 16,297 | | | $ | 13,038 | | | $ | 403 | | | $ | 14,183 | | | $ | 53 | | | | | | | | | | | | | | | | | | | | | | |
| | Unpaid Principal Balance | | | Recorded Investment | | | Related Allowance | | | Average Recorded Investment | | | Interest Income Recognized | | December 31, 2018: | | | | | | | | | | | | | | | | | | | | | With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | $ | 1,171 | | | $ | 784 | | | $ | | | | $ | 785 | | | $ | | | Real estate, mortgage | | | 5,508 | | | | 5,474 | | | | | | | | 5,826 | | | | 29 | | Commercial and industrial | | | 2,083 | | | | 1,855 | | | | | | | | 2,204 | | | | | | Other | | | 2 | | | | 2 | | | | | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 8,764 | | | | 8,115 | | | | | | | | 8,818 | | | | 29 | | | | | | | | | | | | | | | | | | | | | | | With a related allowance recorded: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | | 742 | | | | 655 | | | | 283 | | | | 633 | | | | | | Real estate, mortgage | | | 574 | | | | 574 | | | | 101 | | | | 589 | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | Total | | | 1,316 | | | | 1,229 | | | | 384 | | | | 1,222 | | | | 25 | | | | | | | | | | | | | | | | | | | | | | | Total by class of loans: | | | | | | | | | | | | | | | | | | | | | Real estate, construction | | | 1,913 | | | | 1,439 | | | | 283 | | | | 1,418 | | | | | | Real estate, mortgage | | | 6,082 | | | | 6,048 | | | | 101 | | | | 6,415 | | | | 54 | | Commercial and industrial | | | 2,083 | | | | 1,855 | | | | | | | | 2,204 | | | | | | Other | | | 2 | | | | 2 | | | | | | | | 3 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 10,080 | | | $ | 9,344 | | | $ | 384 | | | $ | 10,040 | | | $ | 54 | |
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6. Allowance for Loan Losses: Transactions in the allowance for loan losses for the quarters and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, and the balances of loans, individually and collectively evaluated for impairment, as of SeptemberJune 30, 20172019 and 2016,2018, are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | | Residential and Land Development | | | Real Estate, Construction | | | Real Estate, Mortgage | | | Commercial and Industrial | | | Other | | | Total | | For the Nine Months Ended September 30, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 545 | | | $ | 66 | | | $ | 199 | | | $ | 3,800 | | | $ | 651 | | | $ | 205 | | | $ | 5,466 | | Charge-offs | | | | | | | | | | | | | | | (8 | ) | | | (32 | ) | | | (158 | ) | | | (198 | ) | Recoveries | | | | | | | 685 | | | | 31 | | | | 12 | | | | 11 | | | | 60 | | | | 799 | | Provision | | | (119 | ) | | | (701 | ) | | | 43 | | | | 854 | | | | (99 | ) | | | 107 | | | | 85 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending Balance | | $ | 426 | | | $ | 50 | | | $ | 273 | | | $ | 4,658 | | | $ | 531 | | | $ | 214 | | | $ | 6,152 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Quarter Ended September 30, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning Balance | | $ | 396 | | | $ | 58 | | | $ | 232 | | | $ | 3,916 | | | $ | 672 | | | $ | 207 | | | $ | 5,481 | | Charge-offs | | | | | | | | | | | | | | | | | | | (32 | ) | | | (63 | ) | | | (95 | ) | Recoveries | | | | | | | 685 | | | | 19 | | | | 4 | | | | | | | | 29 | | | | 737 | | Provision | | | 30 | | | | (693 | ) | | | 22 | | | | 738 | | | | (109 | ) | | | 41 | | | | 29 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending Balance | | $ | 426 | | | $ | 50 | | | $ | 273 | | | $ | 4,658 | | | $ | 531 | | | $ | 214 | | | $ | 6,152 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses, September 30, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | 50 | | | $ | 112 | | | $ | 999 | | | $ | 211 | | | $ | 14 | | | $ | 1,386 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: collectively evaluated for impairment | | $ | 426 | | | $ | | | | $ | 161 | | | $ | 3,659 | | | $ | 320 | | | $ | 200 | | | $ | 4,766 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Loans, September 30, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | 273 | | | $ | 1,675 | | | $ | 31,365 | | | $ | 3,157 | | | $ | 28 | | | $ | 36,498 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: collectively evaluated for impairment | | $ | 18,824 | | | $ | | | | $ | 29,323 | | | $ | 158,638 | | | $ | 22,852 | | | $ | 6,688 | | | $ | 236,325 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gaming | | | Hotel/Motel | | | Real Estate, Construction | | | Real Estate, Mortgage | | | Commercial and Industrial | | | Other | | | Total | | For the Six Months Ended June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 416 | | | $ | 1,443 | | | $ | 429 | | | $ | 2,443 | | | $ | 476 | | | $ | 133 | | | $ | 5,340 | | Charge-offs | | | | | | | | | | | (403 | ) | | | (46 | ) | | | | | | | (139 | ) | | | (588 | ) | Recoveries | | | | | | | | | | | 2 | | | | 2 | | | | 21 | | | | 59 | | | | 84 | | Provision | | | (127 | ) | | | 223 | | | | 193 | | | | (175 | ) | | | (57 | ) | | | 53 | | | | 110 | | Ending Balance | | $ | 289 | | | $ | 1,666 | | | $ | 221 | | | $ | 2,224 | | | $ | 440 | | | $ | 106 | | | $ | 4,946 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Quarter Ended June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning Balance | | $ | 399 | | | $ | 1,617 | | | $ | 401 | | | $ | 2,360 | | | $ | 480 | | | $ | 119 | | | $ | 5,376 | | Charge-offs | | | | | | | | | | | (403 | ) | | | (46 | ) | | | | | | | (63 | ) | | | (512 | ) | Recoveries | | | | | | | | | | | | | | | | | | | 7 | | | | 19 | | | | 26 | | Provision | | | (110 | ) | | | 49 | | | | 223 | | | | (90 | ) | | | (47 | ) | | | 31 | | | | 56 | | Ending Balance | | $ | 289 | | | $ | 1,666 | | | $ | 221 | | | $ | 2,224 | | | $ | 440 | | | $ | 106 | | | $ | 4,946 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses, June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | | | | $ | 20 | | | $ | 254 | | | $ | 91 | | | $ | 4 | | | $ | 369 | | Ending balance: collectively evaluated for impairment | | $ | 289 | | | $ | 1,666 | | | $ | 201 | | | $ | 1,970 | | | $ | 349 | | | $ | 102 | | | $ | 4,577 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Loans, June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | | | | $ | 788 | | | $ | 14,614 | | | $ | 1,239 | | | $ | 14 | | | $ | 16,655 | | Ending balance: collectively evaluated for impairment | | $ | 20,703 | | | $ | 48,295 | | | $ | 23,911 | | | $ | 122,019 | | | $ | 26,966 | | | $ | 7,548 | | | $ | 249,442 | |
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| | Gaming | | | Hotel/Motel | | | Real Estate, Construction | | | Real Estate, Mortgage | | | Commercial and Industrial | | | Other | | | Total | | For the Six Months Ended June 30, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 536 | | | $ | 936 | | | $ | 242 | | | $ | 3,369 | | | $ | 892 | | | $ | 178 | | | $ | 6,153 | | Charge-offs | | | | | | | | | | | | | | | (429 | ) | | | (369 | ) | | | (156 | ) | | | (954 | ) | Recoveries | | | | | | | | | | | 1 | | | | 118 | | | | 45 | | | | 82 | | | | 246 | | Provision | | | (83 | ) | | | 419 | | | | (44 | ) | | | (218 | ) | | | (65 | ) | | | 54 | | | | 63 | | Ending Balance | | $ | 453 | | | $ | 1,355 | | | $ | 199 | | | $ | 2,840 | | | $ | 503 | | | $ | 158 | | | $ | 5,508 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Quarter Ended June 30, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning Balance | | $ | 438 | | | $ | 1,182 | | | $ | 230 | | | $ | 3,403 | | | $ | 798 | | | $ | 161 | | | $ | 6,212 | | Charge-offs | | | | | | | | | | | | | | | (415 | ) | | | (325 | ) | | | (62 | ) | | | (802 | ) | Recoveries | | | | | | | | | | | 1 | | | | | | | | 32 | | | | 37 | | | | 70 | | Provision | | | 15 | | | | 173 | | | | (32 | ) | | | (148 | ) | | | (2 | ) | | | 22 | | | | 28 | | Ending Balance | | $ | 453 | | | $ | 1,355 | | | $ | 199 | | | $ | 2,840 | | | $ | 503 | | | $ | 158 | | | $ | 5,508 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses, June 30, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | | | | $ | 118 | | | $ | 681 | | | $ | 230 | | | $ | 2 | | | $ | 1,031 | | Ending balance: collectively evaluated for impairment | | $ | 453 | | | $ | 1,355 | | | $ | 81 | | | $ | 2,159 | | | $ | 273 | | | $ | 156 | | | $ | 4,477 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Loans, June 30, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | | | | $ | 1,623 | | | $ | 20,405 | | | $ | 2,375 | | | $ | 14 | | | $ | 24,417 | | Ending balance: collectively evaluated for impairment | | $ | 25,399 | | | $ | 40,849 | | | $ | 35,943 | | | $ | 117,079 | | | $ | 21,749 | | | $ | 6,359 | | | $ | 247,378 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaming | | | Residential and Land Development | | | Real Estate, Construction | | | Real Estate, Mortgage | | | Commercial and Industrial | | | Other | | | Total | | For the Nine Months Ended September 30, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 582 | | | $ | 189 | | | $ | 589 | | | $ | 5,382 | | | $ | 1,075 | | | $ | 253 | | | $ | 8,070 | | Charge-offs | | | | | | | | | | | (173 | ) | | | (700 | ) | | | (509 | ) | | | (153 | ) | | | (1,535 | ) | Recoveries | | | | | | | | | | | 