Peoples Financial Corp.
Annual Report 2015

Plain-text annual report

P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S 2 0 1 5 A N N U A L R E P O R T To Our Shareholders, The year 2015 will be remembered most for the significant strides we made in improving the company’s asset quality. We achieved substantial progress in decreasing non-accrual loans, lowering charge-offs and reducing loan loss provisioning. 2015 was also a year in which we introduced more new products, services and enhancements than in any one year in recent memory. Product and service enhancements included: ! Seven new state-of-the-art ATMs installed with an additional 20 scheduled for 2016. ! Mobile check deposit service. Deposit checks conveniently and securely to checking or savings accounts with our mobile app PeoplesGreen2Go. ! Enhanced debit card fraud protection capability through “Card Guardian” text message alert service. ! Upgrading online Bill Pay service with new person-to-person funds transfer feature. ! Re-issuing debit cards in early 2016 with new EMV chip technology. Since 1896 it has been our culture to deliver exemplary customer service while meeting the banking and financial services needs of the Mississippi Gulf Coast. On April 13, 2016 we will celebrate the 120th anniversary of The Peoples Bank, I am extremely grateful for the dedication and support of our board of directors and our talented and committed team of bankers. We look forward to continuing our legacy of service to our coastal community for many years to come. Sincerely yours, Chevis C. Swetman Chairman of the Board President & Chief Executive Officer! ! MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Peoples Financial Corporation (the “ Company” ) is a one-bank holding company headquartered in Biloxi, Mississippi. The following presents Management’s discussion and analysis of the consolidated financial condition and results of operations of the Company and its consolidated subsidiaries for the years ended December 31, 2015, 2014 and 2013. These comments highlight the significant events for these years and should be considered in combination with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this annual report. F O R W A R D - L O O K I N G I N F O R M A T I O N Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This act provides a safe harbor for such disclosure which protects the companies from unwarranted litigation if actual results are different from management expectations. This report contains forward-looking statements and reflects industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements. Such factors and uncertainties include, but are not limited to: changes in interest rates and market prices, changes in local economic and business conditions, increased competition for deposits and loans, a deviation in actual experience from the underlying assumptions used to determine and establish the allowance for loan losses, changes in the availability of funds resulting from reduced liquidity, changes in government regulations and acts of terrorism, weather or other events beyond the Company’s control. N E W A C C O U N T I N G P R O N O U N C E M E N T S The Financial Accounting Standards Board (“ FASB” ) issued new accounting standards updates in 2015, which have been disclosed in Note A to the Consolidated Financial Statements. The Company does not expect that these updates will have a material impact on its financial position or results of operations.   C R I T I C A L A C C O U N T I N G P O L I C I E S The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“ GAAP” ) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and assumptions on an on-going basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Certain critical accounting policies affect the more significant estimates and assumptions used in the preparation of the consolidated financial statements. 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 to non-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 other real estate property is carried at fair value, less estimated costs to sell. Fair value is principally based on appraisals performed by third-party valuation specialists. If Management determines that the fair value of a property has decreased subsequent to foreclosure, the Company records a write down which is included in non-interest expense. 1 Employee Benefit Plans Employee benefit plan liabilities and pension costs are determined utilizing actuarially determined present value calculations. The valuation of the benefit obligation and net periodic expense is considered critical, as it requires Management and its actuaries to make estimates regarding the amount and timing of expected cash outflows including assumptions about mortality, expected service periods and the rate of compensation increases. Income Taxes GAAP requires the asset and liability approach for financial accounting and reporting for deferred income taxes. We use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences. See Note I to the Consolidated Financial Statements for additional details. As part of the process of preparing our consolidated financial statements, the Company is required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as the provision for the allowance for loan losses, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities that are included in our consolidated statement of condition. We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. To the extent the Company establishes a valuation allowance or adjusts this allowance in a period, we must include an expense within the tax provision in the consolidated statement of operations. O V E R V I E W The Company is a community bank serving the financial and trust needs of its customers in our trade area, which is defined as those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the bank subsidiary’s three most outlying locations. Maintaining a strong core deposit base and providing commercial and real estate lending in our trade area are the traditional focuses of the Company. Growth has largely been achieved through de novo branching activity, and it is expected that these strategies will continue to be emphasized in the future. The Company incurred a net loss of $4,592,000 for 2015 compared with a net loss of $10,004,000 for 2014 and a net loss of $538,000 for 2013. Results in 2015 were primarily impacted by a decrease in net interest income and non-interest income and an increase non-interest expense, which were partially offset by a decrease in the provision for the allowance for loan losses and income tax expense, as compared with 2014. Results in 2014 included a decrease in net interest income, a decrease in non-interest income, an increase in non-interest expense and an increase in income tax expense, which were partially offset by a decrease in the provision for the allowance for loan losses, as compared with 2013. Managing the net interest margin in the Company’s highly competitive market continues to be very challenging. Net interest income was impacted primarily by the decrease in interest income on loans of $1,296,000 and the decrease in interest income on taxable available for sale securities of $1,324,000 for 2015 as compared with 2014. The decrease in interest income on loans was primarily the result of a loan with an original balance of $20,000,000 on which the contractual rate is below the weighted average rate of other loans, which decreased the yield on average loans. The decrease in interest income on taxable available for sales securities is the result of shorter durations, and therefore lower yields, on new investments, in anticipation of rising rates. Net interest income was impacted primarily by the decrease in interest income on loans of $2,872,000 for 2014 as compared with 2013 primarily as the result of the decrease in average loans as principal payments, maturities, charge-offs and foreclosures on existing loans significantly exceeded new loans. Results in 2013 also included $1,523,000 in interest and fees from the sale of a nonaccrual loan. Monitoring asset quality, estimating potential losses in our loan portfolio and addressing non-performing loans continue to be emphasized as the local economy has negatively impacted collateral values and borrowers’ ability to repay their loans. The Company’s nonaccrual loans totaled $15,186,000, $33,298,000 and $26,171,000 at December 31, 2015, 2014 and 2013, respectively. Most of these loans are collateral-dependent, and the Company has rigorously evaluated the value of its collateral to determine potential losses. The Company is working diligently to address and reduce its non- performing assets, and some stability in collateral values has occurred. The provision for the allowance for loan losses was $2,582,000, $7,404,000 and $9,661,000 for 2015, 2014 and 2013, respectively. Non-interest income decreased $1,721,000 for 2015 as compared with 2014 results and $448,000 for 2014 as compared with 2013 results. Service charges on deposit accounts decreased $1,637,000 for 2015 as compared with 2014 and decreased $336,000 for 2014 as compared with 2013 primarily as a result of decreased ATM fee income. Non-interest expense increased $898,000 for 2015 as compared with 2014 and $1,554,000 for 2014 as compared with 2013. Results for 2015 were impacted by a loss of $1,695,000 from the credit impairment of a municipal security. The increase for 2015 as compared with 2014 was also the result of the increase in ORE expenses of $654,000, partially offset by decreases in salaries and employee benefits of $309,000 and ATM expenses of $1,226,000 as compared with 2014. The increase for 2014 as compared with 2013 was the result of the increase in salaries and employees benefits of $457,000 and the increase in ORE expense of $647,000 as compared with 2013. The Company recorded an income tax benefit of $762,000 for 2015 relating to the change in the valuation allowance. The Company recorded income tax expense of $4,726,000 for 2014 as compared with an income tax benefit of $2,201,000 for 2013 as a result of establishing a valuation allowance of $8,140,000 based on an evaluation of the Company’s deferred tax assets in 2014. 2 R E S U L T S O F O P E R A T I O N S Net Interest Income Net interest income, the amount by which interest income on loans, investments and other interest-earning assets exceeds interest expense on deposits and other borrowed funds, is the single largest component of the Company's income. Management's objective is to provide the largest possible amount of income while balancing interest rate, credit, liquidity and capital risk. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities combined with changes in market rates of interest directly affect net interest income. 2015 as compared with 2014 The Company’s average interest-earning assets decreased approximately $47,537,000, or 7%, from approximately $647,817,000 for 2014 to approximately $600,280,000 for 2015. The Company’s average balance sheet decreased primarily as decreased public funds enabled us to reduce our investment in securities. The average yield on interest-earning assets was 3.54% for 2014 compared with 3.33% for 2015. The yield on average loans decreased in 2015 as compared with 2014 as discussed in the Overview. The yield on taxable available for sale securities decreased from 1.99% for 2014 to 1.72% for 2015 as recent investment purchases have shorter durations, and therefore lower yields, in anticipation of rising rates. Average interest-bearing liabilities decreased approximately $54,295,000, or 11%, from approximately $504,519,000 for 2014 to approximately $450,224,000 for 2015. Average borrowings from the Federal Home Loan Bank (“ FHLB” ) decreased due to the liquidity needs of the bank subsidiary. The average rate paid on interest-bearing liabilities decreased 10 basis points, from .29% for 2014 to .19% for 2015. This decrease was due to an immaterial interest expense adjustment on time deposits in 2014. The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.32% for 2014 as compared with 3.18% for 2015. 2014 as compared with 2013 The Company’s average interest-earning assets decreased approximately $79,906,000, or 11%, from approximately $727,723,000 for 2013 to approximately $647,817,000 for 2014. The Company’s average balance sheet decreased primarily as decreased public funds enabled us to reduce our investment in securities and principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans. Average balances due from financial institutions also decreased based on the liquidity position of the bank subsidiary. The average yield on interest-earning assets was at 3.54% for 2014 and 2013. The yield on average loans decreased in 2014 as compared with 2013 as the prior year included $1,523,000 in interest and fees from the sale of a gaming loan which had been on nonaccrual. The yield on taxable available for sale securities increased from 1.78% for 2013 to 1.99% for 2014 due to the Company’s strategy of extending the duration of new investments in 2014. Average interest-bearing liabilities decreased approximately $74,402,000, or 13%, from approximately $578,921,000 for 2013 to approximately $504,519,000 for 2014. Average savings and interest-bearing DDA decreased as these customers reallocate their balances periodically. Average time deposits decreased primarily as brokered deposits matured during 2013. Average borrowings from the FHLB increased due to the liquidity needs of the bank subsidiary. The average rate paid on interest-bearing liabilities increased 4 basis points, from .25% for 2013 to .29% for 2014. This increase was due to an immaterial inter- est expense adjustment on time deposits in 2014. The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.34% for 2013 as compared with 3.32% for 2014. 3 The tables below analyze the changes in tax-equivalent net interest income for the years ended December 31, 2015, 2014 and 2013. A N A L Y S I S O F A V E R A G E B A L A N C E S , I N T E R E S T E A R N E D / P A I D A N D Y I E L D ( I N T H O U S A N D S ) Loans (1) (2) (3) Balances due from depository institutions Held to maturity: Taxable Non taxable (4) Available for sale: Taxable Non taxable (4) Other Total Savings and interest-bearing DDA Time deposits Borrowings from FHLB Total Net tax-equivalent spread Net tax-equivalent margin on earning assets 2015 Interest Average Balance Earned/Paid Rate $  356,294 $  14,759 4.14% Average Balance $  362,649 2014 Interest Earned/Paid $  16,055 Rate 4.43% Average Balance $405,463 2013 Interest Earned/Paid $ 18,927 Rate 4.67% 11,221 452 17,645 184,458 27,744 2,466 $  600,280 $  349,782 74,923 25,519 $  450,224 63 9 600 3,178 1,338 22 $ \19,969 $  306 371 198 $ 875 .56 1.99 3.40 1.72 4.82 .89 3.33% .09% .50 .78 .19% 3.14% 3.18% 7,305 21 .29 26,306 69 .26 13,696 474 3.46 9,936 363 3.65 225,742 34,360 4,065 $  647,817 $  358,106 89,564 56,849 $  504,519 4,502 1,889 18 $ \22,959 $  274 937 230 $ 1,441 1.99 5.50 .44 3.54% .08% 1.05 .40 .29% 3.25% 3.32% 247,097 36,605 2,316 $727,723 428,430 123,198 27,293 578,921 4,407 1,946 29 $ \25,741 $  337 919 191 $ 1,447 1.78 5.32 1.25 3.54% .08% .75 .70 .25% 3.29% 3.34% (1) 2013 includes interest and fees of $1,523 recognized from the sale of a nonaccrual loan. (2) Loan fees of $333, $557 and $911 for 2015, 2014 and 2013, respectively, are included in these figures. (3) Includes nonaccrual loans. (4) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2015, 2014 and 2013. 