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| PFBX > SEC Filings for PFBX > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
OVERVIEW
Net income for the second quarter of 2009 was $200,707 compared with $2,177,998
for the second quarter of 2008. This decrease of $1,977,291 is the result of the
increase in the provision for the allowance for losses on loans of $1,454,000
and an increase in FDIC and state banking assessments of $496,393 during the
second quarter of 2009. In addition to recurring, quarterly FDIC assessments
which are based on deposits, a special assessment of 5 basis points on the sum
of total assets less Tier 1 capital was imposed by the FDIC as of June 30, 2009
in order to improve the balance in the Bank Insurance Fund. This special
assessment amounted to $420,000 for the Company.
Net income for the first six months 2009 was $1,903,674 compared with $4,267,398
for the first six months of 2008. This decrease of $2,363,724 is the result of
the increase in the provision for the allowance for losses on loans of
$1,756,000 and an increase in FDIC assessments of $420,000 for the special
assessment discussed previously.
Total assets increased to $946,324,090 at June 30, 2009 from $896,407,501 at
December 31, 2008. This increase was primarily attributable to the net increase
in available for sale securities of $40,452,903 during the first half of 2009,
which was funded through increased deposits of $7,818,027 and increased
borrowings from the Federal Home Loan Bank of $35,919,449.
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.
Quarter Ended June 30, 2009 as Compared with Quarter Ended June 30, 2008
The Company's average interest earning assets increased approximately
$32,956,000, or 4%, from approximately $808,824,000 for the second quarter of
2008 to approximately $841,780,000 for the second quarter of 2009. The Company
increased its investment in U.S. Agency and State, County
and Municipal securities, which were classified as available for sale, during
the second quarter of 2009.
As a result of the Committee's actions, the average yield on earning assets
decreased 129 basis points, from 5.45% for the second quarter of 2008 to 4.16%
for the second quarter of 2009. The Company's loan portfolio generally has a
40%/60% blend of fixed/floating rate term. This results in the Company being
more asset sensitive to market interest rates and generally is the cause of the
decrease in interest income.
Average interest bearing liabilities increased approximately $36,169,000, or 5%,
from approximately $666,819,000 for the second quarter of 2008 to approximately
$702,988,000 for the second quarter of 2009. Increased brokered deposits,
federal funds purchased and borrowings from the Federal Home Loan Bank funded
investment purchases during the second quarter of 2009. As a result of the
Committee's actions, the average rate paid on interest bearing liabilities
decreased 114 basis points, from 2.29% for the second quarter of 2008 to 1.15%
for the second quarter of 2009.
The Company's net interest margin on a tax-equivalent basis, which is net
interest income as a percentage of average earning assets, was 3.20% at June 30,
2009, down 37 basis points from 3.57% at June 30, 2008.
Six Months Ended June 30, 2009 as Compared with Six Months Ended June 30, 2008
The Company's average interest earning assets increased approximately
$11,722,000, or 1%, from approximately $817,862,000 for the first half of 2008
to approximately $828,584,000 for the first half of 2009.
As a result of the Committee's actions, the average yield on earning assets
decreased 147 basis points, from 5.68% for the first half of 2008 to 4.21% for
the first half of 2009. The Company's loan portfolio generally has a 40%/60%
blend of fixed/floating rate term. This results in the Company being more asset
sensitive to market interest rates and generally is the cause of the decrease in
interest income.
Average interest bearing liabilities increased approximately $14,456,000, or 2%,
from approximately $675,158,000 for the first half of 2008 to approximately
$689,614,000 for the first half of 2009. The average rate paid on interest
bearing liabilities decreased 133 basis points, from 2.58% for the first half of
2008 to 1.25% for the first half of 2009.
The Company's net interest margin on a tax-equivalent basis, which is net
interest income as a percentage of average earning assets, was 3.17% at June 30,
2009, down 39 basis points from 3.56% at June 30, 2008.
The tables on the following pages analyze the changes in tax-equivalent net
interest income for the quarters ended June 30, 2009 and 2008 and the six months
ended June 30, 2009 and 2008.