57 | | | | 107 | | | | 61 | | | | 50 | | | | 275 | | Provision | | | 48 | | | | 20 | | | | (113 | ) | | | (24 | ) | | | 127 | | | | 79 | | | | 137 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending Balance | | $ | 630 | | | $ | 209 | | | $ | 360 | | | $ | 4,765 | | | $ | 754 | | | $ | 229 | | | $ | 6,947 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Quarter Ended September 30, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning Balance | | $ | 582 | | | $ | 202 | | | $ | 375 | | | $ | 4,976 | | | $ | 718 | | | $ | 256 | | | $ | 7,109 | | Charge-offs | | | | | | | | | | | | | | | (147 | ) | | | | | | | (59 | ) | | | (206 | ) | Recoveries | | | | | | | | | | | 19 | | | | 8 | | | | 1 | | | | 16 | | | | 44 | | Provision | | | 48 | | | | 7 | | | | (34 | ) | | | (72 | ) | | | 35 | | | | 16 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending Balance | | $ | 630 | | | $ | 209 | | | $ | 360 | | | $ | 4,765 | | | $ | 754 | | | $ | 229 | | | $ | 6,947 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for Loan Losses, September 30, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | 109 | | | $ | 239 | | | $ | 1,311 | | | $ | 218 | | | $ | 17 | | | $ | 1,894 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: collectively evaluated for impairment | | $ | 630 | | | $ | 100 | | | $ | 121 | | | $ | 3,454 | | | $ | 536 | | | $ | 212 | | | $ | 5,053 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Loans, September 30, 2016: | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: individually evaluated for impairment | | $ | | | | $ | 300 | | | $ | 2,285 | | | $ | 35,260 | | | $ | 1,733 | | | $ | 33 | | | $ | 39,611 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance: collectively evaluated for impairment | | $ | 33,442 | | | $ | 610 | | | $ | 38,062 | | | $ | 167,348 | | | $ | 37,359 | | | $ | 7,675 | | | $ | 284,496 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
7. Deposits: Time deposits of $100,000 or more at December 31, 2016 included brokered deposits of $5,000,000, which matured in 2017.
Time deposits of $250,000 or more totaled approximately $32,483,000$42,438,000 and $25,143,000$32,137,000 at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. 8. Shareholders’ Equity: On September 20, 2017,April 24, 2019, the Company declared a dividend of $ .01 per share. The dividend had ashare, which was payable on May 10, 2019 to shareholders of record dateas of October 2, 2017 and a payment date of October 13, 2017.May 6, 2019. 9. Fair Value Measurements and Disclosures: 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 23
record other assets at fair value on anon-recurring basis, such as impaired loans and ORE. Thesenon-recurring fair value adjustments typically involve 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 estimated fair value, which is determined utilizing several sources. The primary source is Interactive Data Corporation, which utilizes pricing models that vary based on asset class and include available trade, bid and other market information and whose methodology includes broker quotes, proprietary models and vast descriptive databases. Another source for determining fair value is matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark securities. The Company’s available for sale securities for which fair value is determined through the use of such pricing models and matrix pricing are classified as Level 2 assets. If the fair value of available for sale securities is generated through model-based techniques, including the discounting of estimated cash flows, such securities are classified as Level 3 assets. Held to Maturity Securities The fair value of held to maturity securities is based on quoted market prices. 24
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 anon-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 arenon-recurring Level 3 assets. Other Real EstateReal 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’sin-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 anon-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 ofnon-interest bearing demand and interest bearing savings and demand deposits is the amount reported in the financial statements. The fair value of time deposits is estimated by discounting the cash flows using current rates of time deposits with similar remaining maturities. The cash flows considered in computing the fair value of such deposits are based on contractual maturities, since approximately 98% of time deposits provide for automatic renewal at current interest rates. 25
interest rates.
Borrowings from Federal Home Loan Bank The fair value of Federal Home Loan Bank (“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 SeptemberJune 30, 20172019 and December 31, 20162018 are as follows (in thousands): | | | | | | | | | | | | | | Fair Value Measurements Using | | | | | | | Fair Value Measurements Using | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | June 30, 2019: | | | | | | | | | | | | | | | | | | U.S. Treasuries | | | $ | 80,308 | | | $ | | | | $ | 80,308 | | | $ | | | U.S. Government agencies | | | | 12,523 | | | | | | | | 12,523 | | | | | | Mortgage-backed securities | | | | 111,749 | | | | | | | | 111,749 | | | | | | Collateralized mortgage obligations | | | | 5,058 | | | | | | | | 5,058 | | | | | | States and political subdivisions | | | | 8,444 | | | | | | | | 8,444 | | | | | | Total | | | $ | 218,082 | | | $ | | | | $ | 218,082 | | | $ | | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | | | | | | | | | | | | | | | | September 30, 2017: | | | | | | | | | | December 31, 2018: | | | | | | | | | | | | | | | | | | U.S. Treasuries | | $ | 133,577 | | | $ | | | | $ | 133,577 | | | $ | | | | $ | 83,423 | | | $ | | | | $ | 83,423 | | | $ | | | U.S. Government agencies | | | 19,972 | | | | | | 19,972 | | | | | | 17,247 | | | | | | | | 17,247 | | | | | | Mortgage-backed securities | | | 77,203 | | | | | | 77,203 | | | | | | 110,344 | | | | | | | | 110,344 | | | | | | States and political subdivisions | | | 14,578 | | | | | | 14,578 | | | | | | 11,096 | | | | | | | | 11,096 | | | | | | Equity securities | | | 458 | | | | | | 458 | | | | | | | | | | | | | | | | | | | Total | | $ | 245,788 | | | $ | | | | $ | 245,788 | | | $ | | | | $ | 222,110 | | | $ | | | | $ | 222,110 | | | $ | | | | | | | | | | | | | | | | | December 31, 2016: | | | | | | | | | | U.S. Treasuries | | $ | 147,624 | | | $ | | | | $ | 147,624 | | | $ | | | | U.S. Government agencies | | | 24,825 | | | | | | 24,825 | | | | | Mortgage-backed securities | | | 42,708 | | | | | | 42,708 | | | | | States and political subdivisions | | | 17,963 | | | | | | 17,963 | | | | | Equity securities | | | 458 | | | | | | 458 | | | | | | | | | | | | | | | | | | | Total | | $ | 233,578 | | | $ | | | | $ | 233,578 | | | $ | | | | | | | | | | | | | | | | | |
Impaired loans, which are measured at fair value on anon-recurring basis, by level within the fair value hierarchy as of SeptemberJune 30, 20172019 and December 31, 20162018 are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | September 30, 2017 | | $ | 5,134 | | | $ | | | | $ | | | | $ | 5,134 | | December 31, 2016 | | | 5,006 | | | | | | | | | | | | 5,006 | |
| | | | | | Fair Value Measurements Using | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | June 30, 2019 | | $ | 2,057 | | | $ | | | | $ | | | | $ | 2,057 | | December 31, 2018 | | | 3,311 | | | | | | | | | | | | 3,311 | |
Other real estate, which is measured at fair value on anon-recurring basis, by level within the fair value hierarchy as of SeptemberJune 30, 20172019 and December 31, 20162018 are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | September 30, 2017 | | $ | 8,081 | | | $ | | | | $ | | | | $ | 8,081 | | December 31, 2016 | | | 8,513 | | | | | | | | | | | | 8,513 | |
| | | | | | Fair Value Measurements Using | | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | June 30, 2019 | | $ | 9,012 | | | $ | | | | $ | | | | $ | 9,012 | | December 31, 2018 | | | 8,943 | | | | | | | | | | | | 8,943 | |
26
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 Six | | | For the Year | | | | | | | | Months Ended | | | Ended | | | | For the Nine Months Ended September 30, 2017 | | | For the Year Ended December 31, 2016 | | | June 30, 2019 | | | December 31, 2018 | | Balance, beginning of period | | $ | 8,513 | | | $ | 9,916 | | | $ | 8,943 | | | $ | 8,232 | | Loans transferred to ORE | | | 1,356 | | | | 1,903 | | | | 1,658 | | | | 4,707 | | Sales | | | (1,391 | ) | | | (2,524 | ) | | | (1,147 | ) | | | (3,232 | ) | Writedowns | | | (397 | ) | | | (782 | ) | | | (442 | ) | | | (764 | ) | | | | | | | | | Balance, end of period | | $ | 8,081 | | | $ | 8,513 | | | $ | 9,012 | | | $ | 8,943 | | | | | | | | | |
