Peoples Financial Corporation Annual Report 2022

FY2022 Annual Report · Peoples Financial Corporation

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To Our Shareholders:

On April 13, 1896, a group of Biloxi citizens formed The Peoples Bank for the benefit of personal and small business
customers. In the 126 years since our founding, The Peoples Bank and its holding company, Peoples Financial
Corporation, which was founded in 1984, have remained committed to the Mississippi Gulf Coast. We proudly stand
as a local, community bank serving the financial needs of our friends and neighbors here in South Mississippi.

I am pleased to report on the results of 2022.

Net income for the year ended December 31, 2022 was $8,941,000 compared to net income of $8,911,000 for the year
ended December 31, 2021.

During the fourth quarter of 2022, the Company determined that it was more likely than not that it would realize a
certain amount of its deferred tax assets. Prior to that time, the Company had recorded a valuation allowance against
its net deferred tax asset. As of December 31, 2022, the Company no longer has a net operating loss carryforward and
its expectations of future taxable income indicate that reversal of a portion of the valuation allowance was appropriate.
Accordingly, a net income tax benefit of approximately $2.4 million was recorded in the fourth quarter of 2022.

In 2021 there was a non-recurring reduction in the allowance for loan losses of $5,663,000. This reduction was largely
the result of recoveries of $4,838,000 during 2021 related to a previously charged off loan. Results in 2021 also
included the settlement of a lawsuit for $1,125,000, $486,000 of which was recovered at the end of 2022. If these non-
recurring transactions were removed from the 2022 and 2021 results, the Company’s, income improved in 2022 over
2021 due to higher interest income on securities and overnight fed funds and the recognition of the deferred tax benefit.

Improving asset quality has been a primary goal of the company since the 2008 recession. During 2022, we achieved
several important milestones:

• Nonaccrual loans have been reduced from their high of $57,500,000 in 2011 to $1,441,000 at December 31, 2022.

• Other real estate was reduced from $9,900,000 in 2015 to $259,000 at December 31, 2022.

Our management team continues to implement our strategic plan. Our key objectives of the plan include improving
financial results and maximizing shareholder value over the long-term. During 2022, these efforts included:

• Pursuing strategies to increase outstanding loans by seeking opportunities in new markets in our trade area and

out of area and seeking participations with similar financial institutions.

• Continue to focus on those efforts that result in reduction of past due loans, nonaccruals, and other real estate.

•

Improving the efficiency ratio to the average efficiency ratio of the bank’s composite PEER group over the next
ten years. Strategies will include promoting technology to enhance operational effectiveness and product
offerings, continued evaluation of opportunities to increase non-interest income and reduce non-interest expense
and evaluation of existing branch footprint.

Increasing annual earnings to a return on average assets of 1.00% within three years. Strategies will emphasize
achieving sustained earnings.

• Providing increased semi-annual dividends to our shareholders based on a consistent payout of sustained profits.
In 2022, the company paid a semiannual dividend of $ .09 per share in March and a semiannual dividend of $.10
in November.

• Continue a stock repurchase program but not to exceed $1,000,000 annually or approximately 65,000 shares,

more information to follow after the excise tax rules are finalized.

•

Implementing an enhanced succession strategy for key/senior management positions. The recent retirement of
several senior managers has provided an opportunity for promotions for other officers as well as potential for new
strategies within those areas.

• Renovations on our asset management and trust department and place more emphasis on wealth management, the

first step was taken by the acquisition of Trustmark’s corporate trust business.

Your Company has worked diligently over the last few years to improve and expand our business continuity and
disaster recovery capabilities. Three years ago, we established a hot site in C Spire’s state of the art facility in
Starkville, MS. During 2021, we completed a transition to a new data center at our main office location. This new
center includes upgrades designed to provide the latest in functionality and security to ensure our ability to maintain
our operations.

Throughout our 126-year history, we have upheld their vision of serving those in our Mississippi Gulf Coast
community. These many years have seen challenges, including hurricanes, depressions, recessions, oil spills,
pandemics and other disasters, that have impacted our friends and neighbors. One constant throughout has been the
strength and stability of The Peoples Bank which comes from our strong capital foundation. This is the foundation
that makes your long-term investment in our Company safe through tumultuous times. We thank our shareholders,
employees, directors and customers for being part of that mission here in our home, in South Mississippi.

Sincerely yours,

Chevis C. Swetman
Chairman, President and 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, 2022, 2021 and 2020.
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: the effects
of 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 statutes, government regulations or regulatory policies and practices in general and specifically 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 2022, which are
disclosed in Note A to the Consolidated Financial Statements. The Company does not expect that the update discussed
in the Notes will have a material impact on its financial position, results of operations or cash flows. Further disclosure
relating to this and other updates is included in Note A.

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.

Other Real Estate

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
income.

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, 2022, 2021 and 2020 is included below.

RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES

Years Ended December 31,

Interest income reconciliation:

(in thousands)

2022

2021

2020

Interest income - taxable equivalent ........................................... $

Taxable equivalent adjustment ...................................................
Interest income (GAAP) .......................................................... $
Net interest income reconciliation:

23,960
(252)

23,708

Net interest income - taxable equivalent ..................................... $

21,802

Taxable equivalent adjustment ...................................................
Net interest income (GAAP) .................................................... $

(252)

21,550

20,531
(239)

20,292

19,701

(239)

19,462

19,470
(162)

19,308

17,889

(162)

17,727

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 World Health Organization declared the coronavirus COVID-19 (“COVID-19”) a pandemic in March 2020.
Although many businesses have been able to remain in operation, they continue to have staffing challenges and supply
chain disruptions. The Company has had no significant impact on income or loan repayments due to the pandemic.
Concerns about inflation and its potential impact on the economy and individual households are among the issues
being considered by the Federal Reserve. Raising the Federal funds rate has been a strategy pursued in 2022 to address
this issue. The Federal Reserve has raised interest rates a total of 425 basis points during 2022 in an effort to promote
maximum employment, keep prices stable and have moderate long-term interest rates.

Assisting our customers during the pandemic was a priority. The Company granted modifications by extending
payments 90 days or allowing interest only payments to certain customers as a result of the economic challenges of
business closures and unemployment resulting from COVID-19. We also actively participated in the Paycheck
Protection Program (“PPP”), a specific stimulus resource designed to provide assistance to small businesses. The
Company recorded loan fees associated with the PPP loan program in the amount of approximately $125,000 in 2022
and $958,000 in 2021.

