Peoples Financial Corp.
Annual Report 2017

Plain-text annual report

To Our Shareholders, We are extremely pleased with our financial results for 2017, our second consecutive year of profitability. A variety of factors contributed to our financial progress including impressive growth in non-interest income of 6% and significant asset quality improvement as loan recoveries increased by 142%, loan charge-offs decreased by 92%, and the provision for loan losses was reduced 80%. Additionally, during 2017 the company continued to expand initiatives designed to enhance service to our customers and further increase operational efficiencies. Several of these initiatives included enhancements to our mobile app, technology advancements, and implementing advanced cybersecurity systems. In December of 2017, the board of directors of Peoples Financial Corporation appointed two new directors to the board of The Peoples Bank; Mr. Ron G. Barnes, President and Chief Executive Officer of Coast Electric Power Association, has over 22 years of service in the utility industry. Coast Electric is headquartered in Hancock County and provides power to approximately 80,000 homes and businesses along the Mississippi Gulf Coast. Also appointed to the bank board was Ms. Paige R. Riley, a life-long resident of the Mississippi Gulf Coast and owner of the highly successful Hillyer House gallery, a nationally recognized award winning gallery featuring exceptional works of art from local, regional and national artists. For over 121 years, our culture has focused on providing a variety of banking and financial services and exceptional service to our customers. Our board of directors and employees are devoted to continuing our legacy of service and contributing to the prosperity of the Mississippi Gulf Coast. 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, 2017, 2016 and 2015. 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. FORWARD-LOOKING INFORMATION Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This act provides a safe harbor for such disclosure which protects the companies from unwarranted litigation if actual results are different from management expectations. This report contains forward-looking statements and reflects industry conditions, company performance and financial results. These forward- looking statements are subject to a number of factors and uncertainties which could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements. Such factors and uncertainties include, but are not limited to: changes in interest rates and market prices, changes in local economic and business conditions, increased competition for deposits and loans, a deviation in actual experience from the underlying assumptions used to determine and establish the allowance for loan losses, changes in the availability of funds resulting from reduced liquidity, changes in government regulations and acts of terrorism, weather or other events beyond the Company’s control. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (“FASB”) issued new accounting standards updates in 2017, which have been disclosed in Note A to the Consolidated Financial Statements. The Company does not generally expect that these updates will have a material impact on its financial position or results of operations. However the effect of Accounting Standards Update 2016-13 is still being considered. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and assumptions on 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. 1 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. 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. GAAP Reconciliation and Explanation This report contains non-GAAP financial measures determined by methods other than in accordance with GAAP. Such non- GAAP financial measures include taxable equivalent interest income and taxable equivalent net interest income. Management uses these non-GAAP financial measures because it believes they are useful for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial results, as well as comparison to financial results for prior periods. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled financial measures used by other companies. A reconciliation of these operating performance measures to GAAP performance measures for the years ended December 31, 2017, 2016 and 2015 is included in the table below. RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES (IN THOUSANDS) Years ended December 31, Interest income reconciliation: Interest income - taxable equivalent Taxable equivalent adjustment Interest income (GAAP) Net interest income reconciliation: Net interest income - taxable equivalent Taxable equivalent adjustment Net interest income (GAAP) $ 19,048 (545) $ 18,503 $ 17,625 (545) $ 17,080 2017 $ 19,121 (628) $ 18,493 $ 18,096 (628) $ 17,468 $ 19,969 (658) $ 19,311 $ 19,094 (658) $ 18,436 2016 2015 OVERVIEW The Company is a community bank serving the financial and trust needs of its customers in our trade area, which is defined as those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the bank subsidiary’s three most outlying locations. Maintaining a strong core deposit base and providing commercial and real estate lending in our trade area are the traditional focuses of the Company. Growth has largely been achieved through de novo branching activity, and it is expected that these strategies will continue to be emphasized in the future. The Company recorded net income of $2,758,000 for 2017 compared with net income of $167,000 for 2016 and a net loss of $4,592,000 for 2015. Results in 2017 were significantly impacted by the continuing decrease in the provision for the allowance for loan losses, a non-recurring gain from the redemption of death benefits on bank owned life insurance and a tax benefit. 2 Results in 2016 included a decrease in net interest income and non-interest income, which were offset by a decrease in the provision for the allowance for loan losses and non-interest expense, as compared with 2015. Managing the net interest margin in the Company’s highly competitive market continues to be very challenging. While the decrease in interest and fees on loans of $1,262,000 was offset by an increase on interest and dividends on securities of $1,130,000, net interest income was also impacted by the increase in interest expense of $398,000 for 2017 as compared with 2016. The increase in interest expense on deposits resulted from the increase in cost of funds during 2017. Net interest income was impacted primarily by the decrease in interest income on loans of $527,000 and the decrease in interest income on taxable available for sale securities of $620,000 for 2016 as compared with 2015. 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 $13,810,000, $11,854,000 and $15,186,000 at December 31, 2017, 2016 and 2015, 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 $116,000, $568,000 and $2,582,000 for 2017, 2016 and 2015, respectively. Non-interest income increased $416,000 for 2017 as compared with 2016 and decreased $349,000 for 2016 as compared with 2015. Results for 2017 included a non-recurring gain of $429,000 from the redemption of death benefits on bank owned life insurance. Results in 2016 included a decrease in service charges on deposit accounts of $500,000 for 2016 as compared with 2015 primarily as a result of decreased ATM fee income. Non-interest expense decreased $953,000 for 2017 as compared with 2016 and decreased $4,902,000 for 2016 as compared with 2015. The decrease for 2017 was primarily the result of a decrease in net occupancy of $202,000 and the decrease in FDIC and state banking assessments of $477,000. The decrease for 2016 was the result of the decrease in salaries and employee benefits of $628,000, ORE expenses of $1,396,000 and ATM expenses of $628,000 as compared with 2015. There was not an impairment in 2016 but results for 2015 were impacted by a write-down of $1,695,000 from the credit impairment of a municipal security. In 2017, the Company recorded an income tax benefit as a result of the release of a part of its valuation allowance on deferred assets and the correction of refunds for prior years. Income tax expense in 2016 related to the resolution of an examination by the Internal Revenue Service. The income tax benefit for 2015 related to change in the valuation allowance. RESULTS OF OPERATIONS Net Interest Income Net interest income, the amount by which interest income on loans, investments and other interest-earning assets exceeds interest expense on deposits and other borrowed funds, is the single largest component of the Company’s income. Management’s objective is to provide the largest possible amount of income while balancing interest rate, credit, liquidity and capital risk. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities combined with changes in market rates of interest directly affect net interest income. 2017 as compared with 2016 The Company’s average interest-earning assets increased approximately $1,687,000, or .28%, from approximately $598,682,000 for 2016 to approximately $600,369,000 for 2017. Average loans decreased approximately $37,490,000 due to principal payments, maturities, charge-offs and foreclosures on existing loans significantly exceeding new loans. Average taxable held to maturity securities increased approximately $20,827,000 and average taxable available for sale securities increased approximately $28,547,000 as funds not needed for liquidity and lending needs were invested in securities. The average yield on interest-earning assets was 3.19% for 2016 compared with 3.17% for 2017. The yield on average loans increased from 4.34% for 2016 to 4.47% for 2017 as a result of the increase in prime rate during 2016 and 2017. The yield on taxable held to maturity securities increased from 2.15% for 2016 to 2.56% for 2017 and taxable available for sale securities increased from 1.36% for 2016 to 1.52% for 2017 as the Company changed its investment strategy to improve yield while not compromising duration and credit risk. Average interest-bearing liabilities decreased approximately $8,058,000, or 2%, from approximately $445,685,000 for 2016 to approximately $437,627,000 for 2017. Average borrowings from the Federal Home Loan Bank (“FHLB”) decreased due to the reduced liquidity needs of the bank subsidiary. The average rate paid on interest-bearing liabilities increased 10 basis points, from .23% for 2016 to .33% for 2017. The increase was the result of time deposit rates increasing in our trade area and the Company paying off lower rate borrowings from the FHLB. The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.02% for 2016 as compared with 2.94% for 2017. 3 2016 as compared with 2015 The Company’s average interest-earning assets decreased approximately $1,598,000, or .27%, from approximately $600,280,000 for 2015 to approximately $598,682,000 for 2016. Average balances due from depository institutions increased approximately $20,338,000 primarily as a result of the decrease in average loans of approximately $28,475,000 due to principal payments, maturities, charge-offs and foreclosures on existing loans significantly exceeding new loans. The average yield on interest-earning assets was 3.33% for 2015 compared with 3.19% for 2016. The yield on average loans increased from 4.14% for 2015 to 4.34% for 2016 as a result of the increase in prime rate during 2015 and 2016. This increase was offset by the yield on taxable available for sale securities, which decreased from 1.72% for 2015 to 1.36% for 2016 as investment purchases had shorter durations, and therefore lower yields, in anticipation of rising rates. Average interest-bearing liabilities decreased approximately $4,539,000, or 1%, from approximately $450,224,000 for 2015 to approximately $445,685,000 for 2016. Average borrowings from the FHLB decreased due to the liquidity needs of the bank subsidiary. The average rate paid on interest-bearing liabilities increased 4 basis points, from .19% for 2015 to .23% for 2016. The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.18% for 2015 as compared with 3.02% for 2016. The tables below analyze the changes in tax-equivalent net interest income for the years ended December 31, 2017, 2016 and 2015. ANALYSIS OF AVERAGE BALANCES, INTEREST EARNED/PAID AND YIELD (IN THOUSANDS) 2017 2016 2015 Average Balance Earned/Paid Rate Interest Average Balance Earned/Paid Rate Interest Average Balance Earned/Paid Rate Interest $ 290,329 $ 12,970 4.47% $ 327,819 $ 14,232 4.34% $ 356,294 $ 14,759 4.14% 27,819 420 1.51% 31,559 277 0.88% 11,221 63 0.56% 29,389 19,082 753 717 2.56% 3.76% 217,059 15,677 1,014 3,298 864 26 1.52% 5.51% 2.56% 8,562 19,596 188,512 20,902 1,732 184 725 2.15% 3.70% 2,558 1,123 22 1.36% 5.37% 1.27% 452 17,645 184,458 27,744 2,466 9 600 1.99% 3.40% 3,178 1,338 22 1.72% 4.82% 0.89% Loans (1) (2) Balances due from depository institutions Held to maturity: Taxable Non taxable (3) Available for sale: Taxable Non taxable (3) Other Total $ 600,369 $ 19,048 3.17% $ 598,682 $ 19,121 3.19% $ 600,280 $ 19,969 3.33% Savings and interest-bearing DDA Time deposits Borrowings from FHLB $ 353,352 82,038 2,237 $ 739 637 47 0.21% 0.78% 2.10% $ 359,801 77,644 8,240 $ 437 457 131 0.12% 0.59% 1.59% $ 349,782 74,923 25,519 $ 306 371 198 0.09% 0.50% 0.78% Total $ 437,627 $ 1,423 0.33% $ 445,685 $ 1,025 0.23% $ 450,224 $ 875 0.19% Net tax-equivalent spread Net tax-equivalent margin on earning assets 2.84% 2.94% 2.97% 3.02% 3.14% 3.18% (1) Loan fees of $338, $389 and $333 for 2017, 2016 and 2015, respectively, are included in these figures. (2) Includes nonaccrual loans. (3) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2017, 2016 and 2015. See disclosure of Non- GAAP financial measures on page 2. 4 ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE (IN THOUSANDS) 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: Taxable Non taxable Available for sale securities: Taxable Non taxable Other For the Year Ended December 31, 2017 Compared With December 31, 2016 Rate Rate/Volume Total $ 413 199 35 11 306 29 23 $ 1,016 $ 315 146 42 $ 503 $ (47) (23) 86 47 (7) (9) $ 47 $ (5) 8 (31) $ (28) $ (1,262) 143 569 (8) 740 (259) 4 $ (73) $ 302 180 (84) $ 398 For the Year Ended December 31, 2016 Compared With December 31, 2015 Rate Rate/Volume Total $ 709 35 $ (56) 65 $ (527) 214 1 53 (675) 153 9 13 6 (15) (38) (2) 175 125 (620) (215) Volume $ (1,628) (33) 448 (19) 387 (281) (10) $ (1,136) $ (8) 26 (95) $ (77) Volume $ (1,180) 114 161 66 70 (330) (7) Total $ (1,106) $ 285 $ (27) $ (848) Interest paid on: Savings and interest-bearing DDA Time deposits Borrowings from FHLB Total $ 9 13 (134) $ (112) $ 119 70 207 $ 396 $ 3 3 (140) $ (134) $ 131 86 (67) $ 150 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 $13,810,000, $11,854,000 and $15,186,000 with specific reserves on these loans of $1,125,000, $303,000 and $1,697,000 as of December 31, 2017, 2016 and 2015, 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 $116,000, $568,000 and $2,582,000 in 2017, 2016 and 2015, respectively. As a result of receiving new information and updated appraisals on several collateral-dependent loans, the Company increased the provision for several loans in its real estate, mortgage portfolio in 2017. This increase was partially offset by a large recovery in its residential and land development portfolio during the year. As a result of receiving new information and updated appraisals on several collateral-dependent loans, the Company increased its provision for loan losses during 2016 and 2015. The new appraisals caused Management to update the evaluation of these loans and increase the loan loss provision for several non-performing loans in its residential development and commercial real estate segments during these years. The allowance for loan losses as a percentage of loans was 2.19%, 1.73% and 2.39% at December 31, 2017, 2016 and 2015, respectively. The Company believes that its allowance for loan losses is appropriate as of December 31, 2017. 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 2017 as compared with 2016 Total non-interest income increased $416,000 in 2017 as compared with 2016. This increase was primarily a result of the gain of $429,000 from the redemption of death benefits on bank owned life insurance in 2017. Income from other investments increased $93,000 in 2017 as compared with 2016 as operations of an investment in a low income housing partnership improved as a result of increased occupancy. These increases were partially offset by a decrease in other income as 2016 results included a gain of $88,000 from bank premises. 