Analysis of Average Balances, Interest Earned/Paid and Yield
(In Thousands)
Three Months Ended June 30, 2009 Three Months Ended June 30, 2008
Average Balance Interest Earned/Paid Rate Average Balance Interest Earned/Paid Rate
Loans (2)(3) $ 473,432 $ 5,086 4.30 % $ 463,561 $ 6,676 5.76 %
Federal Funds Sold 934 1 0.42 % 5,067 25 1.97 %
HTM:
Non taxable (1) 3,264 43 5.27 % 3,653 57 6.24 %
AFS:
Taxable 328,065 3,205 3.91 % 306,118 3,912 5.11 %
Non taxable (1) 33,692 414 4.92 % 22,609 322 5.70 %
Other 2,393 2 0.33 % 7,816 38 1.94 %
Total $ 841,780 $ 8,751 4.16 % $ 808,824 $ 11,030 5.45 %
Savings & interest-bearing DDA $ 238,775 $ 541 0.91 % $ 260,870 $ 1,059 1.62 %
CD's 217,051 856 1.58 % 190,627 1,559 3.27 %
Federal funds purchased 230,600 517 0.90 % 207,973 1,082 2.08 %
FHLB advances 16,562 111 2.68 % 7,349 118 6.42 %
Total $ 702,988 $ 2,025 1.15 % $ 666,819 $ 3,818 2.29 %
Net tax-equivalent yield on
earning assets 3.20 % 3.57 %
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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 $135,074and $293,340 for 2009 and 2008, respectively, are included in these figures.
(3) Includes nonaccrual loans.
Analysis of Average Balances, Interest Earned/Paid and Yield
(In Thousands)
Six Months Ended June 30, 2009 Six Months Ended June 30, 2008
Average Balance Interest Earned/Paid Rate Average Balance Interest Earned/Paid Rate
Loans (2)(3) $ 471,986 $ 10,204 4.32 % $ 456,822 $ 14,108 6.18 %
Federal Funds Sold 1,136 1 0.18 % 4,825 62 2.57 %
HTM:
Non taxable (1) 3,329 89 5.35 % 3,992 125 6.26 %
AFS:
Taxable 317,464 6,338 3.99 % 321,601 8,201 5.10 %
Non taxable (1) 33,033 839 5.08 % 22,636 647 5.72 %
Other 2,636 7 0.53 % 7,986 101 2.53 %
Total $ 829,584 $ 17,478 4.21 % $ 817,862 $ 23,244 5.68 %
Savings & interest-bearing DDA $ 241,524 $ 1,236 1.02 % $ 253,387 $ 2,060 1.63 %
CD's 196,453 1,717 1.75 % 210,255 3,778 3.59 %
Federal funds purchased 228,985 1,094 0.96 % 203,600 2,620 2.57 %
FHLB advances 22,652 272 2.40 % 7,916 240 6.06 %
Total $ 689,614 $ 4,319 1.25 % $ 675,158 $ 8,698 2.58 %
Net tax-equivalent yield on
earning assets 3.17 % 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 $287,216and $409,311 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, which is approved by the Board of Directors. The loan 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 ongoing analysis, the Company recorded charged-offs of $3,495,328
during the six months ended June 30, 2009 and recorded a provision of $1,850,000
for the first half of 2009, of which $1,502,000 was expensed in the second
quarter.
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
Total non-interest income decreased $464,339 for the second quarter of 2009 as
compared with the second quarter of 2008. Contributing to this decrease is the
reduction in trust department income and fees of $108,275 as a result of the
decrease in market value, on which fees are based, of personal trust accounts.
Total non-interest income also was impacted by the decrease in other income of
$301,152 for the second quarter of 2009 as compared with the second quarter of
2008. A loss of $149,517 on the Company's investment in preferred stock of an
unaffiliated bank holding company was recognized as the FDIC closed that
company's bank subsidiary during the second quarter. Results for the second
quarter of 2008 included a gain from the sale of bank premises of $142,607,
while there were no such sales during 2009.