The Company reported net income of $8,941,000 for 2022 compared with net income of $8,911,000 for 2021
compared with a net loss of $2,558,000 for 2020, respectively. Results in 2022 included an increase in net interest
income an increase in the allowance for loans losses which were partially offset by an increase in non-interest income,
a decrease in non-interest expense, and the recording of a large tax benefit as compared with 2021. Results in 2021
included a large reduction in the allowance for loan losses which was partially offset by a decrease in non-interest
income and an increase in non-interest expense as compared with 2020.

Managing the net interest margin is a key component of the Company’s earnings strategy. The Federal Reserve
increased rates by 75 basis points in September and November of 2022 and increased rates by another 50 basis point
in December 2022 in an attempt to slow inflation. The Company adopted new investment strategies in 2022 and 2021
to improve yields on its securities while not compromising duration or credit risk. As a result, total interest income
increased $3,416,000 in 2022 as compared with 2021. The increase in rates increased total interest expense $1,328,000
in 2022 as compared with 2021. In March 2020, the Federal Reserve reduced rates by 150 basis points in two
emergency moves to respond to the unprecedented economic disruptions of the COVID-19 pandemic. As a result,
total interest income increased $984,000 in 2021 as compared with 2020. The reduction in rates decreased total interest
expense $751,000 in 2021 as compared with 2020.

Monitoring asset quality, estimating potential losses in our loan portfolio and addressing non-performing loans
continue to be a major focus of the Company. An increase in the allowance for loan losses of $80,000 was recorded
in 2022 as compared to a reduction in the allowance for loan losses of $5,663,000 in 2021. The reduction during 2021
was the result of a large recovery of previously charged-off principal. The Company is working diligently to address
and reduce its non-performing assets. The Company’s nonaccrual loans totaled $1,441,000 and $701,000 at December
31, 2022 and 2021, respectively. Most of these loans are collateral-dependent, and the Company has rigorously
evaluated the value of its collateral to determine potential losses.

Non-interest income increased $425,000 in 2022 as compared with 2021 results and decreased $781,000 in 2021 as
compared with 2020 results. The increase in 2022 was primarily the result of an increase in other income and an
increase in trust income related to the recent acquisition. The decrease in 2021 was primarily the result of the prior
year including several non-recurring gains. Results for 2020 included non-recurring gains on sales and calls of
securities of $539,000, a gain from the redemption of death benefits on bank owned life insurance of $224,000 and a
gain from the sale of banking house of $318,000.

Non-interest expense decreased $767,000 in 2022 as compared with 2021 and increased $1,088,000 for 2021 as
compared with 2020. The decrease in 2022 was primarily due to a partial recovery in other expense related to a
settlement of a lawsuit in 2021. The increase in other expense in 2021 was primarily due to the settlement of a lawsuit
for $1,125,000 and other legal and consulting costs associated with the contested 2021 annual shareholders’ meeting.

Total assets at December 31, 2022 increased $42,689,000 as compared with December 31, 2021. Total deposits
increased $80,942,000 primarily as governmental entities’ balances increased due to tax collections. This increase in
deposits, as well as the decrease in cash and due from banks of $17,155,000, loans of $1,284,000 and available for
sale securities of $26,635,000 funded an increase in held to maturity investments of $85,009,000.

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.

2022 as compared with 2021

The Company’s average interest-earning assets increased approximately $106,912,000, or 15%, from approximately
$720,224,000 for 2021 to approximately $827,136,000 for 2022. Average taxable held to maturity securities increased
approximately $33,831,000, average nontaxable held to maturity securities increased approximately $4,941,000 and
average taxable available for sale securities increased approximately $107,166,000 as investment purchases exceeded
maturities, sales and calls of these securities. Average loans decreased approximately $27,744,000 as principal
payments, paydowns, maturities, and charge-offs on existing loans exceeded new loans. Funds available from the
decrease in average loans and the increase in average deposits were used to increase the investment in securities. The
average yield on interest-earning assets was 2.90% for 2022 compared with 2.85% for 2021. The yield on average
investment securities increased as a result of the increase in prime rate during 2022 as discussed in the Overview.
Average interest-bearing liabilities increased approximately $127,566,000, or 26%, from approximately $481,768,000
for 2021 to approximately $609,334,000 for 2022. Average savings and interest-bearing DDA balances increased
approximately $120,123,000 primarily as several large public fund customers maintained higher balances with the
bank subsidiary and some of the PPP loan proceeds were deposited and maintained in customers’ accounts. The
average rate paid on interest-bearing liabilities increased from 0.17% for 2021 to 0.35% for 2022. This increase was
the result of increased rates in 2022.

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average
earning assets, was 2.74% for 2021 as compared with 2.64% for 2022.

2021 as compared with 2020

The Company’s average interest-earning assets increased approximately $122,058,000, or 20%, from approximately
$598,166,000 for 2020 to approximately $720,224,000 for 2021. Average taxable held to maturity securities increased
approximately $23,567,000, average nontaxable held to maturity securities increased approximately $16,631,000 and
average taxable available for sale securities increased approximately $91,853,000 as investment purchases exceeded
maturities, sales and calls of these securities. Average loans decreased approximately $17,680,000 as principal
payments, particularly on PPP loans, maturities, charge-offs and foreclosures on existing loans exceeded new loans.
Funds available from the decrease in average loans and the increase in average deposits were used to increase the
investment in securities. The average yield on interest-earning assets was 3.25% for 2020 compared with 2.85% for
2021. The yield on average investment securities decreased as a result of the decrease in prime rate during 2020 as
discussed in the Overview.

Average interest-bearing liabilities increased approximately $83,037,000, or 21%, from approximately $398,731,000
for 2020 to approximately $481,768,000 for 2021. Average savings and interest-bearing DDA balances increased
approximately $82,861,000 primarily as several large public fund customers maintained higher balances with the bank
subsidiary and some of the PPP loan proceeds were deposited and maintained in customers’ accounts. The average
rate paid on interest-bearing liabilities decreased from .40% for 2020 to .17% for 2021. This decrease was the result
of decreased rates in 2020.

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average
earning assets, was 2.99% for 2020 as compared with 2.74% for 2021.

The tables below analyze the changes in tax-equivalent net interest income for the years ended December 31, 2022,
2021 and 2020.

ANALYSIS OF AVERAGE BALANCES, INTEREST EARNED/PAID AND YIELD

(in thousands)

Average
Balance

2022

Interest

Earned/Paid Rate

Average
Balance

2021

Interest

Earned/Paid Rate

Average
Balance

2020

Interest

Earned/Paid Rate

Loans (1)(2) ................. $ 235,801 $
Balances due from

depository institutions

49,191

Held to maturity: ..........

11,135 4.72% $ 263,545 $ 12,592 4.78% $ 281,225 $ 13,076 4.65%

408 0.83%

64,415

95 0.15%

56,103

227 0.40%

Taxable .....................