4 A N A L Y S I S O F C H A N G E S I N I N T E R E S T I N C O M E A N D E X P E N S E ( I N T H O U S A N D S ) For the Year Ended December 31, 2015 Compared With December 31, 2014 Total Volume Rate/Volume Rate Interest earned on: Loans Balances due from depository institutions Held to maturity securities: Taxable Non taxable Available for sale securities: Taxable Non taxable Other Total Interest paid on: Savings and interest-bearing DDA Time deposits Borrowings from FHLB Total Interest earned on: Loans Balances due from depository institutions Held to maturity securities: Non taxable Available for sale securities: Taxable Non taxable Other Total Interest paid on: Savings and interest-bearing DDA Time deposits Borrowings from FHLB Total $ \\\ \(281) 11 $ (1,033) 20 $ 9 152 (823) (364) (7) $ (1,303) $ \\\\ (6) (153) (127) $ (286) (20) (613) (232) 18 $ \\\ (1,860) $ \\ 39 (493) 211 $\\\\\\\\\\\\\\\\\\ (243) 18 11 (6) 112 45 (7) $ \\\\\\ 173 $ \\\\ G(1) 80 (116) $ (37) $ \\\(1,296) 42 9 126 (1,324) (551) 4 $ (2,990) $ \32 (566) (32) \(566) $ For the Year Ended December 31, 2014 Compared With December 31, 2013 Total Volume Rate/Volume Rate $\\\\\\\\(1,998) (50) $ (977) 7 137 (19) (380) (119) 22 $ (2,388) $ (59) (251) 207 $ (103) 520 66 (19) $ \\\\\\\\\\\\ (422) $ \\ (9) 370 (81) $\\\\\\\\\\\\\\\\\\ 280 $ 103 (5) (7) (45) (4) (14) $ \\\\\\ 28 $ \\\\ G5 (101) (87) $ (183) $ \\\(2,872) (48) 111 95 (57) (11) $ (2,782) $ \(63) 18 39 \(6) $ 5 Provision for Allowance for Loan Losses In the normal course of business, the Company assumes risk in extending credit to its customers. This credit risk is managed through compliance with the loan policy, which is approved by the Board of Directors. The policy establishes guidelines relating to underwriting standards, including but not limited to financial analysis, collateral valuation, lending limits, pricing considerations and loan grading. The Company’s Loan Review and Special Assets Departments play key roles in monitoring the loan portfolio and managing problem loans. New loans and, on a periodic basis, existing loans are reviewed to evaluate compliance with the loan policy. Loan customers in concentrated industries such as gaming and hotel/motel, as well as the exposure for out of area; residential and land development; construction and commercial real estate loans, and their direct and indirect impact on the Company’s operations are evaluated on a monthly basis. Loan delinquencies and deposit overdrafts are closely monitored in order to identify developing problems as early as possible. Lenders experienced in workout scenarios consult with loan officers and customers to address non-performing loans. A monthly watch list of credits which pose a potential loss to the Company is prepared based on the loan grading system. This list forms the foundation of the Company’s allowance for loan loss computation. Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and to identify and estimate potential losses based on the best available information. The potential effect of declines in real estate values and actual losses incurred by the Company were key factors in our analysis. Much of the Company’s loan portfolio is collateral-dependent, requiring careful consideration of changes in the value of the collateral. Note A to the Consolidated Financial Statements discloses a summary of the accounting principles applicable to impaired and nonaccrual loans as well as the allowance for loan losses. Note C to the Consolidated Financial Statements presents additional analyses of the composition, aging and performance of the loan portfolio as well as the transactions in the allowance for loan losses. The Company’s analysis includes evaluating the current value of collateral securing all nonaccrual loans. Nonaccrual loans totaled $15,186,000, $33,298,000 and $26,171,000 with specific reserves on these loans of $1,697,000, $2,507,000 and $1,280,000 as of December 31, 2015, 2014 and 2013, respectively. The specific reserves allocated to nonaccrual loans are relatively low as collateral values appear sufficient to cover loan losses or the loan balances have been charged down to their realizable value. The Company’s on-going, systematic evaluation resulted in the Company recording a total provision for the allowance for loan losses of $2,582,000, $7,404,000 and $9,661,000 in 2015, 2014 and 2013, respectively. As a result of receiving new information and updated appraisals on several collateral-dependent loans, the Company increased its provision for loan losses during the first three quarters of 2015 and for all of 2014 and 2013. The new appraisals caused Management to update the evaluation of these loans and increase the loan loss provision significantly for several non-performing loans during these years. An additional loan loss provision of $1,317,000 was recorded for one out of area residential development loan during 2015. Additional loan loss provisions of $1,600,000 and $7,600,000 were recorded for another out of area residential development loan in 2014 and 2013, respectively. An additional loan loss provision of $3,300,000 was recorded for one commercial real estate loan secured by a hotel in our trade area in 2014. The allowance for loan losses as a percentage of loans was 2.39%, 2.54% and 2.38% at December 31, 2015, 2014 and 2013, respectively. The Company believes that its allowance for loan losses is appropriate as of December 31, 2015. The allowance for loan losses is an estimate, and as such, events may occur in the future which may affect its accuracy. The Company anticipates that it is possible that additional information will be gathered in the future which may require an adjustment to the allowance for loan losses. Management will continue to closely monitor its portfolio and take such action as it deems appropriate to accurately report its financial condition and results of operations. Non-interest Income 2015 as compared with 2014 Total non-interest income decreased $1,721,000 in 2015 as compared with 2014. Trust department income and fees increased $179,000 as a result of the increase in market value, on which fees are based, of personal trust accounts and an increase in fees charged. Service charges on deposit accounts decreased $1,637,000 primarily as a result of decreased ATM fees. ATM fees decreased $1,386,000 as the Company’s off-site ATMs at a casino transferred to another vendor during 2015 which reduced ATM transactions. The Company realized a loss of $218,000 from operations of its investment in a low income housing partnership in 2015 as compared with a loss from operations of $64,000 in 2014 as a result of decreased occupancy. 2014 as compared with 2013 Total non-interest income decreased $448,000 in 2014 as compared with 2013. Service charges on deposit accounts decreased $336,000 in 2014 as compared with 2013 as a result of decreased ATM fees. ATM fees decreased $333,000 as the Company’s off-site ATMs at a casino transferred to another vendor during 2014 which reduced ATM transactions. Gains from liquidation, sales and calls of securities decreased $159,000 as sales were executed when proceeds would be maximized. The Company realized a loss from operations of its investment in a low income housing partnership in 2014 as compared with income from operations in 2013 as a result of decreased occupancy. 6 Non-interest Expense 2015 as compared with 2014 Total non-interest expense increased $898,000 in 2015 as compared with 2014. Salaries and employee benefits decreased $309,000 primarily as a result of decreased salaries and health insurance costs. Salaries decreased $113,000 due to attrition. Health insurance costs decreased $150,000 as a result of decreasing claims. Equipment rentals, depreciation and maintenance decreased $245,000 as 2014 results included additional servicing costs associated with bank-wide hardware and software conversion costs. The Company recorded a loss of $1,695,000 from the credit impairment of a municipal security during 2015. Other expense decreased $128,000 for 2015 as compared with 2014. This increase was the result of a decrease in ATM expenses and increases in legal and other real estate expenses. ATM expense decreased $1,226,000 as a result of decreased ATM activity as off-site ATMs at a casino transferred to another vendor. Legal expenses increased $292,000 primarily as a result of legal fees associated with non-performing loans. Increased write downs of other real estate to fair value and losses on sales of ORE caused these expenses to increase $654,000 in 2015 as compared with 2014. 2014 as compared with 2013 Total non-interest expense increased $1,554,000 in 2014 as compared with 2013. Salaries and employee benefits increased $457,000 in 2014 as compared with 2013. Salaries increased $293,000 in 2014 as compared with 2013 due to merit raises. Expenses relating to the retiree health plan increased $123,000 as 2013’s results included the effect of an amendment to the plan which lowered the expense. Equipment rentals, depreciation and maintenance increased $176,000 in 2014 as compared with 2013 primarily as a result of an increase of $63,000 in depreciation and servicing costs on new computer hardware and software placed into service during 2014. Other expense increased $856,000 for 2014 as compared with 2013. This increase was the result of increases in FDIC and state assessments and other real estate expenses. FDIC and state assessments increased $163,000 in 2014 as 2013 results included an adjustment in the estimate of prepaid assessments. Increased write downs of other real estate to fair value caused these expenses to increase $647,000 in 2014 as compared with 2013. Income Taxes Income taxes have been impacted by non-taxable income and federal tax credits during 2015, 2014 and 2013. The Company recognized an income tax benefit of $762,000 in 2015, expense of $4,726,000 in 2014 and a benefit of $2,201,000 in 2013. During 2014, Management established a valuation allowance against its net deferred tax asset of approximately $8,140,000, which caused the expense to increase during this period. As of December 31, 2015, the valuation allowance is still in place and the 2015 benefit was the result of changes in certain components of the Company's deferred tax assets and liabilities. Note I to the Consolidated Financial Statements presents a reconciliation of income taxes for these three years and further analysis of the valu- ation allowance. F I N A N C I A L C O N D I T I O N Cash and due from banks increased $7,840,000 at December 31, 2015, compared with December 31, 2014 in the management of the bank subsidiary’s liquidity position. Available for sale securities decreased $12,315,000 at December 31, 2015 compared with December 31, 2014 as a result of maturities of these investments during the current year. Loans decreased $24,850,000 at December 31, 2015 compared with December 31, 2014, as principal payments, maturities, charge-offs and foreclosures on existing loans exceeded new loans. ORE increased $2,270,000 at December 31, 2015 as compared with December 31, 2014. Loans totaling $7,502,000 were transferred into ORE while $4,295,000 was sold for a loss of $789,000 and write-downs of ORE to fair value were $937,000 during 2015. Other assets decreased $1,087,000 at December 31, 2015 as compared with December 31, 2014. During 2015, the Company charged off $464,000 in repossessed assets to their updated value, and collected income taxes receivable of $547,000. Total deposits decreased $4,213,000 at December 31, 2015, as compared with December 31, 2014. Typically, significant increases or decreases in total deposits and/or significant fluctuations among the different types of deposits from year to year are anticipated by Management as customers in the casino industry and county and municipal entities reallocate their resources periodically. 7 S H A R E H O L D E R S ’ E Q U I T Y A N D C A P I T A L A D E Q U A C Y Strength, security and stability have been the hallmark of the Company since its founding in 1985 and of its bank subsidiary since its founding in 1896. A strong capital foundation is fundamental to the continuing prosperity of the Company and the security of its customers and shareholders. The primary and risk-based capital ratios are important indicators of the strength of a Company’s capital. These figures are presented in the Five-Year Comparative Summary of Selected Financial Information. The Company has established the goal of being classified as “ well-capitalized” by the bank regulatory authorities. Significant transactions affecting shareholders’ equity during 2015 are described in Note J to the Consolidated Financial Statements. The Statement of Changes in Shareholders’ Equity also presents all activity in the Company’s equity accounts. L I Q U I D I T Y Liquidity represents the Company’s ability to adequately provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing sources of funds. Note L to the Consolidated Financial Statements discloses information relating to financial instruments with off-balance-sheet risk, including letters of credit and outstanding unused loan commitments. The Company closely monitors the potential effects of funding these commitments on its liquidity position. Management monitors these funding requirements in such a manner as to satisfy these demands and to provide the maximum return on its earning assets. The Company monitors and manages its liquidity position diligently through a number of methods, including through the computation of liquidity risk targets and the preparation of various analyses of its funding sources and utilization of those sources on a monthly basis. The Company also uses proforma liquidity projections which are updated on a continuous basis in the management of its liquidity needs and also conducts contingency testing on its liquidity plan. The Company has also been approved to participate in the Federal Reserve’s Discount Window Primary Credit Program, which it intends to use only as a contingency. Management carefully monitors its liquidity needs, particularly relating to potentially volatile deposits, and the Company has encountered no problems with meeting its liquidity needs. Deposits, payments of principal and interest on loans, proceeds from maturities of investment securities and earnings on investment securities are the principal sources of funds for the Company. The Company also uses other sources of funds, including borrowings from the FHLB. The Company general- ly anticipates relying on deposits, purchases of federal funds and borrowings from the FHLB for its liquidity needs in 2016. R E G U L A T O R Y M A T T E R S During 2014, Management identified opportunities for improving 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 has identified specific corrective steps and actions to enhance its 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. O F F - B A L A N C E S H E E T A R R A N G E M E N T S The Company is a party to off-balance-sheet arrangements in the normal course of business to meet the financing needs of its customers. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet arrangements. Since some of the commitments and irrevocable letters of credit may expire without being drawn upon, the total amount does not necessarily represent future cash requirements. As discussed previously, the Company carefully monitors its liquidity needs and considers its cash requirements, especially for loan commitments, in making decisions on investments and obtaining funds from its other sources. Further information relating to off-balance-sheet instruments can be found in Note L to the Consolidated Financial Statements. 8 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S C O N S O L I D A T E D S T A T E M E N T S O F C O N D I T I O N (In thousands except share data) D E C E M B E R 3 1 , Assets Cash and due from banks Available for sale securities Held to maturity securities, fair value of $19,220 - 2015; $17,859 - 2014; $10,686 - 2013 Other investments Federal Home Loan Bank Stock, at cost Loans Less: Allowance for loan losses Loans, net Bank premises and equipment, net of accumulated depreciation Other real estate Accrued interest receivable Cash surrender value of life insurance Other assets Total assets Liabilities and Shareholders’ Equity Liabilities: Deposits: Demand, non-interest bearing Savings and demand, interest bearing Time, $100,000 or more Other time deposits Total deposits Borrowings from Federal Home Loan Bank Employee and director benefit plans liabilities Other liabilities Total liabilities Shareholders’ Equity: Common Stock, $1 par value, 15,000,000 shares authorized, 5,123,186 shares issued and outstanding at December 31, 2015, 2014 and 2013 Surplus Undivided profits Accumulated other comprehensive income (loss), net of tax Total shareholders’ equity Total liabilities and shareholders’ equity See Notes to Consolidated Financial Statements. 2 0 1 5 2 0 1 4 2 0 1 3 $  \\\  31,396 $  \\\\  23,556 $  \\\\  36,264 202,807 19,025 2,744 1,637 337,557 8,070 329,487 22,446 9,916 1,832 18,735 979 215,122 275,440 17,784 2,962 2,504 362,407 9,206 353,201 23,784 7,646 2,125 18,145 2,066 11,142 3,262 3,834 375,349 8,934 366,415 25,308 9,630 2,607 17,456 10,906 $ \\\\   641,004 $  \ 668,895 $  \ 762,264 $ \\\\ 122,743 $  \\ 103,607 $  \\ 107,117 315,141 35,389 39,434 512,707 18,409 16,283 1,766 549,165 5,123 65,780 19,151 1,785 91,839 336,740 35,925 40,648 516,920 38,708 16,957 1,359 573,944 5,123 65,780 23,743 305 94,951 356,644 60,519 43,917 568,197 77,684 15,837 1,399 663,117 5,123 65,780 34,259 (6,015) 99,147 $ \\\  641,004 $ \  668,895 $ \  762,264 9 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S (in thousands except per share data) Y E A R S E N D E D D E C E M B E R 3 1 , Interest income: Interest and fees on loans Interest and dividends on securities: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Other investments Interest on balances due from depository institutions Total interest income Interest expense: Deposits Borrowings from Federal Home Loan Bank Total interest expense Net interest income Provision for allowance for loan losses Net interest income after provision for allowance for loan losses Non-interest income: Trust department income and fees Service charges on deposit accounts Gain on liquidation, sales and calls of securities Income (loss) on other investments Increase in cash surrender value of life insurance Other income Total non-interest income Non-interest expense: Salaries and employee benefits Net occupancy Equipment rentals, depreciation and maintenance Loss on credit impairment of securities Other expense Total non-interest expense Loss before income taxes Income tax (benefit) expense Net loss Basic and diluted loss per share Dividends declared per share See Notes to Consolidated Financial Statements. 2 0 1 5 2 0 1 4 2 0 1 3 $   14,759  $ | |\\\  16,055  $ | |\\\  18,927  590 3,114 703 1,524 29 69 24,956 1,256 191 1,447 23,509 9,661 13,848 1,423 6,236 258 42 501 607 9,067 11,568 2,415 2,878 8,793 25,654 (2,739) (2,201) $ \ (538) $ $ \\ (.10) \\\\ 626 1,956 596 1,280 31 63 19,311 677 198 875 18,436 2,582 15,854 1,642 4,263 8 (218) 489 714 6,898 11,716 2,365 2,809 1,695 9,521 28,106 (5,354) (762) 587 3,027 888 1,560 18 21 22,156 1,211 230 1,441 20,715 7,404 13,311 1,463 5,900 99 (64) 589 632 8,619 12,025 2,480 3,054 9,649 27,208 (5,278) 4,726 $ \\\\ \\ (4,592) $ \ \ (.90) $ \ (10,004) $ \\ (1.95) $ \ \ $ \ .10 \ 10 | | P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S C O N S O L I D A T E D S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E ( L O S S ) (in thousands) Y E A R S E N D E D D E C E M B E R 3 1 , Net loss Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on available for sale securities, net of tax of $390, $3,506 and $5,153 for the years ended December 31, 2015, 2014 and 2013, respectively Reclassification adjustment for realized gains on available for sale securities called or sold in current year, net of tax of $3, $34 and $88 for the years ended December 31, 2015, 2014 and 2013, respectively Gain (loss) from unfunded post-retirement benefit obligation, net of tax of $372, $217 and $369 for the years ended December 31, 2015, 2014 and 2013, respectively Total other comprehensive income (loss) 2 0 1 5 2 0 1 4 2 0 1 3 $ \\\\ (4,592) $ (10,004) $ \\\\ (538) 752 6,806 (10,002) 5 (65) (170) 723 1,480 (421) 6,320 (716) (10,888) Total comprehensive loss $ \\\ \\ (3,112) $ \\\\\\\\ (3,684) $ \\ \\\\ (11,426)\ See Notes to Consolidated Financial Statements. 11 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S ’ E Q U I T Y (in thousands except share and per share data) N u m b e r o f A c c u m u l a t e d O t h e r C o m m o n C o m m o n U n d i v i d e d C o m p r e h e n s i v e S h a r e s S t o c k S u r p l u s P r o f i t s I n c o m e ( L o s s ) T o t a l Balance, January 1, 2013 5,136,918 $   \\\\ 5,137 $    \ 65,780 $ \  34,964 $ \ \\\ 4,873 $ \\\ 110,754 Net loss Other comprehensive loss, net of tax Retirement of stock (13,732) (14) Balance, December 31, 2013 5,123,186 5,123 65,780 Net loss Other comprehensive income, net of tax Cash dividend ($.10 per share) Balance, December 31, 2014 5,123,186 5,123 \ 65,780 Net loss Other comprehensive income, net of tax (538) (167) 34,259   (10,004) (512) 23,743 (4,592) (10,888) (6,015) 6,320 \\\ 305 (538) (10,888) (181) 99,147 (10,004) 6,320 (512) \\\ 94,951 (4,592) 1,480 1,480 Balance, December 31, 2015 5,123,186 $    5,123 $    \ 65,780 $     19,151 $   \\\ 1,785 $  \\\ 91,839 See Notes to Consolidated Financial Statements. 12 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S (in thousands) Y E A R S E N D E D D E C E M B E R 3 1 , Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation Provision for allowance for loan losses Writedown of other real estate (Gain) loss on sales of other real estate Loss on credit impairment of securities (Income) loss on other investments Amortization of available for sale securities (Accretion) amortization of held to maturity securities Gain on liquidation, sales and calls of securities Increase in cash surrender value of life insurance Gain on sale of bank premises and equipment Change in accrued interest receivable Change in other assets Change in other liabilities Net cash provided by operating activities Cash flows from investing activities: Proceeds from maturities, liquidation, sales and calls of available for sale securities Purchases of available for sale securities Proceeds from maturities of held to maturity securities Purchases of held to maturity securities Purchases of Federal Home Loan Bank Stock Redemption of Federal Home Loan Bank Stock Redemption of other investments Proceeds from sales of other real estate Loans, net change Acquisition of premises and equipment Proceeds from sales of banking premises and equipment Insurance proceeds from casualty loss on other real estate Investment in cash surrender value of life insurance Net cash provided by investing activities Cash flows from financing activities: Demand and savings deposits, net change Time deposits, net change Cash dividends Retirement of common stock Borrowings from Federal Home Loan Bank Repayments to Federal Home Loan Bank Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See Notes to Consolidated Financial Statements. 2 0 1 5 2 0 1 4 2 0 1 3 $   \\\ (4,592) $ \\ (10,004) $ \\ (538) 1,817 7,404 1,261 (47) 64 250 (3) (99) (589) 482 810 5,218 6,564 72,374 (1,995) 660 (7,299) 1,330 236 2,115 4,465 (293) (100) 71,493 (23,414) (27,863) (512) 2,013,013 (2,051,989) (90,765) (12,708) 36,264 23,556 $ 1,750 9,661 670 63 (42) 514 (2) (258) (501) (15) 288 (467) (1,122) 10,001 142,355 (174,588) 795 (4,810) (1,454) 230 1,125 41,613 (840) 19 57 (94) 4,408 (65,483) (36,273) (181) 868,560 (798,788) (32,165) (17,756) 54,020 36,264 1,754 2,582 937 789 1,695 218 224 83 (8) (489) 293 1,087 66 4,639 56,593 (45,042) 210 (1,534) 867 3,506 13,630 (416) (101) 27,713 (2,463) (1,750) 992,545 (1,012,844) (24,512) 7,840 23,556 $ \   31,396 $ 13 13 N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S N O T E A - B U S I N E S S A N D S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S : Business of The Company Peoples Financial Corporation (the “ Company” ) is a one-bank holding company headquartered in Biloxi, Mississippi. Its two operating subsidiaries are The Peoples Bank, Biloxi, Mississippi (the “ Bank” ), and PFC Service Corp. Its principal subsidiary is the Bank, which provides a full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses operating in those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the Bank's three most outlying locations (the “ trade area” ). Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Basis of Accounting The Company and its subsidiaries recognize assets and liabilities, and income and expense, on the accrual basis of accounting. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“ GAAP” ) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans, assumptions relating to employee and director benefit plan liabilities and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income. New Accounting Pronouncements In January 2015, the Financial Accounting Standards Board (the “ FASB” ) issued Accounting Standards Update (“ ASU” ) No. 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU No. 2015-01 eliminated the concept of extraordinary items from U.S. GAAP. ASU 2015-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of the ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. In June 2015, FASB issued ASU 2015-10, Technical Corrections and Improvements. ASU 2015-10 includes amendments to clarify the Codification, correct unintended application of guidance or make minor improvements to the Codification and will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. The adoption of ASU 2015-10 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. In January 2016, FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 revises the accounting related to classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value as well as amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of the ASU is not expected to have a material effect on the Company’ s financial position, results of operations or cash flows. Cash and Due from Banks The Company is required to maintain average reserve balances in its vault or on deposit with the Federal Reserve Bank. The average amount of these reserve requirements was approximately $2,084,000, $417,000 and $407,000 for the years ending December 31, 2015, 2014 and 2013, respectively. Securities The classification of securities is determined by Management at the time of purchase. Securities are classified as held to maturity when the Company has the positive intent and ability to hold the security until maturity. Securities held to maturity are stated at amortized cost. Securities not classified as held to maturity are classified as available for sale and are stated at fair value. Unrealized gains and losses, net of tax, on these securities are recorded in shareholders’ equity as accumulated other comprehensive income. The amortized cost of available for sale securities and held to maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity, determined using the interest method. Such amortization and accretion is included in interest income on securities. A decline in the market value of any investment below cost that is deemed to be other-than-temporary is charged to earnings for the decline in value deemed to be credit related and a new cost basis in the security is established. The decline in value attributed to non-credit related factors is recognized in other comprehensive income. In estimating other-than-temporary losses, Management considers the length of time and the extent to which the fair value has been less than cost, the financial condition and nature of the issuer, the cause of the decline, especially if related to a change in interest rates, and the intent and ability of the Company to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The specific identification method is used to determine realized gains and losses on sales of securities, which are reported as gain (loss) on sales and calls of securities in non-interest income. Other Investments Other investments include a low income housing partnership in which the Company is a 99% limited partner. The partnership has qualified to receive annual low income housing federal tax credits that are recognized as a reduction of the current tax expense. The investment is accounted for using the equity method. Federal Home Loan Bank Stock The Company is a member of the Federal Home Loan Bank of Dallas (“ FHLB” ) and as such is required to maintain a minimum investment in its stock that varies with the level of FHLB advances outstanding. The stock is bought from and sold to the FHLB based on its $100 par value. The stock does not have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated for impairment in accordance with GAAP. Loans The loan portfolio consists of commercial and industrial and real estate loans within the Company’s trade area that we have the intent and ability to hold for the foreseeable future or until maturity. The loan policy establishes guidelines relating to pricing; repayment terms; collateral standards including loan to value limits, appraisal and environmental standards; lending authority; lending limits and documentation requirements. 