The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at SeptemberJune 30, 20172019 and December 31, 2016,2018, are as follows (in thousands): | | | | | | | | | | | | Carrying | | | Fair Value Measurements Using | | | | | | | | Carrying Amount | | | Fair Value Measurements Using | | | | | | Amount | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | September 30, 2017: | | | | | | | | | | | | June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | Financial Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 42,278 | | | $ | 42,278 | | | $ | | | | $ | | | | $ | 42,278 | | | $ | 34,054 | | | $ | 34,054 | | | $ | | | | $ | | | | $ | 34,054 | | Available for sale securities | | | 245,788 | | | | | | 245,788 | | | | | | 245,788 | | | | 218,082 | | | | | | | | 218,082 | | | | | | | | 218,082 | | Held to maturity securities | | | 49,405 | | | | | | 49,303 | | | | | | 49,303 | | | | 54,254 | | | | | | | | 54,964 | | | | | | | | 54,964 | | Other investments | | | 2,729 | | | | 2,729 | | | | | | | | 2,729 | | | | 2,699 | | | | 2,699 | | | | | | | | | | | | 2,699 | | Federal Home Loan Bank stock | | | 544 | | | | | | 544 | | | | | | 544 | | | | 2,103 | | | | | | | | 2,103 | | | | | | | | 2,103 | | Loans, net | | | 266,671 | | | | | | | | 262,170 | | | | 262,170 | | | | 261,151 | | | | | | | | | | | | 254,365 | | | | 254,365 | | Other real estate | | | 8,081 | | | | | | | | 8,081 | | | | 8,081 | | | | 9,012 | | | | | | | | | | | | 9,012 | | | | 9,012 | | Cash surrender value of life insurance | | | 18,153 | | | | | | 18,153 | | | | | | 18,153 | | | | 19,123 | | | | | | | | 19,123 | | | | | | | | 19,123 | | Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-interest bearing | | | 147,975 | | | | 147,975 | | | | | | | | 147,975 | | | | 123,571 | | | | 123,571 | | | | | | | | | | | | 123,571 | | Interest bearing | | | 397,092 | | | | | | | | 397,562 | | | | 397,562 | | | | 370,064 | | | | | | | | | | | | 370,458 | | | | 370,458 | | Borrowings from Federal Home Loan Bank | | | 1,216 | | | | | | 1,509 | | | | | | 1,509 | | | Borrowings from Federal Home Loan | | | | | | | | | | | | | | | | | | | | | | Bank | | | | 16,052 | | | | | | | | 16,325 | | | | | | | | 16,325 | |
| | Carrying | | | Fair value Measurements Using | | | | | | | | Amount | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | December 31, 2018: | | | | | | | | | | | | | | | | | | | | | Financial Assets: | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 17,191 | | | $ | 17,191 | | | $ | | | | $ | | | | $ | 17,191 | | Available for sale securities | | | 222,110 | | | | | | | | 222,110 | | | | | | | | 222,110 | | Held to maturity securities | | | 54,598 | | | | | | | | 53,459 | | | | | | | | 53,459 | | Other investments | | | 2,811 | | | | 2,811 | | | | | | | | | | | | 2,811 | | Federal Home Loan Bank stock | | | 2,069 | | | | | | | | 2,069 | | | | | | | | 2,069 | | Loans, net | | | 268,006 | | | | | | | | | | | | 260,560 | | | | 260,560 | | Other real estate | | | 8,943 | | | | | | | | | | | | 8,943 | | | | 8,943 | | Cash surrender value of life insurance | | | 18,841 | | | | | | | | 18,841 | | | | | | | | 18,841 | | Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | Non-interest bearing | | | 114,512 | | | | 114,512 | | | | | | | | | | | | 114,512 | | Interest bearing | | | 358,994 | | | | | | | | | | | | 359,386 | | | | 359,386 | | Borrowings from Federal Home Loan | | | | | | | | | | | | | | | | | | | | | Bank | | | 36,142 | | | | | | | | 36,211 | | | | | | | | 36,211 | |
10. Reclassifications: Certain reclassifications have been made to prior year statements to conform to current year presentations. The reclassifications had no effect on prior year net income. 27
| | | | | | | | | | | | | | | | | | | | | | | Carrying Amount | | | Fair value Measurements Using | | | | | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | December 31, 2016: | | | | | | | | | | | | | | | | | | | | | Financial Assets: | | | | | | | | | | | | | | | | | | | | | Cash and due from banks | | $ | 41,116 | | | $ | 41,116 | | | $ | | | | $ | | | | $ | 41,116 | | Available for sale securities | | | 233,578 | | | | | | | | 233,578 | | | | | | | | 233,578 | | Held to maturity securities | | | 48,150 | | | | | | | | 46,935 | | | | | | | | 46,935 | | Other investments | | | 2,693 | | | | 2,693 | | | | | | | | | | | | 2,693 | | Federal Home Loan Bank stock | | | 539 | | | | | | | | 539 | | | | | | | | 539 | | Loans, net | | | 309,889 | | | | | | | | | | | | 313,613 | | | | 313,613 | | Other real estate | | | 8,513 | | | | | | | | | | | | 8,513 | | | | 8,513 | | Cash surrender value of life insurance | | | 19,249 | | | | | | | | 19,249 | | | | | | | | 19,249 | | Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | Deposits: | | | | | | | | | | | | | | | | | | | | | Non-interest bearing | | | 132,381 | | | | 132,381 | | | | | | | | | | | | 132,381 | | Interest bearing | | | 442,635 | | | | | | | | | | | | 442,937 | | | | 442,937 | | Borrowings from Federal Home Loan Bank | | | 6,257 | | | | | | | | 6,491 | | | | | | | | 6,491 | |
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Item 2: Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company is aone-bank holding company headquartered in Biloxi, Mississippi. The Company has two operating 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 following presents Management’sManagement's discussion and analysis of the consolidated financial condition and results of operations of Peoples Financial Corporation and Subsidiaries. These comments should be considered in combination with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report on Form10-Q and the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management’s Discussion and Analysis included in the Company’s Form10-K for the year ended December 31, 2016.2018. Forward-Looking Information 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. New Accounting Pronouncements The Financial Accounting Standards Board (“FASB”) has issued several new accounting standards updates for the first three quarters of 2017 which are disclosed in thestandards. The Notes to Unaudited Consolidated Financial Statements.Statements include disclosure of the standard which is applicable to the Company. The Company does not generally expect that these updatesis in the process of determining the effect of ASU 2016-03, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will have a material effectbe effective for the Company on January 1, 2020, on its financial position, or results of operations but the effect of ASU2016-13or cash flows. Further disclosure relating to these efforts is still being considered. included in Note 1. 29
Critical Accounting Policies 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 anon-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. Investments Investments which are classified as available for sale are stated at fair value. A decline in the market value of an 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 tonon-credit related factors is recognized in other comprehensive income. The determination of the fair value of securities may require Management to develop estimates and assumptions regarding the amount and timing of cash flows. Allowance for loan losses The Company’s allowance for loan losses (“ALL”) 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 the 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. Other Real Estate Other real estate (“ORE”) includes real estate acquired through foreclosure. Each ORE property 30
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 innon-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. 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 or benefit within the tax provision in the consolidated statement of income. GAAP Reconciliation and Explanation This Form10-Q containsnon-GAAP financial measures determined by methods other than in accordance with GAAP. Suchnon-GAAP financial measures include taxable equivalent interest income and taxable equivalent net interest income. Management uses thesenon-GAAP financial measures because it believes they are useful for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes thesenon-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial results, as well as comparison to financial results for prior periods. Thesenon-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled financial measures used by other companies. A reconciliation of these operating performance measures to GAAP performance measures for the three months and ninesix months ended SeptemberJune 30, 20172019 and 20162018 is included in the table on the following page. 31
RECONCILIATION OFNON-GAAP PERFORMANCE MEASURES (In thousands) | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | Interest income reconciliation: | | | | | | | | | | | | | | | | | | | | | | | | | Interest income - taxable equivalent | | $ | 4,751 | | | $ | 4,753 | | | $ | 14,232 | | | $ | 14,401 | | | $ | 5,285 | | | $ | 4,908 | | | $ | 10,844 | | | $ | 9,736 | | Taxable equivalent adjustment | | | (128 | ) | | | (160 | ) | | | (410 | ) | | | (478 | ) | | | (55 | ) | | | (66 | ) | | | (114 | ) | | | (129 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest income (GAAP) | | $ | 4,623 | | | $ | 4,593 | | | $ | 13,822 | | | $ | 13,923 | | | $ | 5,230 | | | $ | 4,842 | | | $ | 10,730 | | | $ | 9,607 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income reconciliation: | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income - taxable equivalent | | $ | 4,362 | | | $ | 4,486 | | | $ | 13,219 | | | $ | 13,625 | | | $ | 4,395 | | | $ | 4,285 | | | $ | 9,074 | | | $ | 8,617 | | Taxable equivalent adjustment | | | (128 | ) | | | (160 | ) | | | (410 | ) | | | (478 | ) | | | (55 | ) | | | (66 | ) | | | (114 | ) | | | (129 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest income (GAAP) | | $ | 4,234 | | | $ | 4,326 | | | $ | 12,809 | | | $ | 13,147 | | | $ | 4,340 | | | $ | 4,219 | | | $ | 8,960 | | | $ | 8,488 | | | | | | | | | | | | | | | |