105,047

2,713 2.58%

Non taxable (3)..........

37,557

1,050 2.79%

66,216

32,616

1,702 2.57%

952 2.92%

42,649

15,985

1,235 2.90%

525 3.28%

Available for sale: ........

Taxable .....................

392,645

8,482 2.16%

285,479

5,004 1.75%

193,626

4,140 2.14%

Non taxable (3)..........

4,740

145 3.07%

5,802

178 3.07%

27 1.25%

8 0.37%
23,960 2.90% $ 720,224 $ 20,531 2.85%

2,151

6,425

2,153

$ 598,166

240 3.74%

27 1.25%
$ 19,470 3.25%

Other.........................
Total............................ $ 827,136 $
Savings and interest-

2,155

bearing DDA ............. $ 527,273 $

1,636 0.31% $ 407,150 $

525 0.13% $ 324,289 $

833 0.26%

Time deposits ..............
Borrowings from

FHLB .......................

78,392

349 0.45%

73,399

281 0.37%

72,782

716 0.98%

3,669

173 4.72%

1,219

24 1.97%

1,660

32 1.93%

Total............................ $ 609,334 $
Net tax-equivalent

Spread .......................

Net tax-equivalent

margin on earning
assets ........................

2,158 0.35% $ 481,768 $

830 0.17% $ 398,731 $

1,581 0.40%

2.55%

2.64%

2.68%

2.74%

2.85%

2.99%

(1) Loan fees of $659, $1,444 and $814 for 2022, 2021 and 2020, respectively, are included in these figures. Of the
loan fees recognized in 2022, 2021 and 2020, $125, $958 and $448, respectively, were related to PPP loans.

(2)

Includes nonaccrual loans.

(3) All interest earned is reported on a taxable equivalent basis using a tax rate of 21% in 2022, 2021 and 2020. See

disclosure of Non-GAAP financial measures on pages 2 and 3.

ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

(in thousands)

For the Year Ended
December 31, 2022 Compared With December 31, 2021

Volume

Rate

Rate/Volume

Total

Interest earned on:

Loans ................................................................................ $
Balances due from depository institutions ............................

(1,326)
(22)

(147)
439

15
(104)

(1,458)
313

1,011

3,478

(33)

19
3,427

Held to maturity securities: .................................................

Taxable ...........................................................................

Non taxable .....................................................................

998

144

(41)

(6)

Available for sale securities:................................................

Taxable ...........................................................................

1,878

1,163

437

Non taxable .....................................................................

(33)

Other ..............................................................................
Total .................................................................................. $
Interest paid on: ..................................................................
Savings and interest-bearing DDA....................................... $
Time deposits .....................................................................

Borrowings from FHLB ......................................................
Total .................................................................................. $

1,639

19
1,441

155

738

347

218

1,111

148

222

817

288

1,327

ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

(in thousands)

For the Year Ended
December 31, 2021 Compared With December 31, 2020

Volume

Rate

Rate/Volume

Total

Interest earned on:
Loans ................................................................................ $
Balances due from depository institutions ............................

Held to maturity securities: .................................................

Taxable ...........................................................................

Non taxable .....................................................................

Available for sale securities:................................................

Taxable ...........................................................................

Non taxable .....................................................................

Time deposits .....................................................................

Borrowings from FHLB ......................................................
Total .................................................................................. $

(822)

361

(23)

(144)

682

546

1,964

(23)

(139)

(58)

(746)

(43)

(19)

(22)

(76)

(61)

(354)

(484)

(132)

467

427

864

(62)

(19)

2,381

(788)

(532)

1,061

213

(415)

(106)

(9)

(437)

(4)

(308)

(435)

(8)

210

(851)

(110)

(751)

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, credit quality 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 $1,441,000 and $701,000 with specific reserves on these loans of $124,000 and $20,000 as of December
31, 2022 and 2021, 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.

Additional consideration was given to the impact of COVID-19 on the loan portfolio. The Company granted
modifications by extending payments 90 days or granting interest only payments for 3 – 6 months for certain customers
as a result of the economic challenges of business closures and unemployment resulting from COVID-19. These
credits were generally current at the time they were modified. In compliance with guidance from the regulatory and
accounting authorities, these modifications were not classified as troubled debt restructurings. As of September 30,
2021, all of these modifications had expired and the customers had resumed making regular payments. The Company
continues its policy of closely monitoring past due loans and deposit overdrafts which may serve as indicators of
performance issues. Proactive outreach to our loan customers has also been emphasized.

In addition to the factors considered when assessing risk in the loan portfolio which are identified in the Note A, the
Company included the potential negative impact of COVID-19 on its loan portfolio, particularly the gaming and
hotel/motel concentrations, in performing the risk assessment as of December 31, 2021. As of December 31, 2021, a
general reserve of approximately $287,000 was allocated to non-classified loans as a result of COVID-19. As of
December 31, 2021, no specific reserves were allocated to classified loans as a result of COVID-19, as customers in
potentially vulnerable industries have resources through business interruption insurance, proceeds from PPP or other
loan programs and/or have been able to begin to return to normal operations. As of December 31, 2022 the Company
has not experienced difficulty in repayment of loans due to COVID-19, therefore the factor for the potential negative
impact of COVID-19 was removed.

The Company’s on-going, systematic evaluation resulted in the Company recording a provision of $80,000 for the
allowance for loan losses in 2022 and recording a total provision for (reduction of) the allowance for loan losses of
$(5,663,000) and $6,002,000 in 2021 and 2020, respectively. As a result of recoveries of $4,838,000 during 2021, the
Company recorded a reduction in the allowance for loan losses. The provision for the allowance for loan losses in
2020 was the direct result of a charge-off of $5,429,000 of one credit that was on nonaccrual and in bankruptcy. This
loss is the result of specific events impacting this specific customer and was not related to COVID-19. The allowance

for loan losses as a percentage of loans was 1.40%, 1.38% and 1.59% at December 31, 2022, 2021 and 2020,
respectively. The Company believes that its allowance for loan losses is appropriate as of December 31, 2022.

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

2022 as compared with 2021

Total non-interest income increased $425,000 in 2022 as compared with 2021. Trust department income and fees
increased $152,000 in 2022 as compared with 2021 as a result of the recent trust acquisition. Other income increased
$185,000 in 2022 as compared with 2021. Service charges on deposit accounts increased $33,000 as customer
transactions have begun to return to pre-COVID-19 activity.