2016 as compared with 2015 Total non-interest income decreased $349,000 in 2016 as compared with 2015. Service charges on deposit accounts decreased $500,000 primarily as a result of decreased ATM fees. ATM fees decreased $416,000 as the Company’s off-site ATMs at a casino transferred to another vendor during 2015 which reduced ATM transactions. Securities were sold during 2016 for a gain of $158,000 in 2016 as compared with a gain of $8,000 in 2015. Non-interest Expense 2017 as compared with 2016 Total non-interest expense decreased $953,000 in 2017 as compared with 2016. Salaries and employee benefits decreased $139,000 primarily as a result of decreased health insurance costs due to decreased claims. Net occupancy costs decreased 6 $202,000 as liability insurance premiums decreased $125,000 as the Company reduced some of its coverage and as telecommunications costs decreased $81,000 as the Company eliminated some redundant resources. FDIC and state banking assessments decreased $477,000 as the regulators decreased the premiums for deposit insurance in 2017. 2016 as compared with 2015 Total non-interest expense decreased $4,902,000 in 2016 as compared with 2015. Salaries and employee benefits decreased $628,000 primarily as a result of decreased salaries and health insurance costs. Salaries decreased $247,000 due to attrition. Health insurance costs decreased $434,000 as a result of decreasing claims. The Company recorded a loss of $1,695,000 from the credit impairment of a municipal security during 2015. Other expense decreased $2,682,000 for 2016 as compared with 2015. This decrease was primarily the result of a decrease in ATM expenses, legal and other real estate expenses. ATM expense decreased $628,000 as a result of decreased ATM activity as off-site ATMs at a casino transferred to another vendor. Legal expenses decreased $252,000 primarily as a result of legal fees associated with non-performing loans. Decreased write downs of other real estate to fair value and a reduction in losses on sales of ORE caused these expenses to decrease $1,396,000 in 2016 as compared with 2015. Income Taxes The Company recognized an income tax benefit of $1,080,000 and $762,000 in 2017 and 2015, respectively, and income tax expense of $78,000 in 2016. During 2014, Management established a valuation allowance against its net deferred tax asset of approximately $8,140,000. As of December 31, 2017, the valuation allowance is still in place. The 2017 benefit was the result of the impact of the elimination of alternative minimum tax credit carryforwards from new tax legislation and the correction of refunds for prior years. 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 valuation allowance. FINANCIAL CONDITION Cash and due from banks decreased $15,835,000 at December 31, 2017, compared with December 31, 2016 due to the bank subsidiary’s reduced liquidity needs. Available for sale securities increased $12,086,000 and held to maturity securities increased $3,013,000 at December 31, 2017 compared with December 31, 2016 as the Company invested some of its excess funding not currently needed for loans in order to improve earnings. Loans decreased $34,906,000 at December 31, 2017 compared with December 31, 2016, as principal payments, maturities, charge-offs and foreclosures on existing loans exceeded new loans. Total deposits decreased $45,446,000 at December 31, 2017, as compared with December 31, 2016. 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. Savings and demand, interest bearing balances specifically decreased $46,697,000 at December 31, 2017 as one public customer transferred a large balance to another financial institution. Borrowings from the FHLB increased $4,941,000 at December 31, 2017 as compared with December 31, 2016 based on the liquidity needs of the bank subsidiary. SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY Strength, security and stability have been the hallmark of the Company since its founding in 1985 and of its bank subsidiary since its founding in 1896. A strong capital foundation is fundamental to the continuing prosperity of the Company and the security of its customers and shareholders. 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 banking regulatory authorities. Significant transactions affecting shareholders’ equity during 2017 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. LIQUIDITY Liquidity represents the Company’s ability to adequately provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing sources of funds. Note L to the Consolidated Financial Statements discloses information relating to financial instruments with off-balance-sheet risk, including letters 7 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 generally anticipates relying on deposits, purchases of federal funds and borrowings from the FHLB for its liquidity needs in 2018. REGULATORY MATTERS During 2016, Management identified opportunities for improving information technology operations and security, risk management and earnings, addressing asset quality concerns, analyzing and assessing the Bank’s management and staffing needs, and managing concentrations of credit risk as a result of its own investigation as well as examinations performed by certain bank regulatory agencies. In concert with the regulators, the Company has identified specific corrective steps and actions to enhance its information technology operations and security, risk management, earnings, asset quality and staffing. The Company and the Bank may not declare or pay any cash dividends without the prior written approval of their regulators. OFF-BALANCE SHEET ARRANGEMENTS 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) DECEMBER 31, Assets Cash and due from banks Available for sale securities Held to maturity securities, fair value of $50,538 - 2017; $46,935 - 2016; $19,220 - 2015 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, 5,083,186 shares issued and outstanding at December 31, 2017 and 5,123,186 shares issued and outstanding at December 31, 2016 and 2015 Surplus Undivided profits Accumulated other comprehensive income (loss), net of tax Total shareholders’ equity 2017 2016 2015 $ 25,281 245,664 $ 41,116 233,578 $ 31,396 202,807 51,163 2,735 1,370 280,449 6,153 274,296 20,153 8,232 1,904 18,301 1,325 48,150 2,693 539 315,355 5,466 309,889 21,644 8,513 1,855 19,249 788 19,025 2,744 1,637 337,557 8,070 329,487 22,446 9,916 1,832 18,735 979 $ 650,424 $ 688,014 $ 641,004 $ 127,274 318,278 43,991 40,027 529,570 11,198 18,370 1,787 560,925 5,083 65,780 21,563 (2,927) 89,499 $ 132,381 364,975 38,650 39,010 575,016 6,257 16,768 1,512 599,553 5,123 65,780 19,318 (1,760) 88,461 $ 122,743 315,141 35,389 39,434 512,707 18,409 16,283 1,766 549,165 5,123 65,780 19,151 1,785 91,839 Total liabilities and shareholders’ equity $ 650,424 $ 688,014 $ 641,004 See Notes to Consolidated Financial Statements. 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 2017 2016 2015 $ 12,970 $ 14,232 $ 14,759 (In thousands except per share data) YEARS ENDED DECEMBER 31, 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 1,602 531 1,320 1,634 26 420 18,503 1,376 47 1,423 17,080 116 Net interest income after provision for allowance for loan losses 16,964 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 Gain from death benefits from 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 Income (loss) before income taxes Income tax (benefit) expense Net income (loss) Basic and diluted earnings (loss) per share Dividends declared per share See Notes to Consolidated Financial Statements. 