OVERVIEW 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 earnedrecorded a net incomeloss of $236,000$328,000 for the thirdsecond quarter of 20172019 compared with net income of $406,000$63,000 for the thirdsecond quarter of 20162018 and earned net income of $1,463,000$77,000 for the first threetwo quarters of 20172019 compared with net income of $543,000$355,000 for the first threetwo quarters of 2016.2018. Results for the first three quarters of 2017 were significantly impactedin 2019 included an increase in net interest income which was partially or entirely offset by anon-recurring gain of $429,000 from the redemption of death benefits on bank owned life insurance decrease in non-interest income and a tax benefit of $338,000, which reflects a correction to expected refunds for prior years.an increase in non-interest expense as compared with 2018. Managing the net interest margin inis a key component of the Company’s highly competitive market and in the context of larger economic conditions has been very challenging and will continue to be so, for the foreseeable future.earnings strategy. Net interest income for the thirdsecond quarter of 20172019 as compared with the thirdsecond quarter of 2016 decreased $92,0002018 increased $121,000 and net interest income for the two quarters ended June 30, 2019 as compared with the reductiontwo quarters ended June 30, 2018, increased $472,000. The increase in both periods is attributed to the increase in total interest income, particularly interest and fees on loans was offset byand interest on mortgage-backed securities, exceeding the increase in total interest and dividends on securities. Net interest income for the three quarters ended September 30, 2017, decreased $338,000 as compared with the three quarters ended September 30, 2016 as the reduction in interest and fees on loans decreased more than the increase in interest expense on deposits.expense. Monitoring asset quality, estimating potential losses in our loan portfolio and addressingnon-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 32
loans. The provision for the allowance for loan losses was $29,000$56,000 and $85,000$110,000 for the thirdsecond quarter and first threetwo quarters of 2017,2019, respectively, compared with no provision$28,000 and $137,000,$63,000, respectively, for the thirdsecond quarter and first threetwo quarters of 2016.2018. The Company is working diligently to address and reduce itsnon-performing assets. The Company’s nonaccrual loans totaled $14,384,000$10,143,000 and $11,854,000$8,250,000 at SeptemberJune 30, 20172019 and December 31, 2016,2018, 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 $156,000$35,000 and increased $390,000$131,000 for the thirdsecond quarter and first threetwo quarters of 20172019, respectively, as compared with 2016. The2018 results primarily as a result of the decrease in Trust Department income and fees. Non-interest expense increased $449,000 and $572,000 for the thirdsecond quarter and first two quarters of 20172019, respectively, as compared with 2018 results. This increase for the thirdsecond quarter of 20162019 was primarily the result of the prior year including a gain from the salean increase in net occupancy expense of bank premises. The$92,000 and an increase in other expense of $241,000 as compared with 2018. This increase for the first threetwo quarters of 2017 as compared with the first three quarters of 20162019 was a result of the gain discussed in the Overview. Non-interest expense decreased $107,000 and $400,000 for the third quarter and first three quarters of 2017 as compared with 2016 results. The decrease for the third quarter of 2017 was primarily the result of decreasesincrease in net occupancy expenses of $66,000$126,000 and FDIC and state banking assessments of $102,000, which were partially offset by an increase in Other real estateother expense of $279,000$360,000 as compared with 2016. This decrease for the first three quarters of 2017 was the result of decreases in net occupancy expenses of $250,000 and FDIC and state banking assessments of $334,000, which were partially offset by an increase in Other real estate expense of $135,000 as compared with 2016.2018.
Total assets at SeptemberJune 30, 2017 decreased $31,027,0002019 increased $5,636,000 as compared with December 31, 2016.2018. Available for sale securities increased $12,210,000decreased $4,028,000 as excess funds were invested to increase earnings.maturities and unrealized losses on these securities exceeded investments. Total loans decreased $42,532,000$7,249,000 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans. Total deposits decreased $29,949,000increased $20,129,000 at SeptemberJune 30, 20172019 as compared with December 31, 20162018 as customers in the casino industry and county and municipal entities reallocate their resources periodically. These fluctuations resulted in the decrease in borrowings from the Federal Home Loan Bank of $20,090,000 and the increased in cash and due from banks of $16,863,000. RESULTS
RESULTS OF OPERATIONS 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’sCompany's income. Management’sManagement'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. Quarter Ended SeptemberJune 30, 2017 2019as Compared with Quarter Ended SeptemberJune 30, 20162018 The Company’s average interest-earning assets decreased approximately $12,876,000,$20,560,000, or 2%4%, from approximately $604,008,000$576,208,000 for the thirdsecond quarter of 20162018 to approximately $591,132,000$555,648,000 for the thirdsecond quarter of 2017. Average held to maturity taxable securities increased2019. The Company’s average balance sheet decreased primarily as average loans decreased approximately 33
$21,538,000 $6,767,000 and average taxable available for sale taxable securities increaseddecreased approximately $46,819,000 as a result of the decrease in average balances due from financial institutions and average loans. Average balances due from financial institutions decreased $29,325,000 as the Company’s liquidity needs decreased.$13,211,000. The Company’s average loans decreased approximately $44,389,000 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans.
The average yield on earning assets increased by 639 basis points, from 3.15%3.41% for the thirdsecond quarter of 20162018 to 3.21%3.80% for the thirdsecond quarter of 2017.2019. The yield on average loans increased from 4.40%4.73% for the thirdsecond quarter of 20162018 to 4.53%5.12% for the thirdsecond quarter of 20172019 primarily as a result of the effect of the increase in prime rate during 2016 and 20172018 on the Company’s floating rate loans. The yield on average taxable available for sale securities increased from 1.27%1.90% for the thirdsecond quarter of 20162018 to 1.52%2.29% for the thirdsecond quarter of 20172019 as the Company has changed its investment strategy to improve yield while not compromising duration and credit risk. Average interest-bearing liabilities decreased approximately $10,639,000,$33,425,000, or 2%8%, from approximately $443,591,000$426,935,000 for the thirdsecond quarter of 20162018 to approximately $432,952,000$393,510,000 for the thirdsecond quarter of 2017.2019. Average savings and interest-bearinginterest bearing DDA balancesdeposits decreased $7,850,000approximately $33,990,000, primarily as a result of oneseveral large public fund reallocating most ofcustomers reallocated their balancefunds to another institution. Average borrowings fromother institutions in the Federal Home Loan Bank decreased approximately $5,694,000 due to the reduced liquidity needs of the bank subsidiary.current year. The average rate paid on interest-bearing liabilities for the thirdsecond quarter of 20162018 was .24%.58% as compared with .36%.90% for the thirdsecond quarter of 2017. The2019. This increase was the result of time depositis primarily due to increased rates increasing in our trade area and the Company being able to pay off lower rate borrowings from FHLB.2018. The Company’s net interest margin on atax-equivalent basis, which is net interest income as a percentage of average earning assets, was 2.97% for the thirdsecond quarter of 20162018 as compared with 2.95%3.16% for the thirdsecond quarter of 2017.2019. NineSix Months Ended SeptemberJune 30, 20172019 as Compared with NineSix Months Ended SeptemberJune 30, 20162018