2021 as compared with 2020

Total non-interest income decreased $781,000 in 2021 as compared with 2020. Results in 2020 included several non-
recurring items. These included a gain of $224,000 from the redemption of death benefits on bank owned life insurance
and a gain of $318,000 from the sale of banking premises. In addition, gains on liquidation, sales and calls of securities
were $539,000 as the Company had opportunities to sell securities which generated gains in 2020 as compared with a
loss of $45,000 in 2021. Trust department income and fees increased $154,000 in 2021 as compared with 2020 as a
result of new account relationships. Service charges on deposit accounts increased $197,000 as customer transactions
have begun to return to pre-COVID-19 activity.

Non-interest Expense

2022 as compared with 2021

Total non-interest expense decreased $767,000 in 2022 as compared with 2021. Salaries and employee benefits
increased $727,000 primarily due to merit bonuses and increases in benefits. Net occupancy decreased $163,000
primarily due to decreases in insurance expense in 2022. Other expense decreased $1,322,000 primarily as legal and
consulting and other real estate decreased while data processing and ATM expense increased. Legal and consulting
costs decreased due to the settlement of a lawsuit for $1,125,000 in 2021 in which a partial recovery was received at
the end of 2022 in the amount of $486,000 along with non-recurring expenses in 2021 relating to the contested 2021
annual shareholders’ meeting. Other real estate expenses decreased $7,000 as a result of decreased expense of holding
and selling ORE in 2022 as compared to 2021. Data processing costs increased $37,000 due to the implementation of
new applications in the current year. ATM expense increased $131,000 as a result of costs associated with debit card
processing charges since conversion to a new provider.

2021 as compared with 2020

Total non-interest expense increased $1,088,000 in 2021 as compared with 2020. Salaries and employee benefits
increased $247,000 primarily due to merit bonuses. Equipment rentals, depreciation and maintenance decreased
$130,000 primarily as IT-related equipment became fully depreciated. Other expense increased $918,000 primarily as
data processing, legal and accounting and ATM expense increased while other real estate expense decreased. Data
processing costs increased $182,000 due to the implementation of new applications in the current year. Legal and
accounting costs increased $1,398,000 due to the settlement of a lawsuit for $1,125,000 and non-recurring legal and
consulting costs relating to the contested 2021 annual shareholders’ meeting. ATM expense increased $167,000 as a
result of costs associated with debit card processing charges since conversion to a new provider. Other real estate costs
decreased $958,000 as a result of decreased write-downs and other expense of holding and selling ORE in 2021 as
compared with 2020.

Income Taxes

During 2014, Management established a valuation allowance against its net deferred tax asset of approximately
$8,140,000. As of December 31, 2021, and 2020, the valuation allowance was still in place. The 2018 Tax Cuts and
Jobs Act began limiting NOL usage to 80% of taxable income, which resulted in the Company recording income tax
expense for 2021.

During the fourth quarter of 2022, the Company determined that it was more likely than not that it would realize a
certain amount of its deferred tax assets. As of December 31, 2022, the Company no longer has a net operating loss
carryforward and its projections of future income indicate that reversal of a portion of the valuation allowance was
appropriate. Accordingly, an income tax benefit of $2,446,000 was recorded in the fourth quarter of 2022.

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 $17,155,000 at December 31, 2022 compared with December 31, 2021 as the
Company utilized some of its excess liquidity to fund investment purchases.

Available for sale securities decreased $26,635,000 and held to maturity securities increased $85,009,000, respectively
at December 31, 2022 compared with December 31, 2021 as the Company increased its held to maturity investment
purchases, which were funded by using funds available from cash and due from banks, decreased loans and the
increase in deposits.

Gross loans decreased $1,284,000 at December 31, 2022 compared with December 31, 2021, as principal payments,
particularly from PPP loan forgiveness, maturities, and charge-offs on existing loans outpaced new loans.

Total deposits increased $80,942,000 at December 31, 2022, as compared with December 31, 2021. 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.

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 2022 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 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
2023.

The Company actively participated in the PPP, facilitating approximately $23 million and $6 million, respectively,
in funding during 2020 and 2021. As an additional liquidity resource, the Company was approved to participate in the
Federal Reserve Bank’s PPP Liquidity Facility.

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.

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition
(in thousands except share data)

December 31,

2022

2021

Assets
Cash and due from banks ................................................................................. $
Available for sale securities .............................................................................
Held to maturity securities, fair value of $180,050 - 2022; $111,340 – 2021 ......
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 ..............................................................
Intangible asset ...............................................................................................

Other assets .....................................................................................................
Total assets .................................................................................................... $
Liabilities and Shareholders' Equity
Liabilities:
Deposits:

Demand, non-interest bearing ..................................................................... $
Savings and demand, interest bearing ..........................................................
Time, $250,000 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,

4,678,186 shares issued and outstanding at December 31, 2022
and 2021 ....................................................................................................
Surplus .........................................................................................................
Undivided profits ..........................................................................................

Accumulated other comprehensive income (loss) ...........................................

Total shareholders' equity ..........................................................................
Total liabilities and shareholders' equity ...................................................... $

See Notes to Consolidated Financial Statements.

32,836 $
350,168
195,217
350
2,175
237,878
3,338

234,540

18,499
259
3,274
20,768
600
2,953

49,991
376,803
110,208
350
2,153
239,162
3,311

235,851

17,990
1,891
2,841
20,150

722

861,639 $

818,950

198,097 $
546,565
8,773
32,345
785,780

19,198
1,467
806,445

4,678
65,780
31,154
(46,418)

55,194

861,639 $

193,473
428,411
43,613
39,341
704,838
889
19,332
2,162
727,221

4,678
65,780
23,102
(1,831)

91,729

818,950

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Operations
(in thousands except per share data)

Years Ended December 31,

2022

2021

2020

11,135

12,592

13,076

Interest income:
Interest and fees on loans .......................................................
Interest and dividends on securities:

U. S. Treasuries .................................................................
U.S. Government agencies ................................................
Mortgage-backed securities ................................................

Collateralized mortgage obligations ....................................

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 (reduction of) allowance for loan losses ..........
Net interest income after provision for (reduction of)

allowance for loan losses .....................................................

Non-interest income:

3,173

2,586

1,919

4,460
27
408

23,708

1,985
173

2,158

21,550
80

21,470

Trust department income and fees .........................................

Service charges on deposit accounts ......................................

(Loss) gain on liquidation, sales and calls of securities ............
Increase in cash surrender value of life insurance...................

Gain from death benefits from life insurance .........................

Gain on sale of buildings ......................................................
Other income .......................................................................

Total non-interest income ...................................................

Non-interest expense:

Salaries and employee benefits .............................................

Net occupancy......................................................................

Equipment rentals, depreciation, and maintenance .................

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.

