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| PFBX > SEC Filings for PFBX > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
OVERVIEW
Net income for the first quarter of 2009 was $1,702,967 compared with $2,089,400
for the first quarter of 2008. This decrease was primarily the result in the
decrease in net interest income of $926,940, the increase in the provision for
loan losses of $302,000 and the decrease in income tax expense of $749,000.
Total assets increased to $910,416,871 at March 31, 2009 from $896,407,501 at
December 31, 2008. This increase was primarily attributable to the increase in
loans of $9,144,775.
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's income.
Management's objective is to provide the largest possible amount of income while
balancing interest rate, credit, liquidity and capital risk. Changes in the
volume and mix of interest earning assets and interest-bearing liabilities
combined with changes in market rates of interest directly affect net interest
income.
The Federal Reserve, through the Federal Open Market Committee (the
"Committee"), dropped the discount rate by a total of 200 basis points during
the first quarter of 2008, and by another 200 basis points during the following
three quarters of 2008. The Committee's actions were their attempt to stabilize
financial markets as well as to stimulate the national economy and flow of
capital. Typically, changes in the discount rate result in corresponding changes
in prime interest rates. The impact of these rate reductions was significant to
the Company's financial condition and results of operations.
The Company's average interest earning assets decreased approximately
$5,485,000, or 1%, from approximately $822,857,000 for the first quarter of 2008
to approximately $817,372,000 for the first quarter of 2009.
Also as a result of the Committee's actions, the average yield on earning assets
decreased 167 basis points, from 5.94% for the first quarter of 2008 to 4.27%
for the first quarter of 2009, with the biggest impact to the yield on loans.
The Company's loan portfolio generally has a 40%/60% blend of fixed/floating
rate term. This results in the Company being more asset sensitive to market
interest rates and generally is the cause of the decrease in interest income. In
addition, the proceeds from maturities and calls of securities were reinvested
in similar securities but at lower interest rates.
Average interest bearing liabilities decreased approximately $7,671,000, or 1%,
from approximately $683,434,000 for the first quarter of 2008 to approximately
$675,763,000 for the first quarter of 2009. The average rate paid on interest
bearing liabilities decreased 150 basis points, from 2.86% for the first quarter
of 2008 to 1.36% for the first quarter of 2009.
The Company's net interest margin on a tax-equivalent basis, which is net income as a percentage of average earning assets, was 3.15% at March 31, 2009, down 41 basis points from 3.56% at March 31, 2008. The table that follows this discussion analyzes the changes in tax-equivalent net interest income for the two quarters ended March 31, 2009 and 2008.
Analysis of Average Balances, Interest Earned/Paid and Yield
(In Thousands)
Three Months Ended March 31, 2009 Three Months Ended March 31, 2008
Average Balance Interest Earned/Paid Rate Average Balance Interest Earned/Paid Rate
Loans (2)(3) $ 470,524 $ 5,118 4.35 % $ 450,083 $ 7,432 6.61 %
Federal Funds Sold 1,310 1 0.31 % 4,584 37 3.23 %
HTM: Non taxable (1) 3,394 47 5.54 % 4,330 68 6.28 %
AFS: Taxable 306,744 3,133 4.09 % 337,084 4,289 5.09 %
Non taxable (1) 32,368 424 5.24 % 22,663 325 5.74 %
Other 3,032 5 0.66 % 4,113 63 6.13 %
Total $ 817,372 $ 8,728 4.27 % $ 822,857 $ 12,214 5.94 %
Savings & interest- bearing
DDA $ 243,972 $ 689 1.13 % $ 245,841 $ 1,001 1.63 %
CD's 175,625 867 1.97 % 229,883 2,219 3.86 %
Federal funds purchased 227,357 576 1.01 % 199,228 1,538 3.09 %
FHLB advances 28,809 161 2.24 % 8,482 122 5.75 %
Total $ 675,763 $ 2,293 1.36 % $ 683,434 $ 4,880 2.86 %
Net tax-equivalent yield on
earning assets 3.15 % 3.56 %
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(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2009 and 2008.