1,689 3,732 134 42 458 429 481 6,965 10,949 2,121 3,006 6,175 22,251 1,678 (1,080) $ 2,758 $ .54 $ .01 10 1,133 872 600 1,325 53 278 18,493 894 131 1,025 17,468 568 16,900 1,614 3,763 158 (51) 406 659 6,549 11,088 2,323 2,954 6,839 23,204 245 78 626 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) $ 167 $ .03 $ $ (4,592) $ (.90) $ 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 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) YEARS ENDED DECEMBER 31, Net income (loss) Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on available for sale securities, net of tax of $390 for the year ended December 31, 2015 Reclassification adjustment for realized gains on available for sale securities called or sold in current year, net of tax of $3 for the year ended December 31, 2015 Gain (loss) from unfunded post-retirement benefit obligation, net of tax of $372 for the year ended December 31, 2015 Total other comprehensive income (loss) 2017 $ 2,758 2016 2015 $ 167 $ (4,592) 127 (3,345) 762 (134) (158) (5) (1,160) (1,167) (42) (3,545) 723 1,480 Total comprehensive income (loss) $ 1,591 $ (3,378) $ (3,112) 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 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands except share and per share data) Number of Common Shares Common Stock Balance, January 1, 2015 5,123,186 $ 5,123 Net loss Other comprehensive income Surplus $ 65,780 Accumulated Other Undivided Comprehensive Income (Loss) Profits Total $ 23,743 (4,592) $ 305 $ 94,951 1,480 (4,592) 1,480 Balance, December 31, 2015 5,123,186 5,123 65,780 19,151 1,785 91,839 Net income Other comprehensive loss Balance, December 31, 2016 5,123,186 5,123 65,780 Net income Retirement of stock Cash dividend ($.01 per share) Other comprehensive loss (40,000) (40) 167 167 (3,545) (3,545) 19,318 2,758 (462) (51) (1,760) 88,461 2,758 (502) (51) (1,167) (1,167) Balance, December 31, 2017 5,083,186 $ 5,083 $ 65,780 $ 21,563 $ (2,927) $ 89,499 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) YEARS ENDED DECEMBER 31, Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (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 from other investments Gain from death benefits from life insurance Amortization of available for sale securities Amortization of held to maturity securities Gain on liquidation, sales and calls of securities Increase in cash surrender value of life insurance 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 (Purchase) redemption of Federal Home Loan Bank Stock Proceeds from sales of other real estate Loans, net change Acquisition of premises and equipment Investment in cash surrender value of life insurance Proceeds from death benefits from life insurance Net cash provided by (used in) investing activities Cash flows from financing activities: Demand and savings deposits, net change Time deposits, net change Cash dividends Retirement of stock Borrowings from Federal Home Loan Bank Repayments to Federal Home Loan Bank Net cash provided by (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. 2017 2016 2015 $ 2,758 $ 167 $ (4,592) 1,823 568 782 (251) 51 30 181 (158) (406) (23) 191 189 3,144 149,715 (183,861) 510 (29,816) 1,098 2,775 17,127 (1,021) (108) (43,581) 59,472 2,837 98,920 (111,072) 50,157 9,720 31,396 41,116 $ 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 $ 1,914 116 460 101 (42) (429) 287 253 (134) (458) (49) (537) 717 4,957 71,315 (83,561) 7,725 (10,991) (831) 1,666 33,531 (423) (94) 1,929 20,266 (51,804) 6,358 (51) (502) 131,500 (126,559) (41,058) (15,835) 41,116 $ 25,281 13 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 S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S NOTE A – BUSINESS AND SUMMA RY OF SI GN I F IC A N T A CC OU N T I N G POL 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 May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU prescribes the process related to the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 became effective on January 1, 2018 for the Company. As most of the Company’s revenue streams are excluded from the scope of the update, the adoption of this ASU will not have a material effect on the Company’s financial position, results of operations or cash flows. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is in the process of determining the effect of ASU 2016-13 on its financial position, results of operations and cash flows. In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. ASU 2017-03 incorporates into the Accounting Standards Codification recent SEC guidance about disclosing the effect on financial statements of adopting the revenue, leases and credit losses standards. This update is effective upon issuance. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 amends the requirements related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 shortens the amortization period for the premium on such securities to the earliest call date. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. 14 In November 2017, the FASB issued ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606). ASU 2017-14 brings existing SEC staff guidance into conformity with the FASB’s adoption of amendments to Topic 606. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this 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 $564,000, $4,240,000 and $2,084,000 for the years ending December 31, 2017, 2016 and 2015, 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. 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. 15 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, 2017. 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 16 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. 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 of 5,123,076 in 2017 and 5,123,186 in 2016 and 2015. Accumulated Other Comprehensive Income (Loss) At December 31, 2017, 2016 and 2015, 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 $1,420,399, $1,020,177 and $874,890 in 2017, 2016 and 2015, respectively, for interest on deposits and borrowings. Income tax payments totaled $78,435 in 2016. Loans transferred to other real estate amounted to $1,946,045, $1,903,427 and $7,502,496 in 2017, 2016 and 2015, respectively. 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. 17 NOTE B – SECURITIES : The amortized cost and fair value of securities at December 31, 2017, 2016 and 2015, respectively, are as follows (in thousands): December 31, 2017: 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: U.S. Government agencies States and political subdivisions Total held to maturity securities December 31, 2016: 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: U.S. Government agencies States and political subdivisions Corporate bond Total held to maturity securities 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 bond Total held to maturity securities Amortized Cost Gross Unrealized Gains Gross Unrealized Losses $ 0 96 292 388 $ (2,176) (158) (1,042) (3,376) $ 388 $ (3,376) $ 0 227 $ 227 $ 39 58 74 450 621 $ (302) (550) $ (852) $ (2,091) (206) (1,305) (3,602) $ 621 $ (3,602) $ 0 29 $ 29 $ 20 176 155 894 1,245 $ (315) (927) (2) $ (1,244) $ (111) (479) (131) (721) $ 1,245 $ (721) $ 222 $ 222 $ (16) (11) $ (27) $ 124,820 19,989 89,207 14,178 248,194 458 $ 248,652 $ 8,185 42,978 $ 51,163 $ 149,676 24,973 43,939 17,513 236,101 458 $ 236,559 $ 10,009 36,677 1,464 $ 48,150 $ 63,845 84,849 30,106 22,833 201,633 650 $ 202,283 $ 17,507 1,518 $ 19,025 18 Fair Value $ 122,644 19,831 88,261 14,470 245,206 458 $ 245,664 $ 7,883 42,655 $ 50,538 $ 147,624 24,825 42,708 17,963 233,120 458 $ 233,578 $ 9,694 35,779 1,462 $ 46,935 $ 63,754 84,546 30,130 23,727 202,157 650 $ 202,807 $ 17,713 1,507 $ 19,220 The amortized cost and fair value of debt securities at December 31, 2017, (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 $ 47,862 88,005 22,787 333 89,207 $ 248,194 $ 694 14,336 20,555 15,578 $ 51,163 Fair Value $ 47,725 86,907 21,961 352 88,261 $ 245,206 $ 693 14,296 20,235 15,314 $ 50,538 Available for sale and held to maturity securities with gross unrealized losses at December 31, 2017, 2016 and 2015, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands): Less Than Twelve Months Over Twelve Months Total December 31, 2017: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Total December 31, 2016: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Corporate bond Total Fair Value $ 49,586 8,145 60,230 11,552 $ 129,513 $ 97,634 24,478 37,663 24,627 Gross Unrealized Losses $ 364 37 415 168 $ 984 $ 2,091 521 1,305 926 $ 184,402 $ 4,843 December 31, 2015: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Corporate bond Total $ 39,889 14,894 16,557 2,225 1,507 $ 75,072 $ 111 87 131 8 11 $ 348 Fair Value $ 73,0580 14,567 13,492 7,010 $ 108,127 Gross Unrealized Losses $ 1,812 423 627 382 $ 3,244 $ 0 $ 0 589 1,462 $ 2,051 1 2 $ 3 $ 0 12,581 $ 0 392 1,362 8 $ 13,943 $ 400 Fair Value $ 122,644 22,712 73,722 18,562 $ 237,640 $ 97,634 24,478 37,663 25,216 1,462 $ 186,453 $ 39,889 27,475 16,557 3,587 1,507 $ 89,015 Gross Unrealized Losses $ 2,176 460 1,042 550 $ 4,228 $ 2,091 521 1,305 927 2 $ 4,846 $ 111 479 131 16 11 $ 748 At December 31, 2017, 25 of the 25 securities issued by the U.S. Treasury, 5 of the 6 securities issued by U.S. Government agencies, 27 of the 35 mortgage-backed securities, and 53 of the 148 securities issued by states and political subdivisions contained unrealized losses. Management evaluates securities for other-than-temporary impairment on a monthly basis. In performing this evaluation, the length of time and the extent to which the fair value has been less than cost, the fact that the Company’s securities are primarily issued by U.S. Treasury and U.S. Government agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that 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. During 2017 and 2016, payments were received from the municipality which resulted in the Company recognizing a gain of $20,000 and $53,861, respectively. 