Total non-interest income decreased $379,710 for the first half of 2009 as
compared with the first half of 2008. Contributing to this decrease is the
reduction in trust department income and fees of $167,099 as a result of the
decrease in market value, on which fees are based, of personal trust accounts. A
loss of $149,517 on the Company's investment in preferred stock of an
unaffiliated bank holding company was recognized as the FDIC closed that
company's bank subsidiary during 2009. Other income during the first half of
2009 included a gain from an investment in a low income housing partnership.
Other income during the first half of 2008 included gains from the sale of bank
premises of $142,607.
Non-interest expense
Total non-interest expense increased $678,874 for the second quarter of 2009 as
compared with the second quarter of 2008. Included in the second quarter of 2009
was increased occupancy expense of $173,909 relating to increased property and
casualty insurance costs. Other expense for the second quarter of 2009 included
the FDIC special assessment of $420,000.
Total non-interest expense increased $669,996 for the first half of 2009 as
compared with the first half of 2008. Included in the 2009 results were
increased occupancy expense of $185,945 relating to increased property and
casualty insurance costs. Other expense for the first half of 2009 included the
FDIC special assessment of $420,000 as well as an increase of $109,703 for
regular quarterly state and federal assessments.
Income Taxes
Income taxes decreased $1,134,000 for the second quarter of 2009 as compared
with the second quarter of 2008, and decreased $1,883,000 for the first half of
2009 as compared with the first half of 2008. Approximately $1,058,000 and
$1,444,000 of these decreases were the result of the overall decrease in taxable
earnings for the first quarter of 2009 as compared with the first quarter of
2009 and the first half of 2009 as compared with the first half of 2008,
respectively. The remaining decrease was primarily attributable to an increase
in non-taxable income as a component of total income, the overall over accrual
of taxes during the first quarter and first half of 2008 and the effect of tax
credits in 2009.
FINANCIAL CONDITION
The Company increased its investment in Federal Home Loan Bank ("FHLB") stock to
$3,522,900 as a prerequisite to increasing its borrowing limit from FHLB.
The composition of the loan portfolio was as follows:
June 30, 2009 December 31, 2008
Real estate, construction $ 97,647,671 $ 118,455,302
Real estate, mortgage 304,168,599 290,458,002
Loans to finance agricultural production 1,553,640 3,177,723
Commercial and industrial loans 51,112,078 43,311,552
Loans to individuals for household, family and other
consumer expenditures 10,423,033 10,201,518
Obligations of states and political subdivisions 2,260,095 1,733,194
All other loans 39,748
Total $ 467,165,116 $ 467,377,039
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The decrease in interest rates earned on interest-earning assets has directly
impacted accrued interest receivable, which decreased $450,450 during the first
half of 2009.
Other real estate increased $2,054,286 at June 30, 2009, as compared with
December 31, 2008. This increase is the result of the foreclosure on
non-performing loans. Of the total increase, $1,794,983 related to one loan
relationship.
Other assets increased $738,041 at June 30, 2009, as compared with December 31,
2008. This increase is primarily attributable to the increase in deferred taxes
of $832,360, primarily from unrealized losses on available for sale investments.
Total deposits increased $7,818,027 at June 30, 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 half of 2009, time deposits with a balance of
$100,000 or more increased $50,751,747 as a result of the acquisition of
$20,000,000 in brokered deposits and an increase in public fund time deposits of
$24,126,226.
Borrowings from the Federal Home Loan Bank increased $35,919,449 at June 30,
2009, as compared with December 31, 2008, based on the liquidity needs of the
Company's bank subsidiary.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
As a part of its on-going stock repurchase program, the Company repurchased and
retired 127,571 shares of its common stock, at a total repurchase price of
$2,366,559 during the first half 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 12.06% at June 30, 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 also utilized by the Company to manage its daily liquidity
position. During the second quarter of 2009, the Company was approved to
participate in the Federal Reserve Bank Discount Window Primary Credit Program
and may draw upon this resource for liquidity if needed.
Item 4: Controls and Procedures
As of June 30, 2009, 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 Act Rules 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 June 30, 2009 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
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