14 Loans are stated at the amount of unpaid principal, reduced by unearned income and the allowance for loan losses. Interest on loans is recognized on a daily basis over the terms of each loan based on the unpaid principal balance. Loan origination fees are recognized as income when received. Revenue from these fees is not material to the financial statements. The Company continuously monitors its relationships with its loan customers in concentrated industries such as gaming and hotel/motel, as well as the exposure for out of area, land development, construction and commercial real estate loans, and their direct and indirect impact on its operations. Loan delinquencies and deposit overdrafts are monitored on a weekly basis in order to identify developing problems as early as possible. On a monthly basis, a watch list of credits based on our loan grading system is prepared. Grades are applied to individual loans based on factors including repayment ability, financial condition of the borrower and payment performance. Loans with lower grades are placed on the watch list of credits. The watch list is the primary tool for monitoring the credit quality of the loan portfolio. Once loans are determined to be past due, the loan officer and the special assets department work vigorously to return the loans to a current status. The Company places loans on a nonaccrual status when, in the opinion of Management, they possess sufficient uncertainty as to timely collection of interest or principal so as to preclude the recognition in reported earnings of some or all of the contractual interest. Accrued interest on loans classified as nonaccrual is reversed at the time the loans are placed on nonaccrual. Interest received on nonaccrual loans is applied against principal. Loans are restored to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. The placement of loans on and removal of loans from nonaccrual status must be approved by Management. Loans which become 90 days delinquent are reviewed relative to collectibility. Unless such loans are in the process of terms revision to bring them to a current status or foreclosure or in the process of collection, these loans are placed on nonaccrual and, if deemed uncollectible, are charged off against the allowance for loan losses. That portion of a loan which is deemed uncollectible will be charged off against the allowance as a partial charge off. All charge offs must be approved by Management and are reported to the Board of Directors. Allowance for Loan Losses The allowance for loan losses (“ ALL” ) is a valuation account available to absorb losses on loans. The ALL is established through provisions for loan losses charged against earnings. Loans deemed to be uncollectible are charged against the ALL, and subsequent recoveries, if any, are credited to the allowance. The ALL is based on Management's evaluation of the loan portfolio under current economic conditions and is an amount that Management believes will be adequate to absorb probable losses on loans existing at the reporting date. On a quarterly basis, the Company’s problem asset committee meets to review the watch list of credits, which is formulated from the loan grading system. Members of this committee include loan officers, collection officers, the special assets director, the chief lending officer, the chief credit officer, the chief financial officer and the chief executive officer. The evaluation includes Management’s assessment of several factors: review and evaluation of specific loans, changes in the nature and volume of the loan portfolio, current and anticipated economic conditions and the related impact on specific borrowers and industry groups, a study of loss experience, a review of classified, nonperforming and delinquent loans, the estimated value of any underlying collateral, an estimate of the possibility of loss based on the risk characteristics of the portfolio, adverse situations that may affect the borrower’s ability to repay and the results of regulatory examinations. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. The ALL consists of specific and general components. The specific component relates to loans that are classified as impaired. The general component of the allowance relates to loans that are not impaired. Changes to the components of the ALL are recorded as a component of the provision for the allowance for loan losses. Management must approve changes to the ALL and must report its actions to the Board of Directors. The Company believes that its allowance for loan losses is appropriate at December 31, 2015. The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include troubled debt restructurings and performing and non-performing major loans for which full payment of principal or interest is not expected. Payments received for impaired loans not on nonaccrual status are applied to principal and interest. All impaired loans are reviewed, at a minimum, on a quarterly basis. The Company calculates the specific allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral. Most of the Company’s impaired loans are collateral-dependent. The fair value of the collateral for collateral-dependent loans is based on appraisals performed by third-party valuation specialists, comparable sales and other estimates of fair value obtained principally from independent sources such as the Multiple Listing Service or county tax assessment valuations, adjusted for estimated selling costs. The Company has a Real Estate Appraisal Policy (the “ Policy” ) which is in compliance with the guidelines set forth in the “ Interagency Appraisal and Evaluation Guidelines” which implement Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“ FIRREA” ) and the revised “ Interagency Appraisal and Evaluation Guidelines” issued in 2010. The Policy further requires that appraisals be in writing and conform to the Uniform Standards of Professional Appraisal Practice (“ USPAP” ). An appraisal prepared by a state-licensed or state-certified appraiser is required on all new loans secured by real estate in excess of $250,000. Loans secured by real estate in an amount of $250,000 or less, or that qualify for an exemption under FIRREA, must have a summary appraisal report or in-house evaluation, depending on the facts and circumstances. Factors including the assumptions and techniques utilized by the appraiser, which could result in a downward adjustment to the collateral value estimates indicated in the appraisal, are considered by the Company. When Management determines that a loan is impaired and the loan is collateral-dependent, an evaluation of the fair value of the collateral is performed. The Company maintains established criteria for assessing whether an existing appraisal continues to reflect the fair value of the property for collateral-dependent loans. Appraisals are generally considered to be valid for a period of at least twelve months. However, appraisals that are less than 12 months old may need to be adjusted. Management considers such factors as the property type, property condition, current use of the property, current market conditions and the passage of time when determining the relevance and validity of the most recent appraisal of the property. If Management determines that the most recent appraisal is no longer valid, a new appraisal is ordered from an independent and qualified appraiser. During the interim period between ordering and receipt of the new appraisal, Management considers if the existing appraisal should be discounted to determine the estimated fair value of collateral. Discounts are applied to the existing appraisal and take into consideration the property type, condition of the property, external market data, internal data, reviews of recently obtained appraisals and evaluations of similar properties, comparable sales of similar properties and tax assessment valuations. When the new appraisal is received and approved by Management, the valuation stated in the appraisal is used as the fair value of the collateral in determining impairment, if any. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a specific component of the allowance for loan losses. Any specific reserves recorded in the interim are adjusted accordingly. The general component of the ALL is the loss estimated by applying historical loss percentages to non-classified loans which have been divided into segments. These segments include gaming; residential and land development; real estate, construction; real estate, mortgage; commercial and industrial and all other. The loss percentages are based on each segment’s historical five year average loss experience which may be adjusted by qualitative factors such as changes in the general economy, or economy or real estate market in a particular geographic area or industry. 15 Bank Premises and Equipment Bank premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by the straight-line method based on the estimated useful lives of the related assets. Other Real Estate Other real estate (“ ORE” ) includes real estate acquired through foreclosure. Each other real estate property is carried at fair value, less estimated costs to sell. Fair value is principally based on appraisals performed by third-party valuation specialists. Any excess of the carrying value of the related loan over the fair value of the real estate at the date of foreclosure is charged against the ALL. Any expense incurred in connection with holding such real estate or resulting from any writedowns in value subsequent to foreclosure is included in non-interest expense. When the other real estate property is sold, a gain or loss is recognized on the sale for the difference, if any, between the sales proceeds and the carrying amount of the property. If the fair value of the ORE, less estimated costs to sell at the time of foreclosure, decreases during the holding period, the ORE is written down with a charge to non-interest expense. Generally, ORE properties are actively marketed for sale and Management is continuously monitoring these properties in order to minimize any losses. Trust Department Income and Fees Corporate trust fees are accounted for on an accrual basis and personal trust fees are recorded when received. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss carry forwards, is required to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. The Company currently evaluates income tax positions judged to be uncertain. A loss contingency reserve is accrued if it is probable that the tax position will be challenged, it is probable that the future resolution of the challenge will confirm that a loss has been incurred and the amount of such loss can be reasonably estimated. Post-Retirement Benefit Plan The Company accounts for its post-retirement benefit plan under Accounting Standards Codification (“ Codification” or “ ASC” ) Topic 715, Retirement Benefits (“ ASC 715” ). The under or over funded status of the Company’s post-retirement benefit plan is recognized as a liability or asset in the statement of condition. Changes in the plan’s funded status are reflected in other comprehensive income. Net actuarial gains and losses and adjustments to prior service costs that are not recorded as components of the net periodic benefit cost are charged to other comprehensive income. Earnings Per Share Basic and diluted earnings per share are computed on the basis of the weighted average number of common shares outstanding, 5,123,186 in 2015 and 2014, and 5,128,889 in 2013. Accumulated Other Comprehensive Income (Loss) At December 31, 2015, 2014 and 2013 accumulated other comprehensive income (loss) consisted of net unrealized gains (losses) on available for sale securities and over (under) funded liabilities related to the Company’s post-retirement benefit plan. Statements of Cash Flows The Company has defined cash and cash equivalents to include cash and due from banks. The Company paid $874,890, $1,447,133 and $1,470,945 in 2015, 2014 and 2013, respectively, for in 2014 and 2013, respectively. Loans transferred to other real estate amounted to $7,502,496, $1,345,170 and $4,536,710 in 2015, 2014 and 2013, respectively. Income tax payments totaled $320,000 and $810,000 interest on deposits and borrowings. Fair Value Measurement The Company reports certain assets and liabilities at their estimated fair value. These assets and liabilities are classified and disclosed in one of three categories based on the inputs used to develop the measurements. The categories establish a hierarchy for ranking the quality and reliability of the information used to determine fair value. Reclassification Certain reclassifications have been made to the prior year statements to conform to current year presentation. The reclassifications had no effect on prior year net income. 16 N O T E B - S E C U R I T I E S : The amortized cost and fair value of securities at December 31, 2015, 2014 and 2013, respectively, are as follows (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses $  \\\ 20 176 155 894 1,245 $ (111)   (479) (131) (721) $  \ \\    1,245 $\\\ \\\\\(721) $     222 $     222 $  \\\ 27 115 282 1,180 1,604 $   \\ (16)       (11) $ \  (27)     $ (160)   (1,931) (136) (2,227) $  \\\    1,604 $\\\ \\\\\(2,227) Fair Value $ \   63,754 84,546 30,130 23,727 202,157 650 $  202,807 $    17,713 1,507 \\   19,220 $ $ \   29,654 117,989 35,817 31,012 214,472 650 \   215,122 $  $     132 $       132 (57)       $  \\\ $ \  (57)     $    $ 17,859 \\   17,859 $\\\\   54 734 141 1,248 2,177 $\\ (1,042)  (10,701) (1,269) (1) (13,013) $ \\   2,177 $\\ (13,013) $ $ \\\     13 \\\        13 $   $   (469) (469) $\\\    43,648 145,805 50,326 35,011 274,790 650 $    275,440 $   \\ 10,686 10,686 $   December 31, 2015: Available for sale securities: Debt securities: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Total debt securities Equity securities Total available for sale securities Held to maturity securities: States and political subdivisions Corporate bonds Total held to maturity securities December 31, 2014: Available for sale securities: Debt securities: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Total debt securities Equity securities Total available for sale securities Held to maturity securities: States and political subdivisions Total held to maturity securities December 31, 2013: Available for sale securities: Debt securities: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Total debt securities Equity securities Total available for sale securities Held to maturity securities: States and political subdivisions Total held to maturity securities $ 63,845 84,849 30,106 22,833 201,633 650 $ 202,283 $ $ $ $ $ $ 17,507 1,518 19,025 29,787 119,805 35,671 29,832 215,095 650 215,745 17,784 17,784 $  \\\\\ 44,636 155,772 51,454 33,764 285,626 650 $   286,276 $ $ 11,142 11,142 17 The amortized cost and fair value of debt securities at December 31, 2015 (in thousands) by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available for sale securities: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total Held to maturity securities: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total Amortized Cost $ $ \\\\ 14,913 90,222 37,943 28,449 30,106 \\\\\  201,633 $ 512 7,281 7,520 3,712 19,025 $ Fair Value $\\\\ 14,951 90,542 37,908 28,626 30,130 $ \\\202,157 $ \\\\ 513 7,309 7,634 3,764 $  \\\\19,220 Available for sale and held to maturity securities with gross unrealized losses at December 31, 2015, 2014 and 2013, 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 