19 Proceeds from sales of available for sale debt securities were $30,748,797, $29,641,206 and $5,007,993 during 2017, 2016 and 2015, respectively. Available for sale debt securities were sold and called for realized gains of $133,986, $157,925 and $7,993 during 2017, 2016 and 2015, respectively. Securities with a fair value of $196,702,218, $180,659,168 and $168,724,920 at December 31, 2017, 2016 and 2015, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law. NOTE C – LOANS: The composition of the loan portfolio at December 31, 2017, 2016 and 2015 is as follows (in thousands): December 31, Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total 2017 $ 26,142 263 31,947 189,201 26,360 6,536 $ 280,449 2016 $ 31,311 291 32,503 206,172 37,035 8,043 $ 315,355 2015 $ 31,655 933 35,414 219,925 42,480 7,150 $ 337,557 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 credit 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): Balance, January 1 New loans and advances Repayments Balance, December 31 2017 $ 6,658 907 (1,022) $ 6,543 2016 $ 7,608 312 (1,262) $ 6,658 2015 $ 7,760 3,958 (4,110) $ 7,608 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 2017 $ 26,142 34,882 14,597 2016 $ 31,311 40,319 14,461 2015 $ 31,655 39,460 14,526 The age analysis of the loan portfolio, segregated by class of loans, as of December 31, 2017, 2016 and 2015 is as follows (in thousands): Number of Days Past Due 30-59 60-89 Greater Than 90 Total Past Due Current Loans Past Due Greater Than 90 Days and Still Accruing Total Loans $ 0 $ 0 $ 0 $ 0 December 31, 2017: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2016: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2015: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total 747 5,321 375 26 $ 6,469 121 790 2 3 $ 916 $ 0 $ 0 902 4,608 867 44 $ 6,421 216 1,923 36 $ 2,175 $ 0 $ 0 448 3,673 31 851 7,094 1,206 67 $ 9,218 522 4,884 2,344 $ 7,750 $ 0 291 1,082 4,471 8 80 $ 5,932 $ 0 323 1,346 1,352 237 $ 26,142 263 30,557 178,206 23,639 6,507 $ 265,314 $ 31,311 30,303 195,170 36,160 7,883 $ 300,827 $ 31,655 610 32,769 207,806 41,006 7,083 $ 320,929 $ 26,142 263 31,947 189,201 26,360 6,536 $ 280,449 $ 31,311 291 32,503 206,172 37,035 8,043 $ 315,355 $ 31,655 933 35,414 219,925 42,480 7,150 $ 337,557 $ 0 $ ) $ 0 $ ) $ 0 146 $ 146 1,390 10,995 2,721 29 $ 15,135 $ 0 291 2,200 11,002 875 160 $ 14,528 $ 0 323 2,645 12,119 1,474 67 $ 16,628 $ 4,152 $ 3,258 20 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, 2017, 2016 and 2015 is as follows (in thousands): A, B or C S D E F Total Loans With A Grade Of: December 31, 2017: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2016: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2015: Gaming Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total $ 26,142 $ $ 30,412 148,284 23,133 6,516 $ 234,487 11,550 $ 11,550 358 19,606 265 16 $ 20,245 $ 31,311 $ $ 29,954 155,671 13,926 7,996 $ 238,858 435 17,651 21,680 $ 39,766 517 22,901 867 42 $ 24,327 $ 263 1,177 9,761 2,962 4 $ 14,167 $ 291 1,597 9,949 562 5 $ 12,404 $ 31,655 610 31,935 167,286 24,466 7,114 $ 263,066 $ $ $ 16,678 15,007 1 $ 31,686 883 23,686 2,368 35 $ 26,972 323 2,596 12,275 639 $ 15,833 $ $ $ $ $ $ $ 26,142 263 31,947 189,201 26,360 6,536 $ 280,449 $ 31,311 291 32,503 206,172 37,035 8,043 $ 315,355 $ 31,655 933 35,414 219,925 42,480 7,150 $ 337,557 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, 2017, 2016 and 2015 are as follows (in thousands): December 31, Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total 2017 $ 263 1,177 9,548 2,818 4 $ 13,810 2016 $ 291 1,598 9,445 515 5 $ 11,854 2015 $ 323 2,523 11,759 581 $ 15,186 Prior to 2015, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During 2017, 2016 and 2015, the Company did not restructure any additional loans. Specific reserves of $86,000, $100,000 and $107,000 have been allocated to troubled debt restructurings as of December 31, 2017, 2016, and 2015, respectively. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of December 31, 2017, 2016 and 2015. 21 Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of December 31, 2017, 2016 and 2015 were as follows (in thousands): Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized December 31, 2017: With no related allowance recorded: Real estate, construction Real estate, mortgage Commercial and industrial Other Total With a related allowance recorded: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Total Total by class of loans: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total December 31, 2016: 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 Other Total Total by class of loans: Residential and land development Real estate, construction Real estate, mortgage Commercial and industrial Other Total 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 $ 967 8,025 884 4 9,880 263 210 2,672 1,934 5,079 263 1,177 10,697 2,818 4 $ 14,959 $ 1,331 9,282 515 11,128 291 267 1,347 5 1,910 291 1,598 10,629 515 5 $ 13,038 $ 1,842 9,014 581 11,437 323 681 3,977 4,981 323 2,523 12,991 581 $ 16,418 $ 40 105 725 342 1,212 40 105 725 342 $ 1,212 $ $ $ 66 141 195 1 403 66 141 195 1 403 109 252 1,443 1,804 109 252 1,443 $ 1,804 $ 1,024 8,654 916 4 10,598 275 226 2,676 1,923 5,100 275 1,250 11,330 2,839 4 $ 15,698 $ 1,395 10,582 538 12,515 304 283 1,080 1 1,668 304 1,678 11,662 538 1 $ 14,183 $ 1,878 9,175 653 11,706 343 780 3,920 5,043 343 2,658 13,095 653 $ 16,749 $ 31 31 28 28 59 $ 59 $ 23 23 30 30 53 $ 53 $ 21 21 18 18 39 $ 39 $ 1,441 8,920 922 4 11,287 263 210 3,556 1,934 5,963 263 1,651 12,476 2,856 4 $ 17,250 $ 2,023 11,811 553 14,387 291 267 1,347 5 1,910 291 2,290 13,158 553 5 $ 16,297 $ 2,228 9,771 619 12,618 323 814 3,977 5,114 323 3,042 13,748 619 $ 17,732 22 Transactions in the allowance for loan losses for the years ended December 31, 2017, 2016 and 2015, and the balances of loans, individually and collectively evaluated for impairment, as of December 31, 2017, 2016 and 2015 are as follows (in thousands): Residential and Land Development Real Estate, Real Estate, Mortgage Construction Commercial and Industrial Gaming Other Total December 31, 2017: 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, 2016: 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, 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 $ 545 $ 66 $ 199 $ 3,800 (8) 29 484 4,305 $ $ 651 (36) 11 266 892 $ $ 205 (235) 92 116 178 $ 5,466 (279) 850 116 6,153 $ 32 (29) 202 $ (9) $ 536 $ 686 (712) 40 $ $ 40 $ 536 $ $ $ $ 105 $ 1,082 $ 636 $ 6 $ 1,869 97 $ 3,223 $ 256 $ 172 $ 4,284 $ $ 263 $ 1,536 $ 29,367 $ 3,228 $ 18 $ 34,412 $ 26,142 $ $ 30,411 $ 159,834 $ 23,132 $ 6,518 $ 246,037 $ 582 $ 189 $ (37) 545 (123) 66 $ $ $ $ 66 $ 545 $ $ $ $ 589 (260) 71 (201) 199 $ $ 5,382 (2,499) 107 810 3,800 $ 1,075 (509) 62 23 651 $ $ $ 253 (254) 110 96 205 $ 8,070 (3,522) 350 568 5,466 $ 141 $ 424 $ 214 $ 15 $ 860 58 $ 3,376 $ 437 $ 190 $ 4,606 $ $ 291 $ 2,114 $ 32,850 $ 1,430 $ 47 $ 36,732 $ 31,311 $ $ 30,389 $ 173,322 $ 35,605 $ 7,996 $ 278,623 $ $ $ $ $ 573 $ 251 (1,504) 9 582 1,442 189 $ $ $ 109 80 582 $ $ $ $ 860 (955) 102 582 589 $ $ 6,609 (1,171) 190 (246) 5,382 $ 587 (275) 19 744 $ 1,075 484 $ 1,751 105 $ 3,631 $ $ 614 461 $ $ $ $ 326 (203) 79 51 253 $ 9,206 (4,108) 390 2,582 $ 8,070 4 $ 2,962 249 $ 5,108 $ 323 $ 3,479 $ 35,961 $ 3,003 $ 35 $ 42,801 $ 31,655 $ 610 $ 31,935 $ 183,964 $ 39,477 $ 7,115 $ 294,756 23 NOTE D – BANK PR EMISES A N D E QU IP 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 2017 5,783 $ 30,681 16,758 53,222 33,069 $ 20,153 $ 2016 5,792 30,650 16,422 52,864 31,220 $ 21,644 $ 2015 5,982 30,641 15,879 52,502 30,056 $ 22,446 NOTE E – OTHE R REAL ESTAT E : The Company’s other real estate consisted of the following as of December 31, 2017, 2016 and 2015, respectively (in thousands except number of properties): 2017 2016 2015 Construction, land development and other land 1-4 family residential properties Nonfarm nonresidential Total NOTE F – DEPOSITS: Number of Properties 14 5 19 Balance $ 6,670 1,562 $ 8,232 Number of Properties 19 3 3 25 Balance $ 7,658 202 653 $ 8,513 Number of Properties 19 3 4 26 Balance $ 8,792 368 756 $ 9,916 At December 31, 2017, the scheduled maturities of time deposits are as follows (in thousands): 2018 2019 2020 2021 2022 Total $ $ 53,797 24,780 2,061 1,498 1,882 84,018 Time deposits of $250,000 or more totaled approximately $20,494,000, $25,143,000 and $24,090,000 at December 31, 2017, 2016 and 2015, respectively. Deposits held for related parties amounted to $9,279,315, $17,713,230 and $7,640,079 at December 31, 2017, 2016 and 2015, respectively. Overdrafts totaling $466,812, $800,557 and $663,511 were reclassified as loans at December 31, 2017, 2016 and 2015, respectively. NOTE G – FEDER AL F UNDS P U R C HA SE D: At December 31, 2017, the Company had facilities in place to purchase federal funds up to $40,000,000 under established credit arrangements. NOTE H – BORROWINGS: At December 31, 2017, the Company was able to borrow up to $18,399,650 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, 2017. At December 31, 2017, the Company had $11,197,954 outstanding in advances under a $63,980,560 line of credit with the FHLB. One advance in the amount of $10,000,000 bears interest at 1.45% at December 31, 2017, and matures in 2018. 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 2030 – 2040. 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. 24 NOTE I – INCOME TAXE S: Deferred taxes (or deferred charges) as of December 31, 2017, 2016 and 2015, included in other assets, were as follows (in thousands): December 31, 2017 2016 2015 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 carryforward 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 1,292 3,048 627 356 1,012 1,489 1,891 992 (7,934) 2,773 202 2,359 212 2,773 $ $ 2017 (1,080) $ 4,023 (4,023) $ $ $ 1,858 4,784 1,013 576 1,638 1,605 3,423 1,731 (11,560) 5,068 720 4,011 337 5,068 2016 78 (247) 247 $ 2,744 4,633 576 1,638 2,011 2,514 1,535 (10,106) 5,545 $ $ 180 734 4,369 262 5,545 2015 (2,728) 1,966 (762) (762) $ (1,080) $ 78 $ Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 34.0% for 2017, 2016 and 2015 to income (loss) before income taxes. The reasons for these differences are shown below (in thousands): Taxes computed at statutory rate Increase (decrease) resulting from: Tax-exempt interest income Income from BOLI Federal tax credits Other Impact of tax rate change Change in valuation allowance for enacted change in tax rates Realization of AMT credit Other changes in valuation allowance Total income tax (benefit) expense 2017 Tax 571 Rate 34 $ 2016 Tax 83 Rate 34 $ 2015 Tax (1,820) Rate (34) $ (362) (302) (298) (656) 3,990 (22) (18) (18) (39) 238 (3,990) (742) 709 (1,080) (238) (44) 42 (65) $ (417) (144) (298) 607 (170) (59) (121) 247 (447) (166) (298) 3 (8) (3) (6) 247 78 101 32 $ 1,966 (762) 37 (14) $ During 2017, the Company recorded an income tax benefit of $1,080,000. On December 22, 2017, the President signed into law The Tax Cuts and Jobs Act (the “Act”). In addition to reducing U.S. corporate income tax rates from 34% to 21%, the Act repeals the alternative minimum tax (“AMT”) regime for tax years beginning after December 31, 2017. For tax years beginning in 2018, 2019 and 2020, the AMT credit carryforward can be utilized to offset regular tax with any remaining AMT carryforwards eligible for a refund of 50%. Any remaining AMT credit carryforwards will become fully refundable beginning in the 2021 tax year. As a result, the Company has reclassified the AMT credit carryforward to a tax receivable which resulted in a deferred tax benefit of $742,000. The Company also recorded a current tax benefit of $338,000 to account for the carryback of general business tax credits to open tax years. The Company also remeasured the net deferred tax asset and corresponding valuation allowance as a result of the Act. The impact was to reduce the deferred tax asset and corresponding valuation allowance by $3,990,000. 25 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 $9,004,000 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. 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 unrealized gains on available for sale securities and the increase in the unrecognized gain related to the post-retirement benefit obligation in accordance with the intra-period tax allocation rules as outlined in Accounting Standards Codification Topic 740, Income Taxes. NOTE J – SHARE HOL DE RS’ EQU IT Y: 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, 2017, $12,350,841 of undistributed earnings of the bank subsidiary included in consolidated surplus and retained earnings was available for future distribution to the Company as dividends with regulatory approval. Dividends paid by the Company are subject to the written approval of the Federal Reserve Bank (“FRB”). On December 8, 2017, the Board approved the repurchase of up to 110,000 of the outstanding shares of the Company’s common stock. As a result of this repurchase plan, 40,000 shares have been repurchased and retired through December 31, 2017. 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. Beginning January 1, 2016, the Company must hold a capital conservation buffer composed of Common equity tier 1 capital above its minimum risk-based capital requirements in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. As of December 31, 2017, 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, with a capital conservation buffer above these requirements of 1.25% for 2017. The buffer will increase annually until it is fully phased-in to 2.50% at January 1, 2019. There are no conditions or events since that notification that Management believes have changed the bank subsidiary’s category. 26 The Company’s actual capital amounts and ratios and required minimum capital amounts and ratios for 2017, 2016 and 2015, are as follows (in thousands): December 31, 2017: 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, 2016: 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, 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) $ $ $ Amount 97,122 92,273 92,273 92,273 95,262 90,068 90,068 90,068 95,395 89,901 89,901 89,901 Actual Ratio 25.12% 23.87% 23.87% 13.79% 22.94% 21.69% 21.69% 13.12% 21.83% 20.58% 20.58% 13.18% For Capital Adequacy Purposes Ratio Amount $ $ $ 30,930 17,398 23,197 26,769 33,220 18,687 24,915 27,464 34,954 19,662 26,215 27,291 8.00% 4.50% 6.00% 4.00% 8.00% 4.50% 6.00% 4.00% 8.00% 4.50% 6.00% 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 2017, 2016 and 2015, are as follows (in thousands): Actual Amount Ratio For Capital Adequacy Purposes To Be Well Capitalized Ratio Amount Amount Ratio December 31, 2017: 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, 2016: 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, 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) $ 92,493 24.04% $ 30,778 8.00% $ 38,473 10.00% 87,668 87,668 87,668 22.79% 22.79% 13.47% 17,313 23,084 26,031 4.50% 6.00% 4.00% 25,007 30,778 32,539 6.50% 8.00% 5.00% $ 91,882 22.29% $ 32,975 8.00% $ 41,219 10.00% 86,726 86,726 86,726 21.04% 21.04% 12.47% 18,548 24,731 27,820 4.50% 6.00% 4.00% 26,792 32,975 34,775 6.50% 8.00% 5.00% $ 91,963 21.09% $ 34,889 8.00% $ 43,611 10.00% 86,479 86,479 86,479 19.83% 19.83% 13.47% 19,625 26,166 25,680 4.50% 6.00% 4.00% 28,347 34,889 32,100 6.50% 8.00% 5.00% NOTE K – OTH ER INC OME A