The Company’s average interest-earning assets increaseddecreased approximately $13,349,000,$18,581,000, or 2%3%, from approximately $592,372,000$580,577,000 for the first threetwo quarters of 20162018 to approximately $605,721,000$561,996,000 for the first threetwo quarters of 2017. Average2019. The Company’s average balance sheet decreased primarily as average loans decreased approximately $7,465,000 and average taxable available for sale securities decreased approximately $15,897,000 while average taxable held to maturity taxable securities increased approximately $24,538,000$4,193,000 and average available for sale taxable securitiesbalances due from depository institutions increased approximately $27,743,000 as a result of the decrease in average loans.$5,505,000. The Company’s average loans decreased approximately $36,530,000 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans. Average balances due from financial institutions increased and average taxable held to maturity increased as excess funds were invested to increase interest income. Average taxable available for sale securities decreased as average deposits decreased for the same time periods. The average yield on earning assets decreased by 11 basis points,increased from 3.24%3.35% for the first threetwo quarters of 20162018 to 3.13%3.86% for the first threetwo quarters of 2017. This decrease was2019. The yield on average loans increased from 4.69% for the first two quarters of 2018 to 5.30% for the first two quarters of 2019 primarily as a result of the effect of the increase in volumeprime rate during 2018 on the Company’s floating rate loans as well as the recovery of $135,000 in lower yielding assets, suchinterest income on previously non-performing loans. The yield on average taxable available for sale securities increased from 1.83% for the first two quarters of 2018 to 2.30% for the first two quarters of 2019 as the Company changed its investment securities, as compared with higher yielding assets, such as loans. strategy to improve yield while not compromising duration and credit risk. 34
Average interest-bearing liabilities increaseddecreased approximately $638,000,$25,707,000, or 1%6%, from approximately $446,475,000$428,226,000 for the first threetwo quarters of 20162018 to approximately $447,113,000$402,519,000 for the first threetwo quarters of 2017.2019. Average savings and interest bearing DDA balances increaseddecreased approximately $4,605,000 and average time deposits increased $3,483,000$30,532,000 primarily as several large commercial customers in the casino industry and county and municipal entities reallocatereallocated their balances periodically. Average borrowings from the Federal Home Loan Bank decreased approximately $7,450,000 duefunds to the liquidity needs of the bank subsidiary.other institutions. The average rate paid on interest-bearing liabilities for the first threetwo quarters of 20162018 was .23%.52% compared with .30%.88% for the first threetwo quarters of 2017 as a result of2019. This increase is primarily due to the increaseincreased rates in prime rate.2018. The Company’s net interest margin on atax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.07%2.97% for the first threetwo quarters of 20162018 as compared with 2.91%3.23% for the first threetwo quarters of 2017.2019. The tables on the following pages analyze the changes intax-equivalent net interest income for the quarters and ninesix months ended SeptemberJune 30, 20172019 and 2016. 2018. 35
Analysis of Average Balances, Interest Earned/Paid and Yield (In Thousands) | | | Quarter Ended September 30, 2017 | | Quarter Ended September 30, 2016 | | | Quarter Ended June 30, 2019 | | | Quarter Ended June 30, 2018 | | | | Average Balance | | | Interest Earned/Paid | | | Rate | | Average Balance | | | Interest Earned/Paid | | | Rate | | | Average Balance | | | Interest Earned/Paid | | Rate | | | Average Balance | | | Interest Earned/Paid | | Rate | | Loans (2)(3) | | $ | 279,771 | | | $ | 3,165 | | | | 4.53 | % | | $ | 324,160 | | | $ | 3,568 | | | | 4.40 | % | | $ | 266,627 | | | $ | 3,415 | | | 5.12 | % | | $ | 273,394 | | | $ | 3,230 | | | 4.73 | % | Balances due from depository institutions | | | 25,409 | | | | 148 | | | | 2.33 | % | | 54,734 | | | | 95 | | | | 0.69 | % | | | 13,092 | | | | 104 | | | 3.18 | % | | | 11,718 | | | | 61 | | | 2.08 | % | HTM: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 30,131 | | | | 207 | | | | 2.75 | % | | 8,593 | | | | 60 | | | | 0.01 | % | | | 37,397 | | | | 284 | | | 3.04 | % | | | 33,568 | | | | 241 | | | 2.87 | % | Non taxable (1) | | | 18,802 | | | | 177 | | | | 3.77 | % | | 19,981 | | | | 191 | | | | 3.82 | % | | | 16,317 | | | | 132 | | | 3.24 | % | | | 18,332 | | | | 146 | | | 3.19 | % | AFS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 221,196 | | | | 842 | | | | 1.52 | % | | 174,377 | | | | 553 | | | | 1.27 | % | | | 210,460 | | | | 1,206 | | | 2.29 | % | | | 223,671 | | | | 1,062 | | | 1.90 | % | Non taxable (1) | | | 14,821 | | | | 204 | | | | 5.51 | % | | 20,422 | | | | 277 | | | | 5.43 | % | | | 9,665 | | | | 115 | | | 4.76 | % | | | 13,635 | | | | 161 | | | 4.72 | % | Other | | | 1,002 | | | | 8 | | | | 3.19 | % | | 1,741 | | | | 9 | | | | 2.07 | % | | | 2,090 | | | | 29 | | | 5.55 | % | | | 1,890 | | | | 7 | | | 1.48 | % | | | | | | | | | | | | | | | | | | | Total | | $ | 591,132 | | | $ | 4,751 | | | | 3.21 | % | | $ | 604,008 | | | $ | 4,753 | | | | 3.15 | % | | $ | 555,648 | | | $ | 5,285 | | | 3.80 | % | | $ | 576,208 | | | $ | 4,908 | | | 3.41 | % | | | | | | | | | | | | | | | | | | | Savings & interest-bearing DDA | | $ | 350,100 | | | $ | 218 | | | | 0.25 | % | | $ | 357,950 | | | $ | 116 | | | | 0.13 | % | | Savings & interest- bearing DDA | | | $ | 289,567 | | | $ | 466 | | | 0.64 | % | | $ | 323,557 | | | $ | 320 | | | 0.40 | % | Time deposits | | | 81,632 | | | | 163 | | | | 0.80 | % | | 78,727 | | | | 121 | | | | 0.61 | % | | | 90,075 | | | | 344 | | | 1.53 | % | | | 85,986 | | | | 216 | | | 1.00 | % | Federal funds purchased | | | | | | | | | | | | | | | 340 | | | | 2 | | | 2.35 | % | Borrowings from FHLB | | | 1,220 | | | | 8 | | | | 2.62 | % | | 6,914 | | | | 30 | | | | 1.74 | % | | | 13,868 | | | | 80 | | | 2.31 | % | | | 17,052 | | | | 85 | | | 1.99 | % | | | | | | | | | | | | | | | | | | | Total | | $ | 432,952 | | | $ | 389 | | | | 0.36 | % | | $ | 443,591 | | | $ | 267 | | | | 0.24 | % | | $ | 393,510 | | | $ | 890 | | | 0.90 | % | | $ | 426,935 | | | $ | 623 | | | 0.58 | % | | | | | | | | | | | | | | | | | | | Nettax-equivalent spread | | | | | | | 2.86 | % | | | | | | | 2.91 | % | Net tax-equivalent spread | | | | | | | 2.90 | % | | | | | | | | | | 2.83 | % | | | | | | | | | | | | | | | | Nettax-equivalent margin on earning assets | | | | | | | 2.95 | % | | | | | | | 2.97 | % | Net tax-equivalent margin on earning assets | | | 3.16 | % | | | | | | | | | | 2.97 | % | | | | | | | | | | | | | |
(1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2017 and 2016. See disclosure ofNon-GAAP financial measures on pages 31 and 32. |
(2) | Loan fees of $59 and $119 for 2017 and 2016, respectively, are included in these figures. |
(3) | Includes(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21% in 2019 and 2018. See disclosure of Non-GAAP financial measures on pages 31 and 32. (2) Loan fees of $76 and $35 for 2019 and 2018, respectively, are included in these figures. (3) Average balance includes nonaccrual loans. |
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Analysis of Average Balances, Interest Earned/Paid and Yield (In Thousands) | | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | | Six Months Ended June 30, 2019 | | | Six Months Ended June 30, 2018 | | | | Average Balance | | | Interest Earned/Paid | | | Rate | | Average Balance | | | Interest Earned/Paid | | | Rate | | | Average Balance | | | Interest Earned/Paid | | Rate | | | Average Balance | | | Interest Earned/Paid | | Rate | | Loans (2)(3) | | $ | 294,492 | | | $ | 9,734 | | | | 4.41 | % | | $ | 331,022 | | | $ | 10,833 | | | | 4.36 | % | | $ | 268,240 | | | $ | 7,104 | | | 5.30 | % | | $ | 275,705 | | | $ | 6,463 | | | 4.69 | % | Balances due from depository institutions | | | 34,050 | | | | 384 | | | | 1.50 | % | | 29,814 | | | | 212 | | | | 0.95 | % | | | 16,767 | | | | 191 | | | 2.28 | % | | | 11,262 | | | | 99 | | | 1.76 | % | HTM: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 28,449 | | | | 524 | | | | 2.46 | % | | 3,911 | | | | 61 | | | | 2.08 | % | | | 37,238 | | | | 555 | | | 2.98 | % | | | 33,045 | | | | 473 | | | 2.86 | % | Non taxable (1) | | | 19,239 | | | | 541 | | | | 3.75 | % | | 19,473 | | | | 541 | | | | 3.70 | % | | | 16,903 | | | | 289 | | | 3.42 | % | | | 18,439 | | | | 292 | | | 3.17 | % | AFS: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 212,435 | | | | 2,370 | | | | 1.49 | % | | 184,692 | | | | 1,870 | | | | 1.35 | % | | | 210,390 | | | | 2,417 | | | 2.30 | % | | | 226,287 | | | | 2,073 | | | 1.83 | % | Non taxable (1) | | | 16,055 | | | | 665 | | | | 5.52 | % | | 21,482 | | | | 865 | | | | 5.37 | % | | | 10,375 | | | | 248 | | | 4.78 | % | | | 13,966 | | | | 326 | | | 4.67 | % | Other | | | 1,001 | | | | 14 | | | | 1.86 | % | | 1,978 | | | | 19 | | | | 1.28 | % | | | 2,083 | | | | 40 | | | 3.84 | % | | | 1,873 | | | | 10 | | | 1.07 | % | | | | | | | | | | | | | | | | | | | Total | | $ | 605,721 | | | $ | 14,232 | | | | 3.13 | % | | $ | 592,372 | | | $ | 14,401 | | | | 