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Total Fair Value Gross Unrealized Losses December 31, 2015: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Corporate bonds Total $ \\ 39,889 14,894 16,557 2,225 1,507 $ 75,072 December 31, 2014: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Total December 31, 2013: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Total $ \\ 4,968 9,954 5,485 $ 20,407 $ 29,708 113,446 44,269 7,690 195,113 $ $   \\\ 111 87 131 8 11 \ 348 $ $   \\\ 15 22 32 \ 69 1,042 10,322 1,269 470 13,103 $ $   $ $ \\\\\ xxx 12,581 xxx 1,362 $ \\ 13,943 $\\\\\ 14,795 92,923 19,436 1,444 $ \\128,598 $ 2,826 4,621 $ xxx 392 8 $ \\ 400 $ 145 1,909 136 25 $ \\2,215 $ 826 379 $ 4,621 $  379 $  \ 39,889 27,475 16,557 3,587 1,507 89,015 $ $  \  19,763 102,877 19,436 6,929 $ 149,005 $  29,708 118,067 44,269 7,690 $ 199,734 $   $  111 479 131 16 11 748 $   160 1,931 136 57 $  2,284 $   1,042 10,701 1,269 470 $  13,482 At December 31, 2015, 9 of the 15 securities issued by the U.S. Treasury, 4 of the 15 securities issued by U.S. Government agencies, 5 of the 10 mortgage- backed securities, 25 of the 133 securities issued by states and political subdivisions and the corporate bonds contained unrealized losses. Management evaluates securities for other-than-temporary impairment on a monthly basis. In performing this evaluation, the length of time and the extent to which the fair value has been less than cost, the fact that the Company’s securities are primarily issued by U.S. Treasury and U.S. Government agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that we will be required to sell these securities before maturity. While some available for sale securities have been sold for liquidity purposes or for gains, the Company has traditionally held its securities, including those classified as available for sale, until maturity. As a result of this evaluation, the Company has determined that the declines summarized in the tables above are not deemed to be other-than-temporary. As part of its routine evaluation of securities for other-than-temporary impairment, the Company identified a potential credit loss on bonds issued by a municipality with a carrying value of $1,875,000 during 2015. The Company’s evaluation considered the failure of the issuer to make scheduled interest payments and expectations of future performance. Principal and interest payments due under the current terms of the bonds are funded by sales and property tax collections by the related municipality. During the third quarter of 2015, the assessed value of the related real estate parcels was significantly reduced, which will reduce the level of future cash flows supporting the principal and interest payments on the bonds. The present value of the expected future cash flows was calculated by the Company. Based on its evaluation, it was determined that the investment in the bonds was impaired and that a credit loss should be recognized in earnings. During 2015, the Company recorded a loss of $1,695,000 from the credit impairment of these bonds. Accrued interest of $92,564 relating to these securities was also charged off during 2015. Proceeds from sales of available for sale debt securities were $44,279,605 and $26,075,225 during 2014 and 2013, respectively. Available for sale debt securities were sold and called for realized gains of $7,993, $98,859 and $257,997 during 2015, 2014 and 2013, respectively. Securities with a fair value of $168,724,920, $200,474,637 and $262,830,011 at December 31, 2015, 2014 and 2013, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law. 18 N O T E C - L O A N S : The composition of the loan portfolio at December 31, 2015, 2014 and 2013 is as follows (in thousands): December 31, Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total 2015 $  \\\\\\\\\\\\\ 31,655 933 35,414 219,925 42,480 7,150 $  \\\ 337,557 2014 $    31,353 10,119 34,010 234,713 37,534 14,678 $ 362,407 2013 $    29,570 19,403 44,987 237,158 35,007 9,224 375,349 $ In the ordinary course of business, the Company’s bank subsidiary extends loans to certain officers and directors and their personal business interests at, in the opinion of Management, the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans of similar cred- it risk with persons not related to the Company or its subsidiaries. These loans do not involve more than normal risk of collectibility and do not include other unfavorable features. An analysis of the activity with respect to such loans to related parties is as follows (in thousands): Years Ended December 31, Balance, January 1 New loans and advances Repayments Balance, December 31 2015 $ 7,760 458 (3,855) $ \\ 4,363 2014 $ \ 6,761 2,516 (1,517) $\\\ 7,760 2013 $ \ 6,310 1,647 (1,196) $\\\ 6,761 As part of its evaluation of the quality of the loan portfolio, Management monitors the Company’s credit concentrations on a monthly basis. Total outstanding concentrations were as follows (in thousands): December 31, Gaming Hotel/motel Out of area 2015 2014 2013 $ 31,655 $ \\ 31,353 $ \\ 29,570 39,460 14,526 47,144 19,179 49,842 24,945 The age analysis of the loan portfolio, segregated by class of loans, as of December 31, 2015, 2014 and 2013 is as follows (in thousands): Number of Days Past Due 30-59 60-89 Greater Than 90 Total Past Due Current Total Loans Loans Past Due Greater Than 90 Days And Still Accruing December 31, 2015: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total $ 2222 $9,205 851 7,094 1,206 67 $ 9,218 448 3,673 31 $ 4,152 December 31, 2014: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total $ 2222 $9,205 1,665 3,257 1,154 168 $6,244 85 3,101 7 10 $3,203 $5 7,219 323 1,346 1,352 237 $ 3,258 $5 7,219 5,262 1,944 12,007 205 $ 19,418 December 31, 2013: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total $ 2222 51 3,846 6,910 1,192 227 $ 12,226 $9,205 $ 2,684 5 $2,689 13,572 9,452 5,134 $ 28,158 19 $5 7,219 323 2,645 12,119 1,474 67 $ 16,628 $5 7,219 5,262 3,694 18,365 1,366 178 $28,865 $ 13,623 13,298 14,728 1,192 232 $43,073 $ 31,655 610 32,769 207,806 41,006 7,083 $320,929 $ 31,353 4,857 30,316 216,348 36,168 14,500 $333,542 $ 29,570 5,780 31,689 222,430 33,815 8,992 $332,276 $ \\\\\\ 31,655 933 35,414 219,925 42,480 7,150 $ \\ 337,557 $ \\\\\\ 31,353 10,119 34,010 234,713 37,534 14,678 $ \\362,407 $ 29,570 19,403 44,987 237,158 35,007 9,224 $ \\\375,349 $ 205 146 $ 146 $ 205 30 733 $ 763 $ ,205 146 505 $ 651 The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 – 5 is assigned to the loan based on factors including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of A, B, C, S, D, E or F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. A grade of S will generally be applied to loans for customers who meet the criteria for a grade of C but also warrant additional monitoring by placement on the watch list. A grade of D will generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will generally be applied to loans for customers with weaknesses inherent in the D classification and in which collection or liquidation in full is questionable. In addition, on a monthly basis the Company determines which loans are 90 days or more past due and assigns a grade of E to them. A grade of F is applied to loans which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even though partial or full recovery may be possible in the future. An analysis of the loan portfolio by loan grade, segregated by class of loans, as of December 31, 2015, 2014 and 2013 is as follows (in thousands): Loans With A Grade Of: S $\9 \\\ xxx $ December 31, 2015: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2014: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2013: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total A, B or C $\\\\\ \ 31,655 610 31,935 167,286 24,466 7,114 $ \\\ 263,066 $\\\\\ \ 31,353 3,520 27,474 191,458 32,505 14,583 $ \\\ 300,893 $ 23,975 4,236 38,808 204,569 31,902 9,131 $ \\\\ 312,621 16,678 15,007 1 $ \\\\ 31,686 $\9 \\\ 22,953 1,319 723 4,051 25 6 $ \\\\ 6,124 $ \\ 2,500 1,544 781 4,495 682 24 $ \ 10,026 D xxx 883 23,686 2,368 35 26,972 33,077 17 2,496 16,591 1,579 89 20,772 $ $ $ $ 9, 5 51 2,220 17,852 2,402 50 $ \\\\ 22,575 E x,xxx 323 2,596 12,275 639 x,xxx 15,833 x,xxx 5,263 3,317 22,613 3,425 x,xxx 34,618 $ \\\\\ $ $ \\\\\ $ $ 3,095 13,572 3,178 10,242 21 19 $\\\ 30,127 F $ \56 56 $ $ $ \\ $ \56 56 $ $ $ \\ Total 31,655 933 35,414 219,925 42,480 7,150 337,557 31,353 10,119 34,010 234,713 37,534 14,678 362,407 $9\, 5 $ \\\\\\\bn $\\\ 29,570 19,403 44,987 237,158 35,007 9,224 $ 375,349 A loan may be impaired but not on nonaccrual status when the loan is well secured and in the process of collection. Total loans on nonaccrual as of December 31, 2015, 2014 and 2013 are as follows (in thousands): December 31, Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total 2015 $ \\ x,xxx 323 2,523 11,759 581 $ 15,186 2014 $ x,xxx 8,233 3,287 21,398 380 $ \33,298 2013 $ 1,223 13,572 2,588 8,788 2013 $ \26,171 The Company has modified certain loans by granting interest rate concessions to these customers. These loans are in compliance with their modified terms, are currently accruing and the Company has classified them as troubled debt restructurings. Troubled debt restructurings as of December 31, 2015, 2014 and 2013, were as follows (in thousands except for number of contracts): December 31, 2015: Real estate, mortgage Total December 31, 2014: Real estate, mortgage Total December 31, 2013: Real estate, construction Real estate, mortgage Commercial and industrial Total Number of Number of Contracts Pre-Modification Outstanding Recorded Investment 3 3 2 2 2 6 1 9 $ 1,232 $ \\\1,232 $ \\\837 $ \\\837 $ \ 891 10,012 678 $ \\11,581 Post-Modification Outstanding Recorded Investment $ \\ 1,232 $ \\ 1,232 $ \\ 837 $ \\ 837 $ \ 891 10,012 678 $ \\\\\\\\\\\11,581 Related Allowance $ \107 \\ \\\ 107 $ $ \50 \\\ 50 $ $\\\ 270 994 $ \1,264 During 2014, seven loans which had been classified as troubled debt restructurings at December 31, 2013 became in default of their modified terms and were placed on nonaccrual. These loans included two loans that were included in the real estate, construction segment with a total balance of $891,782, four loans that were included in the real estate, mortgage segment with a total balance of $9,136,954 and one loan that was included in the commercial and industrial segment with a balance of $677,901 as of December 31, 2013. 20 Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of December 31, 2015, 2014 and 2013 were as follows (in thousands): Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized December 31, 2015: With no related allowance recorded: Real estate, construction Real estate, mortgage Commercial and industrial Total With a related allowance recorded: Residential and land development Real estate, construction Real estate, mortgage Total Total by class of loans: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total December 31, 2014: With no related allowance recorded: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total With a related allowance recorded: Real estate, construction Real estate, mortgage Total Total by class of loans: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total December 31, 2013: With no related allowance recorded: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total With a related allowance recorded: Gaming Residential and land development Real estate, construction Real estate, mortgage Total Total by class of loans: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total $ w \\\\ 109 252 1,443 1,804 109 252 1,443 $ 1,804 $ \\\\ l 422 2,135 2,557 422 2,135 $ 2,557 $ 0000 626 471 337 1,110 2,544 626 471 337 1,110 $ 2,544 $ 1,878 9,175 653 11,706 343 780 3,920 5,043 343 2,658 13,095 653 $ 16,749 $\\\\\\\\\\8,380 2,222 18,258 384 29,244 1,115 5,996 7,111 8,380 3,337 24,254 384 $\\\36,355 $\\\\\\\\\\\4,465 2,054 9,097 689 16,305 1,316 15,909 1,239 8,801 27,265 1,316 20,374 3,293 17,898 689 $\\\43,570 $ 21 21 21 g 18 18 39 $ 39 $ g 26 26 9 9 35 $ 35 $\\\\\\\000 26 26 24 76 23 306 329 49 332 24 $ \\\\405 $ 1,842 9,014 581 11,437 \\\ \\323 681 3,977 4,981 323 2,523 12,991 581 $ \\\ 16,418 $ \\\ \\9,513 2,198 19,517 380 31,608 1,109 6,591 7,700 9,513 3,307 26,108 380 $ \\\39,308 $ \\ 4,425 2,294 9,722 678 17,119 1,698 17,576 1,185 9,677 30,136 1,698 22,001 3,479 19,399 678 $ \\\47,255 $ 1,842 9,014 581 11,437 323 681 3,977 4,981 323 2,523 12,991 581 $ 16,418 $ 8,233 2,178 16,243 380 27,034 1,109 5,992 7,101 8,233 3,287 22,235 380 $\\\\\\34,135 $ 4,425 2,294 9,123 678 16,520 1,223 9,147 1,185 9,677 21,232 1,223 13,572 3,479 18,800 678 $\\\37,752 21 21 Transactions in the allowance for loan losses for the years ended December 31, 2015, 2014 and 2013, and the balances of loans, individually and collectively evaluated for impairment, as of December 31, 2015, 2014 and 2013 are as follows (in thousands): December 31, 2015: Allowance for Loan Losses: Beginning Balance Charge-offs Recoveries Provision Ending Balance Allowance for Loan Losses: Ending balance: individually\ evaluated for impairment Ending balance: collectively evaluated for impairment Total Loans: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment December 31, 2014: Allowance for Loan Losses: Beginning Balance Charge-offs Recoveries Provision Ending Balance Allowance for Loan Losses: Ending balance: individually\ evaluated for impairment Ending balance: collectively evaluated for impairment Total Loans: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment December 31, 2013: Allowance for Loan Losses: Beginning Balance Charge-offs Recoveries Provision Ending Balance Allowance for Loan Losses: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Total Loans: Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Gaming $ 573 9 $ \\\ 582 $ \\ $ \ \\ 582 $ \\\\ \\\ $\ 31,655 $ 977 (992) 260 328 $ \\\ 573 $ \\ $ \ \\ 573 $ \\\\ \\\ $\ 31,353 $ 1,541 (474) 110 (200) $ \ 977 $ 626 $ 351 $ 3,095 $\26,475 Residential and Land Development Real Estate, Construction Real Estate, Mortgage Commercial and Industrial Other Total $ \ \\\ 251 (1,504) 1,442 189 $ $ \ \\\109 $ \\\ 80 $ 323 $ 610 $ \\\\ 776 (2,060) 1,535 $ \\ 251 $ \\ \\\\ 860 (955) 102 582 $ \\\ 589 $ \\ 6,609 (1,171) 190 (246) \5,382 $ $ \\ 587 (275) 19 744 $ \\\\1,075 $ \\\\\ 326 (203) 79 51 $ \\ 253 $ \\ 9,206 (4,108) 390 2,582 $ 8,070 $ \\\\\\ 484 $ \\ \\ 1,751 $ \\\\ 614 $ \ \\\ 4 $\\\ 2,962 $ \\\\\\ 105 $ \\\\ 3,631 $ \\ 461 $ \\\\ 249 $ \\\\ \5,108 $\\\\\\ 3,479 $ \35,961 $ \ 3,003 $ \\\\ 35 $ 42,801 $ 31,935 $ 183,964 $\\39,477 $ 7,115 $ 294,756 $ \\ \\\\ 695 (127) 35 257 $ \\\ 860 $ \\ 5,553 (368) 193 1,231 \6,609 $ $ \\ 632 (3,948) 20 3,883 $ \\\\ 587 $ \\\\\ 301 (235) 90 170 $ \\ 326 $ \\ 8,934 (7,730) 598 7,404 $ \\9,206 $ \ \\\ $ \\\\\\ 742 $ \\ \\ 2,706 $ \\\\ 289 $ \ \\\ 6 $\\\ 3,743 $ \\\ 251 $ \\\\\\ 118 $ \\\ \3,903 $ \\ 298 $ 320 $ \\\\ \5,463 $\\\\\\ 6,830 $ \ 39,204 $ \ 2,035 $ \\\\ 89 $ 55,390 $\\\\\\\27,180 $ 195,509 $\\\\35,499 $ 14,589 $307,017 $ \\\\\\\ 967 (1,013) 97 644 $ \\\\\\\ 695 $ \\\\\\\ 5,273 (1,048) 150 1,178 $ \\\\\\\ 5,553 $ 593 (24) 26 37 $ \ \\\\632 $ \ 283 (238) 88 168 $ \ \\\\301 $ \\\\8,857 (10,122) 538 9,661 $ \ \\\8,934 $ \\ 615 $ \ 1,698 $ 342 $ 33 $\\ 3,785 $ \\ 80 $ \ 3,855 $ 290 $ 268 $\\\\ 5,149 $ \\\\\\\5,399 $ \ 28,094 $ 2,423 $ 69 $ \52,704 $\\\39,588 $\209,064 $32,584 $ 9,155 $322,645 $ 7,232 $\\\2,887 $\\\\\\\\\ 200 (7,325) 67 7,834 $ \\\\776 $ \\\ 471 $ 305 $13,624 $ 5,779 22 N O T E D - B A N K P R E M I S E S A N D E Q U I P M E N T : Bank premises and equipment are shown as follows (in thousands): December 31, Land Building Furniture, fixtures and equipment Totals, at cost Less: Accumulated depreciation Totals Estimated Useful Lives 5 – 40 years\\\\\\\ 3 – 10 years\\\\\\\\\\\ $ 2015 5,982 30,641 15,879 52,502 30,056 $ 22,446 2014 $  5,982 30,593 15,511 52,086 28,302 $ 23,784 2013 $  5,982 30,540 15,272 51,794 26,486 $ 25,308 N O T E E – O T H E R R E A L E S T A T E : The Company’s other real estate consisted of the following as of December 31, 2015, 2014 and 2013, respectively (in thousands except number of properties): December 31, 2015 2014 2013 Construction, land development and other land 1-4 family residential properties Nonfarm nonresidential Other Total N O T E F – D E P O S I T S : Number of Properties 19 3 4 Balance $ 8,792 368 756 26 $ 9,916 Number of Properties 15 10 14 1 40 Balance $ 5,034 431 2,030 151 $ 7,646 Number of Properties 18 6 17 Balance $ 4,887 180 4,563 41 $ 9,630 At December 31, 2015, the scheduled maturities of time deposits are as follows (in thousands): 2016 2017 2018 2019 2020 Total $ \\\48,120 18,630 3,802 2,562 1,709 $ \\\\ 74,823 Time deposits of $100,000 or more at December 31, 2015 included brokered deposits of $5,000,000, which mature in 2017. Time deposits of $250,000 or more totaled approximately $24,090,000, $25,321,000 and $49,773,000 at December 31, 2015, 2014 and 2013, respectively. Deposits held for related parties amounted to $7,640,079, $6,607,646 and $7,511,446 at December 31, 2015, 2014 and 2013, respectively. Overdrafts totaling $663,511, $822,730 and $764,262 were reclassified as loans at December 31, 2015, 2014 and 2013, respectively. N O T E G – F E D E R A L F U N D S P U R C H A S E D : At December 31, 2015, the Company had facilities in place to purchase federal funds up to $40,000,000 under established credit arrangements. N O T E H – B O R R O W I N G S : At December 31, 2015, the Company was able to borrow up to $28,518,930 from the Federal Reserve Bank Discount Window Primary Credit Program. The borrowing limit is based on the amount of collateral pledged, with certain loans from the Bank’s portfolio serving as collateral. Borrowings bear interest at 25 basis points over the current fed funds rate and have a maturity of one day. There was no outstanding balance at December 31, 2015. At December 31, 2015, the Company had $18,408,666 outstanding in advances under a $61,844,373 line of credit with the FHLB. One advance in the amount of $5,000,000 bears interest at a variable rate of 43.2 basis points above the 1 month LIBOR rate, which was .749% at December 31, 2015, and matures in 2017. An additional advance in the amount of $10,000,000 bears interest at .31% and matured in January of 2016. New advances may subsequently be obtained based on the liquidity needs of the bank subsidiary. The remaining balance consists of smaller advances bearing interest from 2.604% to 7.00% with maturity dates from 2016 – 2042. The advances are collateralized by specific loans, for which certain documents are held in custody by the FHLB, and, if needed, specific investment securities that are held in safekeeping at the FHLB. 23 N O T E I - I N C O M E T A X E S : Deferred taxes (or deferred charges) as of December 31, 2015, 2014 and 2013, included in other assets, were as follows (in thousands): December 31, Deferred tax assets: Allowance for loan losses Employee benefit plans’ liabilities Unrealized loss on available for sale securities, charged from equity Loss on credit impairment of securities Earned retiree health benefits plan liability General business and AMT credits Tax net operating loss carry forward Other Valuation allowance Deferred tax assets Deferred tax liabilities: Unrealized gain on available for sale securities, charged to equity Unearned retiree health benefits plan asset Bank premises and equipment Other Deferred tax liabilities Net deferred taxes Income taxes consist of the following components (in thousands): Years Ended December 31, Current Deferred: Federal Change in valuation allowance Total deferred Totals 2015 2014 $  \\\\2,744 $  3,130 $  4,633 576 1,638 2,011 2,514 1,535 (10,106) 5,545 180 734 4,369 262 5,545 4,490 210 1,638 1,735 651 1,637 (8,140) 5,351 362 4,760 229 5,351 2013 3,037 4,326 3,684 1,638 1,218 13,903 579 5,075 129 5,783 $  \\\ 0 $   \ 8,120 $   \\ 8,120 2015 2014 2013 $ \\\\\ (137) $ \\\ (137) $ \\\ (1,717) (2,728) 1,966 (762) (3,277) 8,140 4,863 (484) (484) $ \ (762) $ 4,726 $ (2,201) Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 34.0% for 2015, 2014 and 2013 to income (loss) before income taxes. The reasons for these differences are shown below (in thousands): Taxes computed at statutory rate $ \ (1,820) 2015 Tax Increase (decrease) resulting from: Tax-exempt interest income Income from BOLI Federal tax credits Other Change in valuation allowance (447) (166) (298) 3 1,966 Total income tax expense (benefit) $ \\\ (762) Rate (34) (8) (3) (6) 37 (14) 2014 Tax $ \ (1,794) (532) (200) (298) (590) 8,140 $ \\\ 4,726 Rate (34) (10) (4) (6) (10) 154 90 2013 Tax $ \ (931) (539) (170) (298) (263) Rate (34) (20) (6) (11) (9) $ (2,201) (80) A valuation allowance is recognized against deferred tax assets when, based on the consideration of all available positive and negative evidence using a more likely than not criteria, it is determined that all or a portion of these tax benefits may not be realized. This assessment requires consideration of all sources of taxable income available to realize the deferred tax asset including taxable income in prior carry-back years, future reversals of existing temporary differences, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. The Company incurred losses on a cumulative basis for the three-year period ended December 31, 2014, which is considered to be significant negative evidence. The positive evidence considered in support was insufficient to overcome this negative evidence. As a result, the Company established a full valuation allowance for its net deferred tax asset in the amount of $8,140,000 as of December 31, 2014. The Company intends to maintain this valuation allowance until it determines it is more likely than not that the asset can be realized through current and future taxable income. If not utilized, the Company’s federal net operating loss of $7,000,000 will begin to expire in 2034. The Company has reviewed its income tax positions and specifically considered the recognition and measurement requirements of the benefits recorded in its financial statements for tax positions taken or expected to be taken in its tax returns. The Company currently has no unrecognized tax benefits that, if recognized, would favorably affect the income tax rate in future periods. 24 Income tax expense (or benefit) for each year is allocated to continuing operations, discontinued operations, other comprehensive income and other charges or credits recorded directly to shareholders’ equity. This allocation is commonly referred to as intra-period tax allocation as outlined in Accounting Standards Codification Topic 740, Income Taxes (“ ASC 740” ). ASC 740 also includes an exception to the general principle of intra-period tax allocation discussed above. This exception requires that all items, i.e., discontinued operations and items charged or credited directly to other comprehensive income, be considered in determining the amount of the tax benefit that results from a loss from continuing operations. That is, when a company has a current period loss from continuing operations, management must consider income recorded in other categories in determining the tax benefit that is allocated to continuing operations. The ASC 740 exception, however, only relates to the allocation of the current year tax provision, which may be zero, and does not change a company’s overall tax provision. Accordingly, for the year ended December 31, 2015, the Company recorded a tax benefit of $762,000 in continuing operations and a corresponding income tax expense in other comprehensive income associated with the increase in the unrealized gain on available for sale securities and the decrease in the unfunded post-retirement benefit obligation. E Q U I T Y : N O T E J - S H A R E H O L D E R S ’ Shareholders’ equity of the Company includes the undistributed earnings of the bank subsidiary. Dividends to the Company’s shareholders can generally be paid only from dividends paid to the Company by its bank subsidiary. Consequently, dividends are dependent upon the earnings, capital needs, regulatory policies and statutory limitations affecting the bank subsidiary. Dividends paid by the bank subsidiary are subject to the written approval of the Commissioner of Banking and Consumer Finance of the State of Mississippi and the Federal Deposit Insurance Corporation (the “ FDIC” ). At December 31, 2015, $11,161,710 of undistributed earnings of the bank subsidiary included in consolidated surplus and retained earnings was available for future distribution to the Company as dividends. Dividends paid by the Company are subject to the written approval of the Federal Reserve Bank (“ FRB” ). On February 25, 2009, the Board approved the repurchase of up to 3% of the outstanding shares of the Company’s common stock. As a result of this repurchase plan, 47,756 shares have been repurchased and retired through December 31, 2015. The Company and the bank subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines must be met that involve quantitative measures of the assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the bank subsidiary and the Company are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. New rules relating to risk-based capital requirements and the method for calculating components of capital and of computing risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act became effective for the Company January 1, 2015. The rules establish a new Common equity Tier 1 minimum capital requirement, increase the minimum capital ratios and assign a higher risk weight to certain assets based on the risk associated with these assets. Quantitative measures established by regulation to ensure capital adequacy require the bank subsidiary to maintain minimum amounts and ratios of Total, Common equity tier 1 and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets. As of December 31, 2015, the most recent notification from the FDIC categorized the bank subsidiary as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank subsidiary must have a Total risk-based capital ratio of 10.00% or greater, a 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 of 5.00% or greater. There are no conditions or events since that notification that Management believes have changed the bank subsidiary’s category. The Company’s actual capital amounts and ratios and required minimum capital amounts and ratios for 2015, 2014 and 2013, are as follows (in thousands): December 31, 2015: Total Capital (to Risk Weighted Assets) Common Equity Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) December 31, 2014: Total Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) December 31, 2013: Total Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) Amount $ \\95,395 89,901 89,901 89,901 $ \\\100,243 94,493 94,493 $ \\\\ 111,141 105,009 105,009 Actual Ratio 21.83% 20.58% 20.58% 13.18% 21.95% 20.70% 13.29% 22.79% 21.54% 13.48% For Capital Adequacy Purposes Ratio Amount $ \\34,954 19,662 26,215 27,291 $ \\36,528 18,264 28,437 $\\\\\\39,022 19,511 31,170 8.00% 4.50% 6.00% 4.00% 8.00% 4.00% 4.00% 8.00% 4.00% 4.00% The bank subsidiary’s actual capital amounts and ratios and required minimum capital amounts and ratios and capital amounts and ratios to be well capitalized for 2015, 2014 and 2013 are as follows (in thousands): December 31, 2015: Total Capital (to Risk Weighted Assets) Common Equity Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) December 31, 2014: Total Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) December 31, 2013: Total Capital (to Risk Weighted Assets) Tier 1 Capital (to Risk Weighted Assets) Tier 1 Capital (to Average Assets) Actual Amount Ratio For Capital Adequacy Purposes Amount Ratio To Be Well Capitalized Ratio Amount $ 91,963 21.09% $ \\34,889 8.00% $ 43,611 10.00% 86,479 86,479 86,479 $ \\\\ 96,427 90,720 90,720 $ \\106,870 100,746 100,746 19.83% 19.83% 13.47% 21.28% 20.02% 13.15% \ 21.94% 20.69% 13.02% 25 19,625 26,166 25,680 $ \\36,247 18,124 27,599 $\\\\\38,968 19,484 30,958 4.50% 6.00% 4.00% 8.00% 4.00% 4.00% 8.00% 4.00% 4.00% 28,347 34,889 32,100 $ \45,309 27,186 34,499 $\\\\\\\ 48,711 29,227 38,697 6.50% 8.00% 5.00% 10.00% 6.00% 5.00% 10.00% 6.00% 5.00% N O T E K - O T H E R I N C O M E A N D E X P E N S E S : \Other income consisted of the following (in thousands): Years Ended December 31, Other service charges, commissions and fees Rentals Other Totals Other expenses consisted of the following (in thousands): Years Ended December 31, Advertising Data processing FDIC and state banking assessments Legal and accounting Other real estate ATM expense Trust expense Other Totals 2015 $ \\\\\\ 109 393 212 $ \\\\\\ 714 2015 $ \\\ 505 1,403 928 785 2,264 1,183 355 2,098 $ \\\\9,521 $ 2014 84 435 113 $ 632 2014 $ 552 1,339 1,033 493 1,610 2,409 323 1,890 $ 9,649 $ 2013 74 433 100 $ 607 2013 $ 596 1,254 870 535 963 2,367 332 1,876 $ 8,793 N O T E L - F I N A N C I A L I N S T R U M E N T S W I T H O F F - B A L A N C E - S H E E T R I S K : The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and irrevocable letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the bank subsidiary has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and irrevocable letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the agreement. Irrevocable letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Commitments and irrevocable letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments and irrevocable letters of credit may expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluated each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on Management's credit evaluation of the customer. Collateral obtained varies but may include equipment, real property and inventory. The Company generally grants loans to customers in its trade area. At December 31, 2015, 2014 and 2013, the Company had outstanding irrevocable letters of credit aggregating $1,919,678, $1,879,678 and $3,059,011, respectively. At December 31, 2015, 2014 and 2013, the Company had outstanding unused loan commitments aggregating $41,935,725, $66,663,320 and $68,171,024, respectively. Approximately $30,601,157, $35,753,000 and $38,324,000 of outstanding commitments were at fixed rates and the remainder was at variable rates at December 31, 2015, 2014 and 2013, respectively. N O T E M - C O N T I N G E N C I E S : The Bank is involved in various legal matters and claims which are being defended and handled in the ordinary course of business. None of these matters are expected, in the opinion of Management, to have a material adverse effect upon the financial position or results of operations of the Company. 