(2) Loan fees of $152 and $161 for 2009 and 2008, respectively, are included in these figures.
(3) Includes nonaccrual loans.
Provision 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 (the
"policy"), which is approved by the Board of Directors. The policy establishes
guidelines relating to underwriting standards, including but not limited to
financial analysis, collateral valuation, lending limits, pricing considerations
and loan grading. A loan review process further assists with evaluating credit
quality and assessing potential performance issues. Loan delinquencies and
deposit overdrafts are closely monitored in order to identify developing
problems as early as possible. In addition, the Company continuously monitors
its relationships with its loan customers in concentrated industries such as
gaming and hotel/motel, as well as the exposure for out of area loans, and their
direct and indirect impact on its operations. A watch list of credits which pose
a potential loss to the Company is prepared based on the loan grading system.
This list forms the foundation of the Company's allowance for loan loss
computation.
Based on its evaluation, the Company recorded a provision for loan losses of
$348,000 and $46,000 during the quarters ended March 31, 2009 and 2008,
respectively.
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
Trust department income and fees are earned by the Company based on services
provided to corporate and personal trust accounts. The decrease in fee income of
$58,824 for the first quarter of 2009 as compared with the first quarter of 2008
is attributable to the decrease in market value, on which fees are based, of
personal trust accounts.
Gains from the liquidation, call or sale of investments increased $49,149 for
the first quarter of 2009 as compared with the first quarter of 2008 as the
Federal Reserve continues to pursue its zero interest rate policy and calls its
longer term U.S. Treasury and U.S. Agency securities.
Other income increased $123,457 for the first quarter of 2009 as compared with
the first quarter of 2008 as the company realized a gain from its investment in
a low income housing partnership.
Non-interest expense
Total non-interest expense increased $8,878 for the first quarter of 2009 as
compared with the first quarter of 2008.
The largest component of non-interest expense is salaries and employee benefits,
which decreased $85,020 for the first quarter of 2009 compared with the first
quarter of 2008. Salaries decreased $135,309 between these two periods as the
Company now employs fewer employees as a result of
attrition and a hiring freeze and the decrease in the anticipated amount of
bonuses and incentives for 2009.
Net occupancy expense increased $12,036 for the first quarter of 2009 and
compared with the first quarter of 2008. Property and casualty insurance costs
increased $50,940 while the conversion to VOIP for the telephone system
decreased telephone expenses by $34,774.
Equipment rentals, depreciation and maintenance expenses increased $28,314 for
the first quarter of 2009 compared with the first quarter of 2008. This increase
was primarily attributable to an increase in depreciation expenses associated
with 2008 capital expenditures.
Included in the increase of $35,792 in other expense for the first quarter of
2009 as compared with the first quarter of 2008 are the increase in expense of
$33,310 for state and FDIC insurance assessments and $56,000 for the demolition
of the former Money Center building in Gulfport. The Company did realize a
savings of $38,115 in postage and mailing expense in 2009 as compared with 2008.
Income Taxes
Income taxes decreased $749,000 for the first quarter of 2009 as compared with
the first quarter of 2008. Approximately $382,000 of this decrease was a result
of the overall decrease in taxable income for the first quarter of 2009 as
compared with the first quarter of 2008. The remaining decrease was primarily
attributable to an increase in non-taxable income as a component of total income
in the first quarter of 2009 as compared with the same period in 2008, the over
accrual of taxes during the first quarter of 2008 as compared with the first
quarter of 2009 and the effect of tax credits in 2009.