3.24 | % | | $ | 561,996 | | | $ | 10,844 | | | 3.86 | % | | $ | 580,577 | | | $ | 9,736 | | | 3.35 | % | | | | | | | | | | | | | | | | | | | Savings & interest-bearing DDA | | $ | 364,732 | | | $ | 535 | | | | 0.20 | % | | $ | 360,127 | | | $ | 330 | | | | 0.12 | % | | Savings & interest- bearing DDA | | | $ | 301,767 | | | $ | 957 | | | 0.63 | % | | $ | 332,299 | | | $ | 602 | | | 0.36 | % | Time deposits | | | 80,928 | | | | 446 | | | | 0.73 | % | | 77,445 | | | | 331 | | | | 0.57 | % | | | 88,530 | | | | 655 | | | 1.48 | % | | | 84,953 | | | | 405 | | | 0.95 | % | Federal funds purchased | | | | | | | | | | | | | | | 554 | | | | 7 | | | 2.53 | % | Borrowings from FHLB | | | 1,453 | | | | 32 | | | | 2.94 | % | | 8,903 | | | | 115 | | | | 1.72 | % | | | 12,222 | | | | 158 | | | 2.59 | % | | | 10,420 | | | | 105 | | | 2.02 | % | | | | | | | | | | | | | | | | | | | Total | | $ | 447,113 | | | $ | 1,013 | | | | 0.30 | % | | $ | 446,475 | | | $ | 776 | | | | 0.23 | % | | $ | 402,519 | | | $ | 1,770 | | | 0.88 | % | | $ | 428,226 | | | $ | 1,119 | | | 0.52 | % | | | | | | | | | | | | | | | | | | | Nettax-equivalent spread | | | | | | | 2.83 | % | | | | | | | 3.01 | % | Net tax-equivalent spread | | | 2.98 | % | | | | | | | | | | 2.83 | % | | | | | | | | | | | | | | Nettax-equivalent margin on earning assets | | | | | | | 2.91 | % | | | | | | | 3.07 | % | Net tax-equivalent margin on earning assets | | | 3.23 | % | | | | | | | | | | 2.97 | % | | | | | | | | | | | | | |
(1) | All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2017 and 2016. See disclosure ofNon-GAAP financial measures on pages 31 and 32. |
(2) | Loan fees of $238 and $314 for 2017 and 2016, respectively, are included in these figures. |
(3) | Includes(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21% in 2019 and 2018. See disclosure of Non-GAAP financial measures on pages 31 and 32. (2) Loan fees of $149 and $157 for 2019 and 2018, respectively, are included in these figures. (3) Average balance includes nonaccrual loans. |
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Analysis of Changes in Interest Income and Interest Expense (In Thousands) | | | | | | | | | | | | | | | | | | | For the Quarter Ended | | | | September 30, 2017 compared with September 30, 2016 | | | | Volume | | | Rate | | | Rate/Volume | | | Total | | Interest earned on: | | | | | | | | | | | | | | | | | Loans | | $ | (489 | ) | | $ | 99 | | | $ | (13 | ) | | $ | (403 | ) | Balances due from financial institutions | | | (51 | ) | | | 224 | | | | (120 | ) | | | 53 | | Held to maturity securities: | | | | | | | | | | | | | | | | | Taxable | | | 150 | | | | (1 | ) | | | (2 | ) | | | 147 | | Non taxable | | | (11 | ) | | | (3 | ) | | | | | | | (14 | ) | Available for sale securities: | | | | | | | | | | | | | | | | | Taxable | | | 148 | | | | 111 | | | | 30 | | | | 289 | | Non taxable | | | (76 | ) | | | 4 | | | | (1 | ) | | | (73 | ) | Other | | | (4 | ) | | | 5 | | | | (2 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | Total | | $ | (333 | ) | | $ | 439 | | | $ | (108 | ) | | $ | (2 | ) | | | | | | | | | | | | | | | | | | Interest paid on: | | | | | | | | | | | | | | | | | Savings & interest-bearing DDA | | $ | (3 | ) | | $ | 107 | | | $ | (2 | ) | | $ | 102 | | Time deposits | | | 4 | | | | 36 | | | | 2 | | | | 42 | | Borrowings from FHLB | | | (25 | ) | | | 15 | | | | (12 | ) | | | (22 | ) | | | | | | | | | | | | | | | | | | Total | | $ | (24 | ) | | $ | 158 | | | $ | (12 | ) | | $ | 122 | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | | | June 30, 2019 compared with June 30, 2018 | | | | Volume | | | Rate | | | Rate/Volume | | | Total | | Interest earned on: | | | | | | | | | | | | | | | | | Loans | | $ | (80 | ) | | $ | 272 | | | $ | (7 | ) | | $ | 185 | | Balances due from financial institutions | | | 7 | | | | 32 | | | | 4 | | | | 43 | | Held to maturity securities: | | | | | | | | | | | | | | | | | Taxable | | | 27 | | | | 14 | | | | 2 | | | | 43 | | Non taxable | | | (16 | ) | | | 2 | | | | | | | | (14 | ) | Available for sale securities: | | | | | | | | | | | | | | | | | Taxable | | | (63 | ) | | | 220 | | | | (13 | ) | | | 144 | | Non taxable | | | (47 | ) | | | 1 | | | | | | | | (46 | ) | Other | | | 1 | | | | 19 | | | | 2 | | | | 22 | | Total | | $ | (171 | ) | | $ | 560 | | | $ | (12 | ) | | $ | 377 | | Interest paid on: | | | | | | | | | | | | | | | | | Savings & interest-bearing DDA | | $ | (34 | ) | | $ | 201 | | | $ | (21 | ) | | $ | 146 | | Time deposits | | | 10 | | | | 113 | | | | 5 | | | | 128 | | Federal funds purchased | | | (1 | ) | | | (1 | ) | | | | | | | (2 | ) | Borrowings from FHLB | | | (16 | ) | | | 13 | | | | (2 | ) | | | (5 | ) | Total | | $ | (41 | ) | | $ | 326 | | | $ | (18 | ) | | $ | 267 | |
38
Analysis of Changes in Interest Income and Interest Expense (In Thousands) | | | For the Nine Months Ended | | | For the Six Months Ended | | | | September 30, 2017 compared with September 30, 2016 | | | June 30, 2019 compared with June 30, 2018 | | | | Volume | | | Rate | | | Rate/Volume | | | Total | | | Volume | | | Rate | | | Rate/Volume | | | Total | | Interest earned on: | | | | | | | | | | | | | | | | | | | | | | | | | Loans | | $ | (1,195 | ) | | $ | 108 | | | $ | (12 | ) | | $ | (1,099 | ) | | $ | (175 | ) | | $ | 839 | | | $ | (23 | ) | | $ | 641 | | Balances due from financial institutions | | | 30 | | | | 124 | | | | 18 | | | | 172 | | | | 48 | | | | 29 | | | | 15 | | | | 92 | | Held to maturity securities: | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 383 | | | | 11 | | | | 69 | | | | 463 | | | | 60 | | | | 20 | | | | 2 | | | | 82 | | Non taxable | | | (7 | ) | | | 7 | | | | | | | | (24 | ) | | | 23 | | | | (2 | ) | | | (3 | ) | Available for sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | Taxable | | | 281 | | | | 190 | | | | 29 | | | | 500 | | | | (146 | ) | | | 527 | | | | (37 | ) | | | 344 | | Non taxable | | | (219 | ) | | | 25 | | | | (6 | ) | | | (200 | ) | | | (84 | ) | | | 8 | | | | (2 | ) | | | (78 | ) | Other | | | (9 | ) | | | 8 | | | | (4 | ) | | | (5 | ) | | | 1 | | | | 26 | | | | 3 | | | | 30 | | | | | | | | | | | | | | | | Total | | $ | (736 | ) | | $ | 473 | | | $ | 94 | | | $ | (169 | ) | | $ | (320 | ) | | $ | 1,472 | | | $ | (44 | ) | | $ | 1,108 | | | | | | | | | | | | | | | | Interest paid on: | | | | | | | | | | | | | | | | | | | | | | | | | Savings & interest-bearing DDA | | $ | 4 | | | $ | 198 | | | $ | 3 | | | $ | 205 | | | $ | (55 | ) | | $ | 452 | | | $ | (42 | ) | | $ | 355 | | Time deposits | | | 15 | | | | 96 | | | | 4 | | | | 115 | | | | 17 | | | | 224 | | | | 9 | | | | 250 | | Federal funds purchased | | | | (7 | ) | | | | | | | | | | | (7 | ) | Borrowings from FHLB | | | (96 | ) | | | 81 | | | | (68 | ) | | | (83 | ) | | | 18 | | | | 30 | | | | 5 | | | | 53 | | | | | | | | | | | | | | | | Total | | $ | (77 | ) | | $ | 375 | | | $ | (61 | ) | | $ | 237 | | | $ | (27 | ) | | $ | 706 | | | $ | (28 | ) | | $ | 651 | | | | | | | | | | | | | | | |
Provision for the 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 its 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 addressnon-performing loans. A watch list of credits which pose a potential loss to the Company is prepared based on the loan grading system. This list forms the foundation of the Company’s allowance for loan loss computation. 39
Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and identify and estimate potential losses based on the best available information. The potential effect of the continuing declinedeclines 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. The Company’s analysis includes evaluating the current values of collateral securing all nonaccrual loans. Even though nonaccrual loans were $14,384,000$10,143,000 and $11,854,000$8,250,000 at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, specific reserves of only $810,000$60,000 and $303,000,$315,000, respectively, have been allocated to these loans as collateral values appear sufficient to cover loan losses or the loan balances have been charged down to their realizable value. The Company’son-going, systematic evaluation resulted in the Company recording a provision for the allowance for loan losses of $29,000$56,000 and $28,000 for the third quartersecond quarters of 20172019 and $85,0002018, respectively, and $137,000$110,000 and $63,000 for the first threetwo quarters of 20172019 and 2016,2018, respectively. The allowance for loan losses as a percentage of loans was 2.25%1.86% and 1.73%1.95% at SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively. The Company believes that its allowance for loan losses is appropriate as of SeptemberJune 30, 2017.2019. The allowance for loan losses is an estimate, and as such, events may occur in the future which may affect its accuracy. The Company anticipates that it is possible that additional information will be gathered in future quarters which may require an adjustment to the allowance for loan losses. Management will continue to closely monitor its portfolio and take such action as it deems appropriate to accurately report its financial condition and results of operations.