N D EX P E N SE 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 $ $ $ $ 2017 99 298 84 481 2017 538 1,289 424 422 740 582 307 1,873 6,175 27 2016 116 320 223 659 2016 544 1,346 901 566 868 555 370 1,689 6,839 $ $ $ $ 2015 109 393 212 714 2015 505 1,403 928 785 2,264 1,183 355 2,098 9,521 $ $ $ $ NOTE L – FINANC IAL INST RU MEN TS W I T H OF F-B A L A N C E -SHE E T R I SK: 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, 2017, 2016 and 2015, the Company had outstanding irrevocable letters of credit aggregating $154,308, $410,286 and $1,919,678, respectively. At December 31, 2017, 2016 and 2015, the Company had outstanding unused loan commitments aggregating $41,286,000, $42,401,431 and $41,935,725, respectively. Approximately $19,691,000, $16,476,000 and $11,335,000 of outstanding commitments were at fixed rates and the remainder were at variable rates at December 31, 2017, 2016 and 2015, respectively. N O T E M – CO NTINGE NC IES: 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. NOTE N – CO ND EN SED PAREN T C OMPA N Y O N LY FI N A N C I A L I N FO R M AT I ON : 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. CONDENSED BALANCE SHEE T S (IN THO 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 $ 85,543 1 742 3,213 89,499 2017 $ Liabilities and Shareholders’ Equity: Other liabilities Total liabilities Shareholders’ equity Total liabilities and shareholders’ equity $ $ 89,499 89,499 2017 CONDENSED STATEMENTS OF OPE R AT I O N S ( IN T HOU S AN D S): Years Ended December 31, Income Distributed income of bank subsidiary Undistributed income (loss) of bank subsidiary Other income (loss) Total income (loss) Expenses Other Total expenses Income (loss) before income taxes Income tax benefit Net income (loss) 1,250 1,592 47 2,889 131 131 2,758 2,758 $ $ 28 $ $ $ $ $ 2016 85,118 1 191 3,151 88,461 88,461 88,461 2016 75 247 (32) 290 123 123 167 $ $ $ $ $ 2015 88,415 1 28 3,395 91,839 91,839 91,839 2015 (4,242) (208) (4,450) 142 142 (4,592) $ 167 $ (4,592) $ 2017 2,758 CONDENSED STATEMENTS OF C A S H FL OW S ( IN T HOU S AN D S): Years Ended December 31, Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Income (loss) from other investments Undistributed (income) loss of subsidiaries Other assets 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 common stock Dividends paid Net cash used in financing activities Net increase (decrease) in cash Cash, beginning of year Cash, end of year (502) (51) (553) 551 191 742 (42) (1,592) (20) 1,104 $ 2016 2015 $ 167 $ (4,592) 51 (247) (8) (37) 200 200 218 4,242 (132) 163 28 191 $ (132) 160 28 $ N O T E O – EM P LOYE E AND DIR E C TOR B E N E F IT PL 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, $276,000 and $260,000 in 2017, 2016 and 2015, respectively. Compensation expense of $7,106,959, $7,804,295 and $7,576,755 was the basis for determining the ESOP contribution allocation to participants for 2017, 2016 and 2015, respectively. The ESOP held 270,455, 276,628 and 285,785 allocated shares at December 31, 2017, 2016 and 2015, 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 retirement from the board. 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 $16,222,847, $17,176,771 and $16,820,058 at December 31, 2017, 2016 and 2015, respectively. The present value of accumulated benefits under these plans, using an interest rate of 4.25% in 2017 and 2016 and 4.50% in 2015, and the interest ramp-up method has been accrued. The accrual amounted to $12,628,641, $12,221,421 and $11,813,343 at December 31, 2017, 2016 and 2015, 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 $1,605,421, $1,604,333 and $1,473,607 at December 31, 2017, 2016 and 2015, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.25% and the projected unit cost method has been accrued. The accrual amounted to $1,573,004, $1,544,017 and $1,519,537 at December 31, 2017, 2016 and 2015, respectively, and is included in Employee and director benefit plans liabilities. 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 $299,242, $292,063 and $284,664 at December 31, 2017, 2016 and 2015, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.25% in 2017 and 2016 and 4.50% in 2015, and the projected unit cost method has been accrued. The accrual amounted to $96,547, $88,798 and $82,202 at December 31, 2017, 2016 and 2015, 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 $173,892, $166,822 and $157,051 at December 31, 2017, 2016 and 2015, respectively. The present value of accumulated benefits under these plans using an interest rate of 4.25% in 2017 and 2016 and 4.50% in 2015, and the projected unit cost method has been accrued. The accrual amounted to $214,968, $216,020 and $212,662 at December 31, 2017, 2016 and 2015, respectively, and is included in Employee and director benefit plans liabilities. 29 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 age 60. 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 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. 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. 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 Net periodic post-retirement benefit cost (credit) 2017 153 135 (81) 207 $ $ 2016 93 101 (73) (81) 40 $ $ 2015 94 102 (44) (82) 70 $ $ The discount rate used in determining the accumulated post-retirement benefit obligation was 3.60% in 2017, 4.00% in 2016 and 4.20% in 2015. The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation was 6.00% in 2017. The rate was assumed to decrease gradually to 4.50% for 2024 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, 2017, would be increased by 19.86%, 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 22.71%. If the health care cost trend rate assumptions were decreased 1.00%, the accumulated post-retirement benefit obligation as of December 31, 2017, would be decreased by 15.66%, 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 17.52%. 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): 2018 2019 2020 2021 2022 2023 – 2027 $ 77 49 68 95 106 987 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, 2016 Service cost Interest cost Actuarial loss Benefits paid Accumulated post-retirement benefit obligation as of December 31, 2017 $ 2,514 153 135 1,078 (48) $ 3,832 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 2017 48 (48) $ $ 2016 75 (75) $ $ Amounts recognized in the Accumulated Other Comprehensive Income (Loss), net of tax, were (in thousands): For the year ended December 31, 2017 2016 Net gain Prior service charge Total accumulated other comprehensive income $ $ 11 622 633 $ $ 723 676 1,399 30 2015 37 (37) 2015 697 730 1,427 $ $ $ $ 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 loss Amortization of prior service cost Total accumulated other comprehensive loss 2017 1,079 81 1,160 $ $ The prior service credit that will be recognized in accumulated other comprehensive income during 2018 is $81,381. NOTE P – FAIR VAL UE MEAS U R EMEN TS A N D D IS C L OS 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. 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. 