FINANCIAL CONDITION
Available for sale securities increased $3,071,033 at March 31, 2009, compared
with December 31, 2008. The following schedule reflects the mix of available for
sale securities at March 31, 2009 and December 31, 2008:
March 31, 2009 December 31, 2008
Available for sale securities:
U.S. Treasury $ 47,284,610 $ 66,709,840
U.S. Government agencies and corp. 235,034,411 212,395,831
Mortgage-backed securities 27,920,795 29,781,077
States and political subdivisions 32,493,789 30,925,824
Equity securities 799,500 649,500
Total available for sale securities $ 343,533,105 $ 340,462,072
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As a result of the decrease in interest rates, more than $85,000,000 and
$71,000,000 of available for sale securities were called during the first
quarter of 2009 and 2008, respectively. Proceeds from these calls have funded
loan demand, liquidity needs and the purchase of investments at lower current
market rates.
The composition of the loan portfolio was as follows:
March 31, 2009 December 31, 2008
Real estate, construction $ 120,893,726 $ 118,455,302
Real estate, mortgage 283,761,918 290,458,002
Loans to finance agricultural production 1,731,028 3,177,723
Commercial and industrial loans 57,224,305 43,311,552
Loans to individuals for household, family and other
consumer expenditures 10,297,535 10,201,518
Obligations of states and political subdivisions 2,496,401 1,733,194
All other loans 116,901 39,748
Total $ 476,521,814 $ 467,377,039
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The increase in commercial and industrial loans of $13,912,753 at March 31, 2009
as compared with December 31, 2008 is the result of customers drawing on
previously existing lines of credit.
The decrease in the yield on interest earning assets, particularly on loans,
directly impacted accrued interest receivable, which decreased $943,272 at
March 31, 2009 as compared with December 31, 2008.
Other assets increased $505,438 at March 31, 2009 as compared with December 31,
2008 primarily as a result of an increase in Other Real Estate, which is
included in Other assets, of $792,265.
Total deposits increased $35,707,148 at March 31, 2009, as compared with
December 31, 2008. 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. During the first quarter of 2009, the increase in time deposits
with a balance of $100,000 or more is the result of the acquisition of brokered
deposits of $10,000,000 and an increase in public fund time deposits.
Borrowings from the Federal Home Loan Bank decreased $20,040,228 at March 31,
2009 as compared with December 31, 2008 based on the liquidity needs of the bank
subsidiary.
Other liabilities decreased $1,464,267 at March 31, 2009 as compared
December 31, 2008 as a result of the payment of the semi-annual dividend during
the first quarter of 2009 which had been accrued at December 31, 2008.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
As a part of its on-going stock repurchase program, the Company repurchased and
retired 108,860 shares of its common stock, at a total repurchase price of
$2,050,478 during the first quarter of 2009.
Management believes that the Company's stock is undervalued, and plans to
continue its repurchase activities in future quarters.
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. One measure of capital
adequacy is the primary capital ratio which was 12.78% at March 31, 2009, which
is well above the regulatory minimum of 6.00%. Management continues to emphasize
the importance of maintaining the appropriate capital levels of the Company and
has established the goal of maintaining its primary capital ratio at 8.00%,
which is the minimum requirement for classification as being "well-capitalized"
by the banking regulatory authorities.
LIQUIDITY
Liquidity represents the Company's ability to adequately provide funds to
satisfy demands from depositors, borrowers and other commitments by either
converting assets to cash or accessing new or existing sources of funds.
Management monitors these funds requirements in such a manner as to satisfy
these demands and provide the maximum earnings on its earning assets. 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 Federal Home Loan Bank,
federal funds sold and federal funds purchased are utilized by the Company to
manage its daily liquidity position.
FINANCIAL HIGHLIGHTS (in thousands except per share data)
EARNINGS SUMMARY
Three Months Ended March 31, 2009 2008
Net interest income $ 6,274 $ 7,201
Provision for loan losses 348 46
Non-interest income 2,622 2,538
Non-interest expense 6,555 6,565
Income taxes 290 1,039
Net income 1,703 2,089
Earnings per share .33 .39
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PERFORMANCE RATIOS
March 31, 2009 2008
Return on average assets .74 % .91 %
Return on average equity 6.41 % 7.71 %
Net interest margin 3.15 % 3.55 %
Efficiency ratio 77 % 68 %
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