2,001

3,678

445

771

6,895

11,341

1,755

2,905
5,854

21,855

6,510

(2,431)

8,941

1.91

.19

663
95
2,076

860

3,903
8
95

657
199
2,530

466

2,126
27
227

20,292

19,308

806
24

830

19,462
(5,663)

1,549
32

1,581

17,727
6,002

25,125

11,725

1,849

3,645

(45)
435

586

6,470

10,614

1,918

2,914
7,176

22,622

8,973

1,695

3,448

539
484

224

318
543

7,251

10,367

1,865

3,044
6,258

21,534

(2,558)

8,911 $

(2,558)

1.84

.16

( .52)

.02

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(in thousands)

Years Ended December 31,

2022

2021

2020

Net income (loss)......................................................................

8,941

8,911

(2,558)

Other comprehensive (loss) income:

Net unrealized (loss) gain on available for sale securities ............

(45,600)

(7,519)

4,225

(539)

(359)

3,327

(229)

(7,703)

1,208

769

Reclassification adjustment for realized losses (gains) on

available for sale securities called or sold in current year ..........

Gain (loss) from unfunded post-retirement benefit obligation ......

Total other comprehensive (loss) income ................................

Total comprehensive (loss) income .........................................

1,013

(44,587)

(35,646)

See Notes to Consolidated Financial Statements.

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands except share and per share data)

Number of
Common Shares

Common
Stock

Surplus

Undivided Profits

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance, January 1, 2021 ......

4,878,557

4,879 $

65,780

$ 18,140

5,872

94,671

Net income .............................

Cash dividend ($.16 per share)

Other comprehensive loss........

Stock repurchase .....................

(200,371)

(201)

Balance, December 31, 2021..

4,678,186

4,678

65,780

Net income .............................

Cash dividend ($.19 per share)

Other comprehensive loss........
Balance, December 31, 2022..

8,911

(769)

(3,180)

23,102

8,941

(889)

(7,703)

(1,831)

(44,587)

8,911

(769)

(7,703)

(3,381)

91,729

8,941

(889)
(44,587)

4,678,186

4,678 $

65,780

$ 31,154

(46,418)

55,194

See Notes to Consolidated Financial Statements.

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)

Years Ended December 31,

2022

2021

2020

Cash flows from operating activities:
Net income (loss) ............................................................

Adjustments to reconcile net income (loss) to net cash
provided by operating activities: ....................................
Depreciation..................................................................
Provision for (reduction of) allowance for loan losses ....
Write-down of other real estate ......................................
(Gain) loss on sales of other real estate ..........................
Amortization of intangible asset ....................................
(Accretion) amortization of available for sale securities .
Amortization of held to maturity securities ....................
Loss (gain) on liquidation, sales and calls of securities ...
Gain on sale of bank premises and equipment ................
Increase in cash surrender value of life insurance ...........
Gain from death benefits from life insurance..................
Change in accrued interest receivable ............................
Change in deferred tax benefit .......................................
Change in other assets ...................................................

Change in employee and director benefit plan liabilities
and other liabilities ........................................................

8,941

8,911

(2,558)

1,664
80
155
(87)
21
(12)
71

(445)

(433)
(2,446)
215

184

1,681
(5,663)
299
(284)

412
442
45

(434)

(741)

344

(428)

4,584

1,811
6,002
661
103

(29)
271
(539)
(318)
(483)
(224)
(413)

214

1,424

5,922

Net cash provided by operating activities .....................

7,908

Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(in thousands)

Years Ended December 31,

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 of Federal Home Loan Bank Stock ................................

Proceeds from sales of other real estate ........................................

Proceeds from insurance on other real estate ................................

Purchase of trust department book of business ..............................

Loans, net change........................................................................

Acquisition of bank premises and equipment................................

Proceeds from sale of bank premises and equipment.....................

2022

2021

2020

89,879

54,627

183,726

(108,832)

23,751

(108,831)

(22)

1,564

(621)

1,231

(2,173)

(259,231)

4,937

(39,899)

(4)

1,583

43,793

(1,944)

(163,291)

9,365

(33,093)

(20)

3,890

(16,008)

(441)

547

(69)

548

Investment in cash surrender value of life insurance .....................

(173)

(107)

Proceeds from death benefits from life insurance ..........................

Net cash used by investing activities..........................................

(104,227)

(196,245)

(14,769)

Cash flows from financing activities:

Demand and savings deposits, net change ....................................

Time deposits, net change ............................................................

Cash dividends paid ....................................................................

Stock repurchase .........................................................................

Borrowings from Federal Home Loan Bank .................................

Repayments to Federal Home Loan Bank.....................................

Net cash provided by financing activities ....................................

Net (decrease) increase 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.

122,778

(41,836)

(889)

567,750

(568,639)

79,164

(17,155)

49,991
32,836

132,450

21,890

(769)

(3,381)

79,523

(79,603)

150,110

(41,551)

91,542
49,991

103,689

(29,334)

(98)

(735)

59,500

(62,057)

70,965

62,118

29,424
91,542

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Business of The Company

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi.
Its two 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.

Revenue Recognition

Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), 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 excludes revenue streams relating to loans and investment securities, which are the major source of
revenue for the Company, from its scope. Consistent with this guidance, the Company recognizes non-interest income
within the scope of this guidance as services are transferred to its customers in an amount that reflects the consideration
it expects to be entitled to in exchange for those services.

Other types of revenue contracts, the income from which is included in non-interest income, that are within the scope
of ASU 2014-09 are:

Trust department income and fees: A contract for fiduciary and/or investment administration services on personal trust
accounts and corporate trust services. Personal trust fee income is determined as a percentage of assets under
management and is recognized over the period the underlying trust is serviced. Corporate trust fee income is
recognized over the period the Company provides service to the entity.

Service charges on deposit accounts: The deposit contract obligates the Company to serve as a custodian of the
customer’s deposited funds and is generally terminable at will by either party. The contract permits the customer to
access the funds on deposit and request additional services for which the Company earns a fee, including NSF and
analysis charges, related to the deposit account. Income for deposit accounts is recognized over the statement cycle
period (typically on a monthly basis) or at the time the service is provided, if additional services are requested.

ATM fee income: A contract between the Company, as a card-issuing bank, and its customers whereby the Company
receives a transaction fee from the merchant’s bank whenever a customer uses a debit or credit card to make a
purchase. These fees are earned as the service is provided (i.e., when the customer uses a debit or ATM card).

Other non-interest income: Other non-interest income includes several items, such as wire transfer income, check
cashing fees, gain (loss) from sales of other real estate, the increase in cash surrender value of life insurance, rental
income from bank properties and safe deposit box rental fees. This income is generally recognized at the time the
service is provided and/or the income is earned.