Non-interest income Quarter Ended SeptemberJune 30, 20172019 as Compared with Quarter Ended SeptemberJune 30, 20162018 Non-interest income decreased $156,000$35,000 for the thirdsecond quarter of 20172019 as compared with the thirdsecond quarter of 2016 primarily as the result of the decrease in gain on liquidation, sales and calls of securities and other income. The Company had opportunities to sell securities in order to generate gains in the prior year and, as a result, recognized $67,000 in 2016. Other income decreased $108,000 in 2017 as compared with 20162018 primarily as a result of the prior year including a gain of $88,000 from$37,000 decrease in Trust department income and fees. This decrease is attributable to the sale of bank premises.decrease in account relationships in 2019. NineSix Months Ended SeptemberJune 30, 20172019 as Compared with NineSix Months Ended SeptemberJune 30, 20162018
Non-interest income increased $390,000decreased $131,000 for the first threetwo quarters of 20172019 as compared with the first threetwo quarters of 2016 primarily as the result of the increase in income from other investments as well as the gain from death benefits from life insurance. These increases were partially offset by the decrease in other income of $147,000 in 2017 as compared with 2016. Income from other investments increased $63,000 from operations of the investment in a low income housing partnership as a result of increased occupancy in 2017 as compared with 2016. As a result of the death of a participant in the Company’s deferred compensation plans during 2017, anon-recurring 40
gain of $429,000 from the redemption of bank owned life insurance was recorded. Other income decreased $108,000 in 2017 as compared with 20162018 primarily as a result of the prior year including a gain of $88,000 from$99,000 decrease in Trust department income and fees. This decrease is attributable to the sale of bank premises.decrease in account relationships in 2019.
Non-interest expense Quarter Ended SeptemberJune 30, 20172019 as Compared with Quarter Ended SeptemberJune 30, 20162018 Totalnon-interest expense decreased $107,000increased $449,000 for the thirdsecond quarter of 20172019 as compared with the thirdsecond quarter of 2016. Net2018. Salaries and employee benefits increased $52,000, net occupancy decreased $66,000, Equipment rentals, depreciation and maintenance decreased $41,000, FDIC and state banking assessments decreased $102,000increased $92,000, ORE expense increased $76,000 and other expense decreased $129,000 while other real estate expense increased $279,000$241,000 in 20172019 as compared with 2016.2018. Salaries and employee benefits increased as a result of an increase in the liability for our retiree health plan. Net occupancy expense decreasedincreased as result of the Company’s effortsupgrades to decrease its telecommunicationtelecommunications and increased liability insurance costs. Equipment rentals, depreciation and maintenance primarily decreased as a result of the Company reducing its janitorial costs.
FDIC and state banking assessments decreased as the regulators decreased the premiums for deposit insurance in the current year.
ORE expense increased due to the increase in writedownswrite downs in the value of ORE. Other expense decreased asincreased a result of the reduction of legal, advertising and other costs largely duenon-recurring expenses related to the time in which services were performed.settlement of a lawsuit of $201,000 as well as consulting fees for operations and strategic planning projects for $30,000. NineSix Months Ended SeptemberJune 30, 20172019 as Compared with NineSix Months Ended SeptemberJune 30, 20162018
Totalnon-interest expense decreased $400,000increased $572,000 for the first threetwo quarters of 20172019 as compared with the first threetwo quarters of 2016.2018. Net occupancy decreased $250,000increased $126,000, equipment rentals, depreciation and FDICmaintenance increased $73,000 and state banking assessments decreased $334,000, while other real estate expense increased $135,000$360,000 in 20172019 as compared with 2016.2018. Net occupancy expense decreasedincreased as result of the Company’s effortsupgrades to decrease its telecommunicationtelecommunications and increased liability insurance costs. FDIC
Equipment rentals, depreciation and state banking assessments decreasedmaintenance increased as a result of purchases of depreciable assets, primarily technology-related, and an increase in service contracts related to technology services. Other expense increased a result of non-recurring expenses related to the regulators decreased the premiumssettlement of a lawsuit of $201,000 as well as consulting fees for deposit insuranceoperations and strategic planning projects for $60,000. FINANCIAL CONDITION Cash and due from banks increased $16,863,000 at June 30, 2019, compared with December 31, 2018 in the current year. ORE expense increased due tomanagement of the increase in writedowns in the value of ORE. bank subsidiary’s liquidity position. 41
Income Taxes
At December 31, 2014, the Company established a full valuation allowance on its deferred tax assets. Until such time as the Company returns to sustained earnings, and it is determined that it is more likely than not that the deferred tax asset will be realized, no income tax benefit or expense will generally be recorded.
The Company did record income tax expense of $78,000 during the second quarter of 2016 relating to the resolution of a recent examination by the Internal Revenue Service.
For the year ended December 31, 2014, the Company estimated it would be able to carryback net operating losses and general business credits resulting in Federal refunds totaling $300,000. Accordingly, a $300,000 income tax receivable was recorded at December 31, 2014. Upon preparation of the amended 2011 and 2012 Federal tax returns, the actual refunds recoverable were $642,000. As a result, the Company recorded an income tax benefit of $338,000 during the second quarter of 2017 as an immaterial correction of an error.