26 N O T E N - C O N D E N S E D P A R E N T C O M P A N Y O N L Y F I N A N C I A L I N F O R M A T I O N : Peoples Financial Corporation began its operations September 30, 1985, when it acquired all the outstanding stock of The Peoples Bank, Biloxi, Mississippi. A condensed summary of its financial information is shown below. C O N D E N S E D B A L A N C E S H E E T S ( I N T H O U S A N D S ) : December 31, Assets Investments in subsidiaries, at underlying equity: Bank subsidiary Nonbank subsidiary Cash in bank subsidiary Other assets Total assets Liabilities and Shareholders’ Equity: Other liabilities Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity 2015 2014 2013 $\\ 88,415 $ \\\ 91,179 $ \\\ 94,883 1 28 3,395 1 160 3,611 1 487 3,937 $ \\ 91,839 $ \\\\ 94,951 $ \\\\ 99,308 $ \\ \ $ \\\\ 161 $ \\\\\\ 161 161 91,839 $ \\ 91,839 94,951 $ \\\\\ 94,951 99,147 $ \\\\\ 99,308 C O N D E N S E D S T A T E M E N T S O F O P E R A T I O N S ( I N T H O U S A N D S ) : Years Ended December 31, Income 2015 2014 2013 Undistributed loss of unconsolidated bank subsidiary $ (4,242) Other income (loss) Total loss Expenses Other Total expenses Loss before income taxes Income tax benefit Net loss (208) (4,450) 142 142 (4,592) (762) $ (10,025) (53) (10,078) 124 124 (10,202) (198) $ (494) 57 (437) 122 122 (559) (21) $\\ (4,592) $ (10,004) $ \\\ (538) 27 C O N D E N S E D S T A T E M E N T S O F C A S H F L O W S ( I N T H O U S A N D S ) : Years Ended December 31, Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash provided by (used in) operating activities: (Income) loss on other investments Undistributed loss of unconsolidated subsidiaries Other assets Other liabilities Net cash provided by (used in) operating activities Cash flows from investing activities: Redemption of equity securities Net cash provided by investing activities Cash flows from financing activities: Retirement of stock Dividends paid Net cash used in financing activities Net increase (decrease) in cash Cash, beginning of year Cash, end of year 2015 2014 2013 $ \ (4,592) $ (10,004) $ (538) 218 4,242 (762) (132) (132) 160 64 10,025 25 (161) (51) 236 236 (512) (512) (327) 487 (42) 494 164 78 230  230 (181) (181) 127 360 $ \\\ 28 $ \\ 160 $ \\ 487 N O T E O - E M P L O Y E E A N D D I R E C T O R B E N E F I T P L A N S : The Company sponsors the Peoples Financial Corporation Employee Stock Ownership Plan (“ ESOP” ). Employees who are in a position requiring at least 1,000 hours of service during a plan year and who are 21 years of age are eligible to participate in the ESOP. The Plan included 401(k) provisions and the former Gulf National Bank Profit Sharing Plan. Effective January 1, 2001, the ESOP was amended to separate the 401(k) funds into the Peoples Financial Corporation 401(k) Profit Sharing Plan. The separation had no impact on the eligibility or benefits provided to participants of either plan. The 401(k) provides for a matching contribution of 75% of the amounts contributed by the employee (up to 6% of compensation). Contributions are determined by the Board of Directors and may be paid either in cash or Peoples Financial Corporation common stock. Total contributions to the plans charged to operating expense were $260,000, $280,000 and $220,000 in 2015, 2014 and 2013, respectively. Compensation expense of $7,576,755, $7,678,640 and $7,594,790 was the basis for determining the ESOP contribution allocation to participants for 2015, 2014 and 2013, respectively. The ESOP held 285,785, 315,269 and 359,030 allocated shares at December 31, 2015, 2014 and 2013, respectively. The Company established an Executive Supplemental Income Plan and a Directors' Deferred Income Plan, which provide for pre-retirement and post-retirement benefits to certain key executives and directors. Benefits under the Executive Supplemental Income Plan are based upon the position and salary of the officer at retirement or death. Normal retirement benefits under the plan are equal to 67% of salary for the president and chief executive officer, 58% of salary for the executive vice president and 50% of salary for all other executive officers and are payable monthly over a period of fifteen years. Under the Directors’ Deferred Income Plan, the directors are given an opportunity to defer receipt of their annual directors’ fees until age sixty-five. For those who choose to participate, benefits are payable monthly for ten years beginning the first day of the month following the director’s normal retirement date. The normal retirement date is the later of the normal retirement age (65) or separation of service. Interest on deferred fees accrues at an annual rate of ten percent, compounded annually. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary, which it may use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted to $16,820,058, $16,370,384 and $15,824,497 at December 31, 2015, 2014 and 2013, respectively. The present value of accumulated benefits under these plans, using an interest rate of 4.50% in 2015, 2014 and 2013, and the interest ramp-up method has been accrued. The accrual amounted to $11,813,343, $11,465,119 and $11,004,738 at December 31, 2015, 2014 and 2013, respectively, and is included in Employee and director benefit plans liabilities. The Company also has additional plans for post-retirement benefits for certain key executives. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary, which it may use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted to $1,473,607, $1,346,910 and $1,218,175 at December 31, 2015, 2014 and 2013, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.25% in 2015 and 4.50% in 2014 and 2013, and the projected unit cost method has been accrued. The accrual amounted to $1,519,537, $1,450,280, and $1,435,554 at December 31, 2015, 2014 and 2013, respectively, and is included in Employee and director benefit plans liabilities. 28 Additionally, there are two endorsement split dollar policies, with the bank subsidiary as owner and beneficiary, which provide a guaranteed death benefit to the participants’ beneficiaries. These contracts are carried at their cash surrender value, which amounted to $284,664, $277,278 and $269,271 at December 31, 2015, 2014 and 2013, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.50% in 2015, 2014 and 2013, and the projected unit cost method has been accrued. The accrual amounted to $82,202, $80,997 and $78,759 at December 31, 2015, 2014 and 2013, respectively, and is included in Employee and director benefit plans liabilities. The Company has additional plans for post-retirement benefits for directors. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary, which it may use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted to $157,051, $150,687 and $138,001 at December 31, 2015, 2014 and 2013, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.25% in 2015 and 4.50% in 2014 and 2013, and the projected unit cost method has been accrued. The accrual amounted to $212,662, $210,207 and $206,650 at December 31, 2015, 2014 and 2013, respectively, and is included in Employee and director benefit plans liabilities. The Company provides post-retirement health insurance to certain of its retired employees. Employees are eligible to participate in the retiree health plan if they retire from active service no earlier than their Social Security normal retirement age, which varies from 65 to 67 based on the year of birth. In addition, the employee must have at least 25 continuous years of service with the Company immediately preceding retirement. However, any active employee who was at least age 65 as of January 1, 1995, does not have to meet the 25 years of service requirement. The accumulated post-retirement benefit obligation at January 1, 1995, was $517,599, which the Company elected to amortize over 20 years. The Company reserves the right to modify, reduce or eliminate these health benefits. The Company has chosen to not offer this post-retirement benefit to individuals entering the employ of the Company after December 31, 2006. Effective January 1, 2012, the Company amended the retiree health plan. This amendment requires that employees who are eligible and enroll in the bank subsidiary’s group medical and dental health care plans upon their retirement must enroll in Medicare Parts A, B and D when first eligible upon their retirement from the bank subsidiary. This results in the bank subsidiary’s programs being secondary insurance coverage for retired employees and any dependent(s), if applicable, while Medicare Parts A and B will be their primary coverage, and Medicare Part D will be the sole and exclusive prescription drug benefit plan for retired employees. This amendment reduced the accumulated post-retirement benefit obligation by $3,799,308 as of December 31, 2011. Effective January 1, 2014, the Company amended the retiree health plan. This amendment reduces the age for eligibility to 60 for those employees meeting all other eligibility requirements. This amendment increased the accumulated post-retirement benefit obligation by $1,150,229 as of December 31, 2013. The following is a summary of the components of the net periodic post-retirement benefit cost (credit)(in thousands): Years Ended December 31, Service cost Interest cost Amortization of net gain Amortization of prior service credit $ \ 2015 94 102 (44) (82) $ 2014 105 132 (14) (81) $ 2013 55 82 (2) (183) Net periodic post-retirement benefit cost (credit) $ \\ 70 $ 142 $ (48) The discount rate used in determining the accumulated post-retirement benefit obligation was 4.20% in 2015, 4.00% in 2014 and 4.80% in 2013. The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation was 6.75% in 2015. The rate was assumed to decrease gradually to 5.00% for 2022 and remain at that level thereafter. If the health care cost trend rate assumptions were increased 1.00%, the accumulated post-retirement benefit obligation as of December 31, 2015, would be increased by 13.81%, and the aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for the year then ended would have increased by 17.85%. If the health care cost trend rate assumptions were decreased 1.00%, the accumulated post-retirement benefit obligation as of December 31, 2015, would be decreased by 11.28%, and the aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for the year then ended would have decreased by 14.23%. The following table presents the estimated benefit payments for each of the next five years and in the aggregate for the next five years (in thousands): 2016 2017 2018 2019 2020 2021 – 2025 $191 146 119 57 78 808 The following is a reconciliation of the accumulated post-retirement benefit obligation, which is included in Employee and director benefit plans liabilities (in thousands): Accumulated post-retirement benefit obligation as of December 31, 2014 Service cost Interest cost Actuarial gain Benefits paid Accumulated post-retirement benefit obligation as of December 31, 2015 $   3,570 94 102 (1,221) (37) $  2,508 29 The following is a summary of the change in plan assets (in thousands): Fair value of plan assets at beginning of year Actual return on assets Employer contribution Benefits paid, net Fair value of plan assets at end of year 2015 2014 2013 $  $ 37 (37) $ $\\\ $ \\j $ l 90 (90) 64 (64) Amounts recognized in the Accumulated Other Comprehensive Income (Loss), net of tax, were (in thousands): For the year ended December 31, 2015 2014 2013 Net gain (loss) Prior service charge Total accumulated other comprehensive income $ 697 730 \\\\\\ 1,427 $ $ (80) 783 703 $ $ 288 837 1,125 $ Amounts recognized in the accumulated post-retirement benefit obligation and other comprehensive income (loss) were (in thousands): For the year ended December 31, Unrecognized actuarial gain Amortization of prior service cost Total accumulated other comprehensive gain 2015 $ 1,176 (82) $ \ 1,094 The prior service credit that will be recognized in accumulated other comprehensive income during 2016 is $81,381. N O T E P - F A I R V A L U E M E A S U R E M E N T S A N D D I S C L O S U R E S : The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record other assets at fair value on a non-recurring basis, such as impaired loans and ORE. These non-recurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments. Fair Value Hierarchy The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 - Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. Following is a description of valuation methodologies used to determine the fair value of financial assets and liabilities. Cash and Due from Banks The carrying amount shown as cash and due from banks approximates fair value. Available for Sale Securities The fair value of available for sale securities is based on quoted market prices. The Company’ s available for sale securities are reported at their estimated fair value, which is determined utilizing several sources. The primary source is Interactive Data Corporation, which utilizes pricing models that vary based by asset class and include available trade, bid and other market information and whose methodology includes broker quotes, proprietary models and vast descriptive databases. 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. Other Investments The carrying amount shown as other investments approximates fair value. Federal Home Loan Bank Stock The carrying amount shown as Federal Home Loan Bank Stock approximates fair value. Loans The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the remaining maturities. The cash flows considered in computing the fair value of such loans are segmented into categories relating to the nature of the contract and collateral based on contractual principal maturities. Appropriate adjustments are made to reflect probable credit losses. Cash flows have not been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value of floating rate loans is estimated to be its carrying value. At each reporting period, the Company determines which loans are impaired. Accordingly, the Company’s impaired loans are reported at their estimated fair value on a non-recurring basis. An allowance for each impaired loan, which are generally collateral-dependent, is calculated based on the fair value of its collateral. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the recorded investment in the impaired loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses. Impaired loans are non-recurring Level 3 assets. 30 Other Real Estate In the course of lending operations, Management may determine that it is necessary to foreclose on the related collateral. Other real estate acquired through foreclosure is carried at fair value, less estimated costs to sell. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the current appraisal is more than one year old and/or the loan balance is more than $200,000, a new appraisal is obtained. Otherwise, the Bank’s in-house property evaluator and Management will determine the fair value of the collateral, based on comparable sales, market conditions, Management’s plans for disposition and other estimates of fair value obtained from principally independent sources, adjusted for estimated selling costs. Other real estate is a non-recurring Level 3 asset. Cash Surrender Value of Life Insurance The carrying amount of cash surrender value of bank-owned life insurance approximates fair value. Deposits The fair value of non-interest bearing demand and interest bearing savings and demand deposits is the amount reported in the financial statements. The fair value of time deposits is estimated by discounting the cash flows using current rates for time deposits with similar remaining maturities. The cash flows considered in computing the fair value of such deposits are based on contractual maturities, since approximately 98% of time deposits provide for automatic renewal at current interest rates. Borrowings from Federal Home Loan Bank The fair value of FHLB fixed rate borrowings is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements. The fair value of FHLB variable rate borrowings is estimated to be its carrying value. The balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level within the fair value hierarchy and by investment type, as of December 31, 2015, 2014 and 2013, were as follows (in thousands): Fair Value Measurements Using Level 2 $ \\\\\\\ 63,754 84,546 30,130 23,547 650 $ \\\\\\\\ 202,627 Fair Value Measurements Using Level 2 $ \\\\\\\29,654 117,989 35,817 31,012 650 $ \\\\\\\\ 215,122 Fair Value Measurements Using Level 2 $ 43,648 145,805 50,326 35,011 650 $ \\\ 275,440 Level 3 $287 ,078 180 $28 7,180 Level 3 $287 ,078 $28 7,078 Level 3 $28 7,078 $28 7,078 December 31, 2015: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Equity securities Total December 31, 2014: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Equity securities Total December 31, 2013: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Equity securities Total Level 1 $287,078 $287,078 Level 1 $287,078 $287,078 Level 1 $287,078 $287,078 Total $ 63,754 84,546 30,130 23,727 650 $ 202,807 Total $ 29,654 117,989 35,817 31,012 650 $ \\\\\ 215,122 Total $ \\\ 43,648 145,805 50,326 35,011 650 $ 275,440 31 Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of December 31, 2015, 2014 and 2013 were as follows (in thousands): December 31: 2015 2014 2013 $ Total \\\\ 4,981 \\\\ 10,610 18,831 Fair Value Measurements Using Level 2 $ \\\7,078 \\\7,078 Level 1 $87,\\\78 87,\\\78 287,07820 Level 3 $\\\ 4,981 \\\ 10,610 18,831 Other real estate, which is measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of December 31, 2015, 2014 and 2013 are as follows (in thousands): December 31: 2015 2014 2013 Total $ \ 9,916 \ 7,646 9,630 Level 1 287,078$$$$ \\ \k \\ \k 287,078$$$ Fair Value Measurements Using Level 2 $ \ j \ j Level 3 $ 9,916 7,646 9,630 The following table presents a summary of changes in the fair value of other real estate which is measured using Level 3 inputs (in thousands): For the year ended December 31, Balance, beginning of year Loans transferred to ORE Sales Writedowns Insurance proceeds from casualty loss Balance, end of year 2015 $ \\\ 7,646 7,502 (4,295) (937) $ 2014 9,630 1,345 (2,068) (1,261) $ \ 9,916 $ \7,646 $ 2013 7,008 4,537 (1,188) (670) (57) $ \9,630 32 The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at December 31, 2015, 2014 and 2013, are as follows (in thousands): December 31,2015: Financial Assets: Cash and due from banks Available for sale securities Held to maturity securities Other Investments Federal Home Loan Bank stock Loans, net Other real estate Cash surrender value of life insurance Financial Liabilities: Deposits: Non-interest bearing Interest bearing Borrowings from Federal Home Loan Bank December 31,2014: Financial Assets: Cash and due from banks Available for sale securities Held to maturity securities Other Investments Federal Home Loan Bank stock Loans, net Other real estate Cash surrender value of life insurance Financial Liabilities: Deposits: Non-interest bearing Interest bearing Borrowings from Federal Home Loan Bank December 31,2013: Financial Assets: Cash and due from banks Available for sale securities Held to maturity securities Other Investments Federal Home Loan Bank stock Loans, net Other real estate Cash surrender value of life insurance Financial Liabilities: Deposits: Non-interest bearing Interest bearing Borrowings from Federal Home Loan Bank Total $ 31,396 202,807 19,220 2,744 1,637 331,026 9,916 18,735 122,743 390,205 19,731 $ 23,556 215,122 17,859 2,962 2,504 355,004 7,646 18,145 103,607 413,672 40,720 $ 36,264 275,440 10,686 3,262 3,834 369,117 9,630 17,456 107,117 452,174 79,051 Carrying Amount Level 1 Fair Value Measurements Using Level 2 Level 3 $287,078 202,627 19,220 1,637 18,735 19,731 $287,078 215,122 17,859 2,504 18,145 40,720 $287,078 275,440 10,686 3,834 17,456 79,051 $287,078 180 331,026 9,916 390,205 $287,078 355,004 7,646 413,672 $287,078 369,117 9,630 452,174 $ 31,396 202,807 19,025 2,744 1,637 329,487 9,916 18,735 122,743 389,964 18,409 $ 23,556 215,122 17,784 2,962 2,504 353,201 7,646 18,145 103,607 413,313 38,708 $ 36,264 275,440 11,142 3,262 3,834 366,415 9,630 17,456 107,117 461,080 77,684 $ 31,396 2,744 122,743 $ 23,556 2,962 103,607 $ 36,264 3,262 107,117 33 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M To the Board of Directors and Shareholders Peoples Financial Corporation Biloxi, Mississippi We have audited the accompanying consolidated statements of condition of Peoples Financial Corporation and subsidiaries (the “ Company” ) as of December 31, 2015, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peoples Financial Corporation and subsidiaries as of December 31, 2015, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in conformity with United States generally accepted accounting principles. Atlanta, Georgia March 15, 2016 34 F I V E - Y E A R C O M P A R A T I V E S U M M A R Y O F S E L E C T E D F I N A N C I A L I N F O R M A T I O N ( I N T H O U S A N D S E X C E P T P E R S H A R E D A T A ) : Peoples Financial Corporation and Subsidiaries Balance Sheet Summary Total assets Available for sale securities Held to maturity securities Loans, net of unearned discount Deposits Borrowings from FHLB Shareholders' equity Summary of Operations Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income Non-interest expense Income (loss) before taxes Income tax expense (benefit) Net income (loss) Per Share Data 2015 2014 2013 2012 2011 $    641,004 $    668,895 $    762,264 $    804,912 $    804,152 202,807 19,025 337,557 512,707 18,409 91,839 215,122 17,784 362,407 516,920 38,708 94,951 275,440 11,142 375,349 568,197 77,684 99,147 258,875 7,125 431,083 669,953 7,912 110,754 278,918 1,428 432,407 626,040 53,324 109,452 $   19,311 $   22,156 $   24,956 $   24,628 $   25,033 875 18,436 2,582 15,854 6,898 28,106 (5,354) (762) 1,441 20,715 7,404 13,311 8,619 27,208 (5,278) 4,726 1,447 23,509 9,661 13,848 9,067 25,654 (2,739) (2,201) 2,067 22,561 4,264 18,297 9,529 25,277 2,549 (92) 3,178 21,855 2,935 18,920 9,860 28,781 (1) (1,204) $ \\\ (4,592) $ (10,004) $ (538) $ 2,641 $ 1,203 Basic and diluted earnings per share $ \\ (.90) $   (1.95) $   (.10) $   Dividends per share Book value Weighted average number of shares Selected Ratios Return on average assets Return on average equity Primary capital to average assets Risk-based capital ratios: Tier 1 Total 17.93 5,123,186 (.69%) (4.92%) 15.06% 20.58% 21.83% .10 18.53 19.35 .51 .20 21.56 $   .23 .19 21.31 5,123,186 5,128,889 5,136,918 5,136,918 (1.38%) (10.31%) 14.38% 20.70% 21.95% (.07%) (.51%) 13.64% 21.54% 22.79% .32% 2.40% 14.71% 20.04% 21.29% .15% 1.14% 14.59% 19.61% 20.86% 35 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S Summary of Quarterly Results of Operations (In Thousands Except per Share Data): Quarter Ended, 2015 Interest income Net interest income Provision for loan losses Loss before income taxes Net income (loss) Basic and diluted earnings (loss) per share March 31 $   4,965 4,755 986 (1,151) (1,151) (.22) Quarter Ended, 2014 Interest income Net interest income Provision for loan losses Income (loss) before income taxes Net income (loss) Basic and diluted earnings (loss) per share March 31 $   5,847 5,561 537 490 579 .11 June 30 $   4,808 4,594 1,536 (1,605) (1,605) (.32) June 30 $   5,750 5,389 537 100 335 .07 September 30 $\\\\\\\\\ 4,747 4,511 285 (2,553) (2,553) (.50) September 30 $\\\\\\\\\ 5,467 4,896 3,541 (3,053) (1,799) (.35) December 31 $ \\\\   4,791 4,576 (225) (45) 717 .14 December 31 $ \\\\   5,092 4,869 2,789 (2,815) (9,119) (1.78) Market Information The Company's stock is traded under the symbol PFBX and is quoted in publications under "PplFnMS". The following table sets forth the high and low sale prices of the Company's common stock as reported on the NASDAQ Stock Market. Year 2015 2014 Quarter 1st 2nd 3rd 4th 1st 2nd 3rd 4th High $  12.44 10.99 11.15 9.85 $  13.75 13.75 13.66 13.59 $    $    Low 10.00 9.21 9.31 8.90 12.91 12.12 12.86 12.35 Dividend per share $  \\    - - - $  \\    - .10 - - Performance Graph The graph below compares the Company's annual percentage change in cumulative total shareholder return on common shares over the last five years with the cumulative total return of a broad equity market index of companies, the NASDAQ Market Index, and a peer group consisting of the Morningstar Industry Group, Regional - Southeast Banks (“ Morningstar” ). This presentation assumes $100 was invested in shares of the relevant issuers on January 1, 2011, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one year intervals. For purposes of constructing this data, the returns of each component issuer have been weighted according to that issuer's market capitalization. 36 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S C O R P O R A T E I N F O R M A T I O N Corporate Office Mailing Address P. O. Box 529 Biloxi, MS 39533-0529 Physical Address 152 Lameuse Street Biloxi, MS 39530 (228) 435-8205 Website www.thepeoples.com Corporate Stock Shareholder Information For investor relations and general information about Peoples Financial Corporation: Paul D. Guichet, Vice-President The Peoples Bank, Biloxi, Mississippi P.O. Box 529, Biloxi, MS 39533-0529 (228) 435-8761 e-mail: investorrelations@thepeoples.com For information about the common stock of Peoples Financial Corporation, including dividend reinvestment and other transfer agent inquiries: Asset Management and Trust Services Department The Peoples Bank, Biloxi, Mississippi The common stock of Peoples Financial Corporation is traded P.O. Box 1416, Biloxi, MS 39533-1416 on the NASDAQ Capital Market under the symbol: PFBX. (228) 435-8208 The current market makers are: e-mail: investorrelations@thepeoples.com FIG Partners LLC Hovde Capital Advisors Knight Equity Markets, L.P. Raymond James Financial, Inc. Stifel Nicolaus & Co. Sterne, Agee & Leach, Inc. Independent Registered Public Accounting Firm Porter Keadle Moore, LLC Atlanta, Georgia S.E.C. Form 10-K Requests A copy of the Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, may be obtained without charge by directing a written request to: Lauri A. Wood, Chief Financial Officer and Controller Peoples Financial Corporation P. O. Box 529, Biloxi, Mississippi 39533-0529 (228) 435-8412 e-mail: lwood@thepeoples.com 37 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S B R A N C H L O C A T I O N S The Peoples Bank, Biloxi, Mississippi Biloxi Branches Main Office Other Branches Bay St. Louis Office 152 Lameuse Street, Biloxi, Mississippi 39530 408 Highway 90 East, Bay St. Louis, Mississippi 39520 (228) 435-5511 (228) 897-8710 Asset Management and Trust Services Department Diamondhead Office Personal and Corporate Trust Services 758 Vieux Marche, Biloxi, Mississippi 39530 5429 West Aloha Drive, Diamondhead, Mississippi 39525 (228) 897-8714 (228) 435-8208 Cedar Lake Office D’Iberville-St. Martin Office 10491 Lemoyne Boulevard, D’Iberville, Mississippi 39532 1740 Popps Ferry Road, Biloxi, Mississippi 39532 (228) 435-8202 (228) 435-8688 Keesler Air Force Base Office 1507 Meadows Drive Keesler AFB, MS 39534 (228) 435-8690 West Biloxi Office 2560 Pass Road, Biloxi, Mississippi 39531 (228) 435-8203 Gulfport Branches Armed Forces Retirement Home Office Gautier Office 2609 Highway 90, Gautier, Mississippi 39553 (228) 497-1766 Long Beach Office 298 Jeff Davis Avenue, Long Beach, Mississippi 39560 (228) 897-8712 Ocean Springs Office 2015 Bienville Boulevard, Ocean Springs, Mississippi 39564 (228) 435-8204 1800 Beach Drive, Gulfport, Mississippi 39507 Pass Christian Office (228) 897-8724 301 East Second Street, Pass Christian, Mississippi 39571 Downtown Gulfport Office 1105 30th Avenue, Gulfport, Mississippi 39507 Saucier Office (228) 897-8719 (228) 897-8715 Handsboro Office 17689 Second Street, Saucier, Mississippi 39574 (228) 897-8716 0412 E. Pass Road, Gulfport, Mississippi 39507 Waveland Office (228) 897-8717 Orange Grove Office 470 Highway 90, Waveland, Mississippi 39576 (228) 467-7257 12020 Highway 49 North, Gulfport, Mississippi 39503 Wiggins Office (228) 897-8718 1312 S. Magnolia Drive, Wiggins, Mississippi 39577 (228) 897-8722 38 P E O P L E S F I N A N C I A L C O R P O R A T I O N A N D S U B S I D I A R I E S B O A R D O F D I R E C T O R S B O A R D O F D I R E C T O R S Peoples Financial Corporation B O A R D O F D I R E C T O R S The Peoples Bank, Biloxi, Mississippi Chevis C. Swetman, Chairman of the Board Chevis C. Swetman, Chairman Dan Magruder, Vice Chairman; President, Rex Distributing Co., Inc. Tyrone J. Gollott, Vice-Chairman; President, G & W Enterprises, Inc. Drew Allen, President,Allen Beverages, Inc. Drew Allen, President, Allen Beverages, Inc. Rex E. Kelly, Principal, Strategic Communications A. Wes Fulmer, Executive Vice-President, Peoples Financial Corporation Jeffrey H. O’Keefe, President, Bradford-O’Keefe Funeral Homes, Inc. and The Peoples Bank, Biloxi, Mississippi O F F I C E R S Liz Corso Joachim, President, Frank P. Corso, Inc. Rex E. Kelly, Principal, Strategic Communications Peoples Financial Corporation Dan Magruder, President, Rex Distributing Co., Inc. Chevis C. Swetman, President and Chief Executive Officer Jeffrey H. O’Keefe, President, Bradford-O’Keefe Funeral Homes, Inc. A. Wes Fulmer, Executive Vice-President Ann F. Guice, First Vice-President S E N I O R M A N A G E M E N T J. Patrick Wild, Second Vice-President The Peoples Bank, Biloxi, Mississippi Evelyn R. Herrington, Vice-President and Secretary Chevis C. Swetman, President and Chief Executive Officer Lauri A. Wood, Chief Financial Officer and Controller A. Wes Fulmer, Executive Vice-President Lauri A. Wood, Senior Vice-President and Cashier Ann F. Guice, Senior Vice-President J. Patrick Wild, Senior Vice-President Evelyn R. Herrington, Senior Vice-President 39 

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