Revision of Prior Period Financial Statements

During 2022, the Company recorded two error corrections in previously issued financial statements. The first error
correction related to accounting for a low-income housing partnership in which the Company was a 99% limited
partner. The error is described under Note 1 to the Unaudited Consolidated Financial Statements contained in the
Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022.

The second error correction was related to the Company’s accounting for bank premises and equipment. While
reviewing the Company’s accruals for depreciation related to certain bank premises and equipment, the Company
noticed that it had been over-accruing depreciation expenses beginning in 2006, causing expenses and the
accumulation of depreciation in prior periods that were more than what should have been recorded under GAAP.

Each of the errors at each period end represented 3% or less of our shareholders' equity in all prior periods, and the
aggregate net effect of the error corrections on shareholders’ equity was minimal. In accordance with the guidance set
forth in SEC Staff Accounting Bulletin 99, Materiality, and SEC Staff Accounting Bulletin 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financials, the Company
concluded that the errors were not material, to any prior periods, the current period or the trend in earnings from a
quantitative and qualitative perspective. However, correcting the cumulative effect of the errors in the current period
would have resulted in a material misstatement in the current period and, as such, the Company has revised its
previously reported financial information contained in our annual report on Form 10-K for the year ended December
31, 2022, to correct the immaterial errors. The Company will also revise previously reported financial information for
these immaterial errors in future filings, as applicable.

A summary of revisions to certain previously reported financial information is presented below:

Revised Consolidated Statements of Condition as of December 31, 2021 (in thousands):

Other investments ............................................ $
Bank premises and equipment, net of

accumulated depreciation............................... $

Total assets ......................................................

Undivided profits .............................................

As Reported

2,404

15,799

818,813

22,965

Adjustment

(2,054)

2,191

137

As Revised

350

17,990

818,950

23,102

Revised Consolidated Statements of Shareholders’ Equity for the twelve months ended December 31, 2021 (in
thousands):

Twelve Months Ended December 31, 2021

As Reported

Adjustment

As Revised

Beginning balance undivided profits ................. $

18,335

Beginning balance total shareholders' equity .....

Ending balance undivided profits .....................

Ending balance total shareholders' equity ..........

94,866

22,965

91,592

(195)

137

18,140

94,671

23,102

91,729

Revised Consolidated Income Statements for the twelve months ended December 31, 2021 and 2020 (in thousands):

Twelve Months Ended December 31, 2021

As Reported

Adjustment

As Revised

Non-Interest Expense ....................................... $

22,954

Net Income ......................................................

Basic and diluted earnings (loss) per share ........

8,579

1.77

(332)

332

0.07

22,622

8,911

1.84

Twelve Months Ended December 31, 2020

As Reported

Adjustment

As Revised

Non-Interest Expense ...................................... $

Net Income .....................................................

Basic and diluted earnings (loss) per share .......

21,727

(2,751)

(0.56)

(193)

193

0.04

21,534

(2,558)

(0.52)

New Accounting Pronouncements

Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”), is intended to provide financial statement users with more
decision-useful information related to expected credit losses on financial instruments and other commitments to extend
credit by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable and supportable information to determine credit
loss estimates. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed
to apply methods that reasonably reflect its expectations of the credit loss estimate. Additionally, the amendments of
ASU 2016-13 require that credit losses on available for sale debt securities be presented as an allowance rather than
as a write-down.

ASU 2016-13 was originally to become effective for the Company for interim and annual periods beginning after
December 15, 2019. In November 2019, the FASB issued Accounting Standards Update 2019 – 10, Financial
Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective
Dates (“ASU 2019–10”). ASU 2019-10 amends the effective date for certain entities, including the Company, for
ASU 2016-13, Financial Instruments – Credit Losses. Because the Company is a smaller reporting company, ASU
2016-13 is now effective for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. In March 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-02
(“ASU 2022-02”), Financial Instruments-Credit Losses (Topic 326). ASU 2022-02 amends guidance relating to
trouble debt restructurings for all entities after they have adopted ASU 2016-13, Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. The update is effective for fiscal years
beginning after December 15, 2022, including interim periods within those fiscal years.

The Company has established a Current Expected Credit Loss (CECL) Committee which includes the appropriate
members of management, credit administration and accounting to evaluate the impact this ASU will have on the
Company’s financial position, results of operations and financial statement disclosures and determine the most
appropriate method of implementing this ASU. The Company selected a third-party vendor to provide allowance for
loan loss software as well as advisory services in developing a new methodology that would be compliant with ASU
2016-13, and is working with the approved third-party vendor to develop the CECL model and evaluate its impact.
The Company ran a parallel calculation under CECL for the last two quarters of 2022 and expects the adoption of this
ASU not to have a significant impact to the Company’s financial statements. The adjustment is expected to increase
the allowance for loan losses by less than 2%.

In August 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-06 (“ASU
2021-06”), Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic
942), and Financial Services – Investment Companies (Topic 946). The FASB issued ASU 2021-06 to amend
Securities and Exchange Commission (“SEC”) paragraphs in the Accounting Standards Codification to reflect the
issuance of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed

Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The
update is effective upon issuance. The adoption of this ASU will impact disclosures in the Annual Report on Form
10-K only.

Cash and Due from Banks

For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand, balances
due from banks, and federal funds sold, all of which mature within ninety days.

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

The Company is a shareholder of the First National Bankers Bankshares, Inc., a federally insured holding company
for First National Bankers Bank and as such owns an investment in its stock. The stock is bought from and sold to the
First National Bankers Bankshares, Inc. based on its prevalent book value. The stock does not have a readily
determinable fair value and is carried at cost and evaluated for impairment in accordance with GAAP.

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. Fees received for processing Paycheck Protection Program (“PPP”) loans, which is a type of loan designed
to provide funds to help small businesses impacted by COVID-19 to keep their workers on payroll, are amortized over
the life of the loan and recognized in full upon forgiveness.

The Company continuously monitors its relationships with its loan customers in concentrated industries such as
gaming and hotel/motel, as well as the exposure for out of area, land development, construction and commercial real
estate loans, and their direct and indirect impact on its operations. Loan delinquencies and deposit overdrafts are
monitored on a weekly basis in order to identify developing problems as early as possible. On a monthly basis, a watch
list of credits based on our loan grading system is prepared. Grades are applied to individual loans based on factors
including repayment ability, financial condition of the borrower and payment performance. Loans with lower grades
are placed on the watch list of credits. The watch list is the primary tool for monitoring the credit quality of the loan
portfolio. Once loans are determined to be past due, the loan officer and the special assets department work vigorously
to return the loans to a current status.