FINANCIAL CONDITION
Available for sale securities increased $12,210,000decreased $4,028,000 at SeptemberJune 30, 2017,2019, as compared with December 31, 2016. This is the result of the Company investing excess funds not needed currently for loans in order to improve earnings.2018 as maturities and unrealized losses exceeded investment purchases. Loans decreased $42,532,000$7,249,000 at SeptemberJune 30, 2017,2019, as compared with December 31, 20162018 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans. Total deposits decreased $29,949,000increased $20,129,000 at SeptemberJune 30, 2017,2019, as compared with December 31, 2016.2018. Typically, significant increases or decreases in total deposits and/or significant fluctuations among the different types of deposits from quarter to quarter are anticipated by Management as customers in the casino industry and county and municipal entities reallocate their resources periodically. Borrowings from the Federal Home Loan Bank decreased $20,090,000 at June 30, 2019 compared with December 31, 2018 as the Company utilized funds from increased deposits to reduce borrowings. SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY 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. As of SeptemberJune 30, 2017,2019, the most recent notification from the Federal Deposit Insurance Corporation categorized the bank subsidiary as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank subsidiary must have a Total risk-based capital ratio of 10.00% or greater, a Common Equity Tier 1 Capital ratio of 6.50% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater and a Leverage capital ratio 42
of 5.00% or greater. As of January 1, 2017,2019, the Company must have a capital conservation buffer above these requirements of 1.25% for 2017.2.50%. 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 as of SeptemberJune 30, 20172019 and December 31, 2016,2018 are as follows (in thousands): | | | | | | | | | | Actual | | | For Capital Adequacy Purposes | | | | Actual | | For Capital Adequacy Purposes | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | Amount | | | Ratio | | Amount | | | Ratio | | | September 30, 2017 : | | | | | | | | | | June 30, 2019: | | | | | | | | | | | | | | | | | | Total Capital (to Risk Weighted Assets) | | $ | 96,231 | | | | 25.41 | % | | $ | 30,293 | | | | 8.00 | % | | $ | 95,595 | | | | 25.58 | % | | $ | 29,893 | | | | 8.00 | % | Common Equity Tier 1 Capital (to Risk Weighted Assets) | | | 91,480 | | | | 24.16 | % | | 17,040 | | | | 4.50 | % | | | 90,921 | | | | 24.33 | % | | | 16,815 | | | | 4.50 | % | Tier 1 Capital (to Risk Weighted Assets) | | | 91,480 | | | | 24.16 | % | | 22,719 | | | | 6.00 | % | | | 90,921 | | | | 24.33 | % | | | 22,420 | | | | 6.00 | % | Tier 1 Capital (to Average Assets) | | | 91,480 | | | | 13.13 | % | | 27,863 | | | | 4.00 | % | | | 90,921 | | | | 14.55 | % | | | 24,995 | | | | 4.00 | % | | | | | | | | | | | | | | | | | | | December 31, 2016: | | | | | | | | | | December 31, 2018: | | | | | | | | | | | | | | | | | | Total Capital (to Risk Weighted Assets) | | $ | 95,262 | | | | 22.94 | % | | $ | 33,220 | | | | 8.00 | % | | $ | 95,627 | | | | 25.30 | % | | $ | 30,240 | | | | 8.00 | % | Common Equity Tier 1 Capital (to Risk Weighted Assets) | | | 90,068 | | | | 21.69 | % | | 18,687 | | | | 4.50 | % | | | | | | | | | | | | | | | | | | | | | 90,894 | | | | 24.05 | % | | | 17,010 | | | | 4.50 | % | Tier 1 Capital (to Risk Weighted Assets) | | | 90,068 | | | | 21.69 | % | | 24,915 | | | | 6.00 | % | | | 90,894 | | | | 24.05 | % | | | 22,680 | | | | 6.00 | % | Tier 1 Capital (to Average Assets) | | | 90,068 | | | | 13.12 | % | | 27,464 | | | | 4.00 | % | | | 90,894 | | | | 14.35 | % | | | 25,344 | | | | 4.00 | % |
The actual capital amounts and ratios and required minimum capital amounts and ratios for the Bank as of SeptemberJune 30, 20172019 and December 31, 2016,2018, are as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | For Capital Adequacy | | | | | | | | | | | | For Capital Adequacy | | | Actual | | | Purposes | | | To Be Well Capitalized | | | | Actual | | Purposes | | To Be Well Capitalized | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | | Amount | | | Ratio | | Amount | | | Ratio | | Amount | | | Ratio | | | September 30, 2017 : | | | | | | | | | | | | | | June 30, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | Total Capital (to Risk Weighted Assets) | | $ | 92,980 | | | | 24.68 | % | | $ | 30,142 | | | | 8.00 | % | | $ | 37,678 | | | | 10.00 | % | | $ | 92,631 | | | | 25.19 | % | | $ | 29,414 | | | | 8.00 | % | | $ | 36,768 | | | | 10.00 | % | Common Equity Tier 1 Capital (to Risk Weighted Assets) | | | 88,252 | | | | 23.42 | % | | 16,955 | | | | 4.50 | % | | 24,491 | | | | 6.50 | % | | | 88,031 | | | | 23.94 | % | | | 16,545 | | | | 4.50 | % | | | 23,899 | | | | 6.50 | % | Tier 1 Capital (to Risk Weighted Assets) | | | 88,252 | | | | 23.42 | % | | 22,607 | | | | 6.00 | % | | 30,142 | | | | 8.00 | % | | | 88,031 | | | | 23.94 | % | | | 22,061 | | | | 6.00 | % | | | 29,414 | | | | 8.00 | % | Tier 1 Capital (to Average Assets) | | | 88,252 | | | | 13.13 | % | | 26,876 | | | | 4.00 | % | | 33,596 | | | | 5.00 | % | | | 88,031 | | | | 14.10 | % | | | 24,973 | | | | 4.00 | % | | | 31,216 | | | | 5.00 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2016: | | | | | | | | | | | | | | December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | Total Capital (to Risk Weighted Assets) | | $ | 91,882 | | | | 22.29 | % | | $ | 32,975 | | | | 8.00 | % | | $ | 41,219 | | | | 10.00 | % | | $ | 92,485 | | | | 24.61 | % | | $ | 30,062 | | | | 8.00 | % | | $ | 37,577 | | | | 10.00 | % | Common Equity Tier 1 Capital (to Risk Weighted Assets) | | | 86,726 | | | | 21.04 | % | | 18,548 | | | | 4.50 | % | | 26,792 | | | | 6.50 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 87,780 | | | | 23.36 | % | | | 16,910 | | | | 4.50 | % | | | 24,425 | | | | 6.50 | % | Tier 1 Capital (to Risk Weighted Assets) | | | 86,726 | | | | 21.04 | % | | 24,731 | | | | 6.00 | % | | 32,975 | | | | 8.00 | % | | | 87,780 | | | | 23.36 | % | | | 22,546 | | | | 6.00 | % | | | 30,062 | | | | 8.00 | % | Tier 1 Capital (to Average Assets) | | | 86,726 | | | | 12.47 | % | | 27,820 | | | | 4.00 | % | | 34,775 | | | | 5.00 | % | | | 87,780 | | | | 14.11 | % | | | 24,884 | | | | 4.00 | % | | | 31,105 | | | | 5.00 | % |
Management continues to emphasize the importance of maintaining the appropriate capitallevelscapitallevels of the Company and has established the goal of being “well-capitalized” by the banking regulatory authorities. 43LIQUIDITY
LIQUIDITY
Liquidity represents the Company’sCompany'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. Management monitors these funds requirements in such a manner as to satisfy these demands and provide the maximum earnings on its earning assets. The Company manages and monitors its liquidity position 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 monthly basis in the management of its liquidity needs and also conducts periodic contingency testing on its liquidity plan. 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. Borrowings from the FHLB, federal funds sold and federal funds purchased are utilized by the Company to manage its daily liquidity position. The Company has also been approved to participate in the Federal Reserve Bank’s Discount Window Primary Credit Program, which it intends to use only as a contingency. REGULATORY MATTERS During 2016, Management identified opportunities for improving information technology operations and security, risk management and earnings, addressing asset quality concerns, analyzing and assessing the Bank’s management and staffing needs, and managing concentrations of credit risk as a result of its own investigation as well as examinations performed by certain bank regulatory agencies. In concert with the regulators, the Company had identified specific corrective steps and actions to enhance its information technology operations and security, risk management, earnings, asset quality and staffing. The Company and the Bank may not declare or pay any cash dividends without the prior written approval of their regulators. Item 4: Controls and Procedures As of SeptemberJune 30, 2017,2019, an evaluation was performed under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes in the Company’s internal control over financial reporting that occurred during the period ended SeptemberJune 30, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 44
PART II - OTHER INFORMATION Item 1: Legal Proceedings 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. Item 5:5: Other Information None.
Item 6 - Exhibits and Reports on Form8-K (a) Exhibits
| | | Exhibit 31.1: | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-OxleySarbanes - Oxley Act of 2002 | | | | Exhibit 31.2: | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-OxleySarbanes - Oxley Act of 2002 | | | | Exhibit 32.1: | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350 | | | | Exhibit 32.2: | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350 | | | | Exhibit 101 | | The following materials from the Company’s quarterly report onForm 10-Q for the quarter ended SeptemberJune 30, 2017,2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Condition at SeptemberJune 30, 20172019 and December 31, 2016,2018, (ii) Consolidated Statements of IncomeOperations for the quarters and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the quarters and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, (iv) Consolidated StatementStatements of Changes in Shareholders’ Equity for the nine monthsquarters ended SeptemberMarch 31, 2018 and June 30, 2017,2018 and March 31, 2019 and June 30, 2019, (v) Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172019 and 20162018 and (vi) Notes to the Unaudited Consolidated Financial Statements for the ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. |
(b) Reports on Form8-K
A Form8-K was filed onJuly 26, 2017, September 20, 2017 and October 25, 2017.
45SIGNATURES
SIGNATURES
Pursuant to the requirement of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PEOPLES FINANCIAL CORPORATION (Registrant) Date: | August 13, 2019 | | PEOPLES FINANCIAL CORPORATION | | | (Registrant) | By: | | Date: | | November 13, 2017 | | | By: | | /s/ /s/ Chevis C. Swetman | |
Chevis C. Swetman Chairman, President and Chief Executive Officer (principal executive officer) Date: | August 13, 2019 | | | | Chevis C. Swetman | Chairman, President and Chief Executive Officer | (principal executive officer) | By: | | Date: | | November 13, 2017 | | | By: | | /s/ /s/ Lauri A. Wood | | | Lauri A. Wood | Chief Financial Officer and Controller | (principal financial and accounting officer) |
Lauri A. Wood Chief Financial Officer and Controller (principal financial and accounting officer)
46 46
|