31 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, 2017, 2016 and 2015, were as follows (in thousands): December 31, 2017: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Equity securities Total December 31, 2016: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Equity securities Total December 31, 2015: U.S. Treasuries U.S. Government agencies Mortgage-backed securities States and political subdivisions Equity securities Total Total $ 122,644 19,831 88,261 14,470 458 $ 245,664 $ 147,624 24,825 42,708 17,963 458 $ 233,578 $ 63,754 84,546 30,130 23,727 650 $ 202,807 Level 1 Fair Value Measurements Using Level 2 Level 3 $ $ $ $ $ $ $ 122,644 19,831 88,261 14,470 458 $ 245,664 $ 147,624 24,825 42,708 17,963 458 $ 233,578 $ 63,754 84,546 30,130 23,547 650 $ 202,627 $ $ $ $ $ 180 $ 180 Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of December 31, 2017, 2016 and 2015 were as follows (in thousands): December 31: 2017 2016 2015 $ Total 6,511 5,006 4,981 Level 1 Fair Value Measurements Using Level 2 $ $ $ Level 3 6,511 5,006 4,981 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, 2017, 2016 and 2015 are as follows (in thousands): December 31: 2017 2016 2015 $ Total 8,232 8,513 9,916 Level 1 Fair Value Measurements Using Level 2 $ $ $ Level 3 8,232 8,513 9,916 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): 2015 7,646 7,502 (4,295) (937) 9,916 Balance, beginning of year Loans transferred to ORE Sales Writedowns Balance, end of year 2017 8,513 1,946 (1,767) (460) 8,232 2016 9,916 1,903 (2,524) (782) 8,513 $ $ $ $ $ $ 32 The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at December 31, 2017, 2016 and 2015, are as follows (in thousands): Carrying Amount Level 1 Level 2 Level 3 Total Fair Value Measurements Using December 31, 2017: 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, 2016: 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, 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 $ 25,281 245,664 51,163 2,735 1,370 274,296 8,232 18,301 127,274 402,296 11,198 $ 41,116 233,578 48,150 2,693 539 309,889 8,513 19,249 132,381 442,635 6,257 $ 31,396 202,807 19,025 2,744 1,637 329,487 9,916 18,735 122,743 389,964 18,409 $ 25,281 245,664 50,538 2,735 1,370 270,924 8,232 18,301 127,274 402,610 11,389 $ 41,116 233,578 46,935 2,693 539 313,613 8,513 19,249 132,381 442,937 6,491 $ 31,396 202,807 19,220 2,744 1,637 331,026 9,916 18,735 122,743 390,205 19,731 $ 25,281 2,735 127,274 $ 245,664 50,538 1,370 18,301 11,389 $ 270,924 8,232 402,610 $ 41,116 2,693 $ 233,578 46,935 $ 539 19,249 6,491 313,613 8,513 442,937 132,381 $ 31,396 2,744 $ 202,627 19,220 $ 180 1,637 18,735 19,731 331,026 9,916 390,205 122,743 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 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 34 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 FIVE-YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL INFORMATION (In thousands except per share data) 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) 2017 2016 2015 2014 2013 $ 650,424 $ 688,014 $ 641,004 $ 668,895 $ 762,264 245,664 51,163 280,449 529,570 11,198 89,499 233,578 202,807 215,122 48,150 315,355 575,016 6,257 88,461 19,025 337,557 512,707 18,409 91,839 17,784 362,407 516,920 38,708 94,951 275,440 11,142 375,349 568,197 77,684 99,147 $ 18,503 $ 18,493 $ 19,311 $ 22,156 $ 24,956 1,423 17,080 116 16,964 6,965 22,251 1,678 (1,080) $ 2,758 $ 1,025 17,468 568 16,900 6,549 23,204 245 78 167 875 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) $ (4,592) $ (10,004) $ (538) Per Share Data Basic and diluted earnings per share $ Dividends per share Book value .54 .01 17.84 $ .03 $ (.90) $ (1.95) $ (.10) 17.27 17.93 .10 18.53 19.35 Weighted average number of shares 5,123,076 5,123,186 5,123,186 5,123,186 5,128,889 Selected Ratios Return on average assets Return on average equity 0.41% 3.08% .02% .19% (.69%) (4.92%) (1.38%) (10.31%) (.07%) (.51%) Primary capital to average assets 14.34% 13.99% 15.06% 14.38% 13.64% Risk-based capital ratios: Tier 1 Total 23.87% 25.12% 21.69% 22.94% 20.58% 21.83% 20.70% 21.95% 21.54% 22.79% 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 AND MARKET INFORMATION Summary of Quarterly Results of Operations (In thousands except per share data) Quarter Ended, 2017 March 31 June 30 September 30 December 31 Interest income Net interest income Provision for loan losses Income before income taxes Net income Basic and diluted earnings per share Quarter Ended, 2016 Interest income Net interest income Provision for loan losses Income (loss) before income taxes Net income (loss) Basic and diluted earnings (loss) per share $ 4,601 4,322 26 74 74 .01 $ March 31 4,780 4,538 113 76 76 .01 $ $ 4,598 4,253 30 815 1,153 .23 June 30 4,550 4,283 24 139 61 .01 $ 4,623 4,234 29 236 236 .05 September 30 4,593 4,326 $ 406 406 .08 $ 4,681 4,271 31 553 1,295 .25 $ December 31 4,570 4,321 431 (376) (376) (.07) Market Information The Company’s stock is traded under the symbol PFBX. Until December 15, 2017, the stock was traded on the NASDAQ Capital Market (“NASDAQ”). To reduce costs, the Company delisted from NASDAQ and began trading on the OTCQX Best Market (“OTCQX”) on December 18, 2017. As of January 31, 2018, there were approximately 445 holders of the Company’s common stock, which does not reflect persons or entities that hold our common stock in nominee or “street’’ name through various brokerage firms. At that date, the Company had 5,083,186 shares of common stock issued and outstanding. The following is a summary of the high and low bid prices of our common stock for the periods indicated as reported by NASDAQ for all quarters in 2016 and 2017 and by OCTQX for the fourth quarter of 2017. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Year 2017 2016 Quarter 1st 2nd 3rd 4th - NASDAQ 4th - OTCQX 1st 2nd 3rd 4th $ $ High 16.35 15.27 14.95 15.30 13.25 9.50 11.26 11.41 16.40 Dividend per share $ .01 $ $ $ Low 13.80 12.60 12.85 12.05 12.21 8.53 8.90 10.23 10.50 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 AT E I N F O R M AT 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 trad- P.O. Box 1416, Biloxi, MS 39533-1416 ed on the OTCQX Best Market under the symbol: PFBX. (228) 435-8208 e-mail: investorrelations@thepeoples.com 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 AT I O N S The Peoples Bank, Biloxi, Mississippi BILOXI BRANCHES Main OTHER BRANCHES Bay St. Louis 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 Department Diamondhead Personal and Corporate Trust Services 5429 West Aloha Drive, Diamondhead, Mississippi 39525 758 Vieux Marche, Biloxi, Mississippi 39530 (228) 897-8714 (228) 435-8208 Cedar Lake D’Iberville - St. Martin 10491 Lemoyne Boulevard, D’Iberville, Mississippi 39540 1740 Popps Ferry Road, Biloxi, Mississippi 39532 (228) 435-8202 (228) 435-8688 Keesler Air Force Base 1507 Meadows Drive Keesler AFB, MS 39534 (228) 435-8690 Gautier 2609 Highway 90, Gautier, Mississippi 39553 (228) 497-1766 Long Beach 298 Jeff Davis Avenue, Long Beach, Mississippi 39560 West Biloxi (228) 897-8712 2560 Pass Road, Biloxi, Mississippi 39531 (228) 435-8203 Ocean Springs GULFPORT BRANCHES Armed Forces Retirement Home 2015 Bienville Boulevard, Ocean Springs, Mississippi 39564 (228) 435-8204 1800 Beach Drive, Gulfport, Mississippi 39507 Pass Christian (228) 897-8724 301 East Second Street, Pass Christian, Mississippi 39571 Downtown Gulfport 1105 30th Avenue, Gulfport, Mississippi 39501 Saucier (228) 897-8719 (228) 897-8715 17689 Second Street, Saucier, Mississippi 39574 Handsboro 0412 E. Pass Road, Gulfport, Mississippi 39507 Waveland (228) 897-8716 (228) 897-8717 470 Highway 90, Waveland, Mississippi 39576 Orange Grove 12020 Highway 49 North, Gulfport, Mississippi 39503 Wiggins (228) 467-7257 (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 A N D E X E C U T I V E O F F I C E R S BOAR D OF DI RE CTORS Peoples Financial Corporation Chevis C. Swetman, Chairman; President and Chief Executive Officer, Peoples Financial Corporation and The Peoples Bank, Biloxi, Mississippi Dan Magruder, Vice-Chairman; Retired Business Executive Drew Allen, President, Allen Beverages, Inc. Rex E. Kelly, Principal, Strategic Communications Jeffrey H. O’Keefe, Chairman, Bradford-O’Keefe Funeral Homes, Inc. OFFI CE RS Peoples Financial Corporation Chevis C. Swetman, President and Chief Executive Officer A. Wes Fulmer, Executive Vice-President Ann F. Guice, First Vice-President J. Patrick Wild, Second Vice-President Evelyn R. Herrington, Vice-President and Secretary Lauri A. Wood, Chief Financial Officer and Controller BOA RD OF DIR EC TO RS The Peoples Bank, Biloxi, Mississippi Chevis C. Swetman, Chairman; President and Chief Executive Officer, Peoples Financial Corporation and The Peoples Bank, Biloxi, Mississippi Liz Corso Joachim, Vice-Chairperson; President, Frank P. Corso, Inc. Drew Allen, President, Allen Beverages, Inc. Ron Barnes, President and CEO, Coast Electric Power Association A. Wes Fulmer, Executive Vice-President, Peoples Financial Corporation and The Peoples Bank, Biloxi, Mississippi Rex E. Kelly, Principal, Strategic Communications Dan Magruder, Retired Business Executive Jeffrey H. O’Keefe, Chairman, Bradford-O’Keefe Funeral Homes, Inc. Paige Reed Riley, Owner, Hillyer House SENI OR MANAGEM ENT The Peoples Bank, Biloxi, Mississippi Chevis C. Swetman, President and Chief Executive Officer 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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