The Company places loans on a nonaccrual status when, in the opinion of Management, they possess sufficient
uncertainty as to timely collection of interest or principal so as to preclude the recognition in reported earnings of
some or all of the contractual interest. Accrued interest on loans classified as nonaccrual is reversed at the time the
loans are placed on nonaccrual. Interest received on nonaccrual loans is applied against principal. Loans are restored
to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for
a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in
doubt. The placement of loans on and removal of loans from nonaccrual status must be approved by Management.

Loans which become 90 days delinquent are reviewed relative to collectibility. Unless such loans are in the process
of terms revision to bring them to a current status or foreclosure or in the process of collection, these loans are placed
on nonaccrual and, if deemed uncollectible, are charged off against the allowance for loan losses. That portion of a
loan which is deemed uncollectible will be charged off against the allowance as a partial charge off. All charge offs
must be approved by Management and are reported to the Board of Directors.

Allowance for Loan Losses

The allowance for loan losses (“ALL”) is a valuation account available to absorb losses on loans.

The ALL is established through provisions for loan losses charged against earnings. Loans deemed to be uncollectible
are charged against the ALL, and subsequent recoveries, if any, are credited to the allowance.

The ALL is based on Management's evaluation of the loan portfolio under current economic conditions and is an
amount that Management believes will be adequate to absorb probable losses on loans existing at the reporting date.
On a quarterly basis, the Company’s problem asset committee meets to review the watch list of credits, which is
formulated from the loan grading system. Members of this committee include loan officers, collection officers, the
special assets director, the chief lending officer, the chief credit officer, the chief financial officer and the chief
executive officer. The evaluation includes Management’s assessment of several factors: review and evaluation of
specific loans, changes in the nature and volume of the loan portfolio, current and anticipated economic conditions
and the related impact on specific borrowers and industry groups, a study of loss experience, a review of classified,
non-performing 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, 2022.

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 $500,000. Loans secured by real estate in an
amount of $500,000 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 twelve 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; hotel/motel; real estate, construction; real
estate, mortgage; commercial and industrial and all other. The loss percentages are based on each segment’s historical
five-year average loss experience which may be adjusted by qualitative factors such as changes in the general
economy, or economy or real estate market in a particular geographic area or industry.

Management considers the following when assessing risk in the Company's loan portfolio segments: gaming - loans
in this segment are primarily susceptible to declines in tourism and general economic conditions; hotel/motel - loans
in this segment are primarily susceptible to tourism, declines in occupancy rates, business failure, industry
concentrations and general economic conditions; real estate, construction - loans in this segment are primarily
susceptible to cost overruns, changes in market demand for property, delay in completion of construction and declining
real estate values; real estate, mortgage - loans in this segment are primarily susceptible to general economic
conditions, declining real estate values, industry concentrations and business failure; commercial and industrial - loans
in this segment are primarily susceptible to general economic conditions, declining real estate values, industry
concentrations and business failure; and other - loans in this segment, most of which are consumer loans, are primarily
susceptible to regulatory risks, unemployment and general economic conditions.

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 write-downs 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.

Intangible Asset

Intangible asset represents the purchase price paid in the Company’s acquisition of the Trustmark trust department
book of business. The intangible asset is being amortized over 10 years and is evaluated for impairment at least
annually.

Trust Department Income and Fees

Corporate trust fees are accounted for on an accrual basis and personal trust fees are recorded when the underlying
trust is serviced.

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 4,678,186 for 2022, 4,844,248 for 2021, and 4,893,151 for 2020.

Accumulated Other Comprehensive Income (Loss)

At December 31, 2022, 2021 and 2020, 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
$2,156,429, $840,992, and $1,610,864 in 2022, 2021 and 2020, respectively, for interest on deposits and borrowings.
No income tax payments were paid in 2022. Income tax payments of $165,000 were paid in 2021. No income tax
payments were paid in 2020. Loans transferred to other real estate amounted to $0, $13,648 and $753,620 in 2022,
2021 and 2020, 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.

NOTE B – SECURITIES:

The amortized cost and fair value of securities at December 31, 2022 and 2021 are as follows (in thousands):

December 31, 2022
Available for sale securities:

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value

U.S. Treasuries ........................................ $

118,782

(10,414) $

108,368

Mortgage-backed securities ......................

Collateralized mortgage obligations ..........

States and political subdivisions ...............
Total available for sale securities ................ $

Held to maturity securities:

61,280

115,436

102,428

(4,877)

(8,059)

(24,446)

397,926

(47,796) $

U.S. Treasuries ........................................ $

94,339

States and political subdivisions ...............
Total held to maturity securities .................. $

100,878
195,217

52
52

(1,288) $

(13,931)
(15,219) $

56,439

107,377

77,984

350,168

93,051

86,999
180,050

December 31, 2021

Available for sale securities:

Amortized Cost

Gross Unrealized
Gains

Gross Unrealized
Losses

Fair Value

U.S. Treasuries ...................................... $

73,889

Mortgage-backed securities....................

Collateralized mortgage obligations .......

States and political subdivisions .............
Total available for sale securities .............. $

Held to maturity securities:.......................
States and political subdivisions ............. $
Total held to maturity securities................ $

71,187

130,181

103,704

378,961

110,208

1,236

841

293

2,370

1,760

(735)

(441)

(1,035)

(2,317)

(4,528)

(628)

73,154

71,982

129,987

101,680

376,803

111,340

The amortized cost and fair value of debt securities at December 31, 2022, (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.

Amortized Cost

Fair Value

Available for sale securities:

Due in one year or less ....................................... $

25,294

Due after one year through five years .................

29,675

Due after five years through ten years .................

101,612

Due after ten years .............................................

Mortgage-backed securities ................................

Collateralized mortgage obligations....................
Total .................................................................... $

Held to maturity securities: ...................................

64,629

61,280

115,436

Due in one year or less ....................................... $

66,001

Due after one year through five years .................

Due after five years through ten years .................

Due after ten years .............................................
Total .................................................................... $

48,774

41,688

38,754

25,136

27,822

85,596

47,798

56,439

107,377

65,828

47,053

36,578

30,591

195,217

180,050

397,926

350,168

Available for sale and held to maturity securities with gross unrealized losses at December 31, 2022 and 2021,
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

Fair Value

Gross
Unrealized
Losses

Fair Value

Gross
Unrealized
Losses

Fair Value

Gross
Unrealized
Losses

132,113

2,158 $

64,533 $

9,544 $

196,646

11,702

December 31, 2022:

U.S. Treasuries ............ $
Mortgage-backed

securities...................
Collateralized mortgage
obligations ................

States and political

subdivisions ..............

25,234

48,188

50,025

1,755

21,850

3,122

47,084

1,610

59,189

6,449

107,377

7,581

110,881

30,796

160,906

Total

255,560

13,104 $

256,453 $

49,911 $

512,013

December 31, 2021:

U.S. Treasuries ............ $
Mortgage-backed

securities...................
Collateralized mortgage
obligations ................

States and political

subdivisions ..............
Total ........................... $

73,154

735 $

73,154

26,288

66,369

441

1,035

26,288

66,369

102,413

2,577

7,470

368

109,883

268,224

4,788 $

7,470 $

368 $

275,694

4,877

8,059

38,377

63,015

735

441

1,035

2,945

5,156

At December 31, 2022, 33 of the 34 Treasuries, 44 of the 48 mortgage-backed securities, 34 of the 34 collateralized
mortgage obligations and 177 of the 196 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.

There were no sales of available for sale debt securities during 2022 or 2021. Proceeds from sales of available for sale
securities were $29,457,362 during 2020. Available for sale debt securities were sold for realized gains of $539,023
during 2020.

Securities with a fair value of $398,673,043 and $229,092,900 at December 31, 2022 and 2021, 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, 2022 and 2021 is as follows (in thousands):

December 31,

Gaming ................................................................................................ $
Hotel/motel ..........................................................................................
Real estate, construction .......................................................................
Real estate, mortgage ...........................................................................
Commercial and industrial ....................................................................

Other....................................................................................................
Total .................................................................................................... $

2022

9,965
35,737
30,146
144,043
10,497
7,490

2021

7,900
50,765
27,191
128,352
15,882
9,072

237,878

239,162

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), a stimulus package
intended to provide relief to businesses and consumers in the United States struggling as a result of COVID-19, was
signed into law. A provision in the CARES Act included funding for the creation of the Paycheck Protection Program
(“PPP”). PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest and
utilities. PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes
in accordance with the requirements of the PPP. If not forgiven, in whole or in part, these loans extended in 2020 carry
a fixed rate of 1.00% and a maturity date of two years, with payments deferred until the date the Small Business
Administration (the “SBA”) remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not
apply for loan forgiveness, ten months after the end of the borrowers’ loan forgiveness covered period. The loans are
100% guaranteed by the SBA. The SBA paid the originating bank a processing fee ranging from 1.00% to 5.00%,
based on the size of the loan.

The Company worked with its customers to close 363 PPP loans for a total outstanding balance of $22,445,026. As
of December 31, 2022, all of these loans were partially or completely forgiven by the SBA with the bank subsidiary
receiving principal and interest payments directly from the SBA. Only 2 loans with a balance of $4,878 were still
outstanding as of December 31, 2021, and are reported in the commercial and industrial segment within the loan
portfolio. There were no outstanding PPP loans as of December 31, 2022.

Additional funds were provided in 2021 legislation for another round of PPP loans. Under this new round, 166 loans
with a balance of $9,801,304 were issued. These loans carry a fixed rate of 1.00% and a maturity date of five years,

with similar terms as to deferred payments, guarantees and processing fees as with prior PPP rounds. As of
December 31, 2022, there were no outstanding loans related to the additional PPP loans.

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 collectability 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 ............................................................................. $
Change in directors/officers loans during the year ..............................
New loans and advances ....................................................................

Repayments .......................................................................................
Balance, December 31 ....................................................................... $

2022

5,978
124
1,324
(479)
6,947

2021

4,458

2,049
(529)
5,978

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,

2022

9,965
35,737
7,544

2021

7,900
50,765
6,987

The age analysis of the loan portfolio, segregated by class of loans, as of December 31, 2022 and 2021 is as follows
(in thousands):

Number of Days Past Due

30 - 59

60 - 89

Greater Than
90

Total Past
Due

Current

Total Loans

Loans Past
Due Greater
Than 90
Days and
Still
Accruing

December 31, 2022:

Gaming ............................. $

9,965

Hotel/motel .......................

Real estate, construction ..

Real estate, mortgage.......
Commercial and
industrial ...........................

Other .................................

Total .................................. $

December 31, 2021:

35,737

30,065

35,737

30,146

1,101

1,184

142,859

144,043

10,497

7,476

10,497

7,490

127 $

51 $

1,101 $

1,279 $

236,599

237,878

Gaming ............................. $

7,900

Hotel/motel .......................

Real estate, construction ..

Real estate, mortgage.......
Commercial and
industrial ...........................

Other .................................
Total .................................. $

105

1,996

209

320

50,765

27,086

50,765

27,191

105

2,119

126,233

128,352

341

209

15,541

8,863

15,882

9,072

2,331 $

380 $

63 $

2,774 $

236,388

239,162

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, 2022 and 2021 is as
follows (in thousands):

Loans With A Grade Of:

A, B or C

Total

December 31, 2022:
Gaming ............................................. $
Hotel/motel .......................................
Real estate, construction.....................
Real estate, mortgage .........................
Commercial and industrial .................

Other .................................................

Total ............................................... $

December 31, 2021:
Gaming ............................................. $
Hotel/motel .......................................
Real estate, construction.....................
Real estate, mortgage .........................
Commercial and industrial .................

Other .................................................

9,965 $
35,737
30,115
141,211
10,497
7,476
235,001 $

7,900 $
50,765
26,980
124,289
15,834
9,060

2
1,288

29
1,467

77 $

7
1,297 $

7
1,503 $

6
3,344
27
12

205
632
21

9,965
35,737
30,146
144,043
10,497
7,490
237,878

7,900
50,765
27,191
128,352
15,882
9,072

Total ............................................... $

234,828 $

87 $

3,389 $

858 $

239,162

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, 2022 and 2021 are as follows (in thousands):

December 31,

2022

2021

Real estate, construction .................................................................................. $

Real estate, mortgage ......................................................................................

1,434

Other ..............................................................................................................

138

563

Total ............................................................................................................... $

1,441

701

The CARES Act also addressed COVID-19-related loan modifications and specified that such modifications executed
between March 1, 2020 and the earlier of (i) 60 days after the date of the termination of the national emergency
declared by the President and (ii) December 31, 2020, on loans that were current as of December 31, 2019, are not
classified as a troubled debt restructuring (“TDR”). Additionally, under guidance from the federal banking agencies
encouraging financial institutions to work prudently with borrowers, other short-term modifications made on a good
faith basis in response to COVID-19 to borrowers that were current prior to any relief are not TDRs. During 2020, the
Company modified 249 loans with a total balance of $95,010,325 for certain customers by extending payments for 90
days or granting interest only payments for 3 – 6 months as a result of the impact of COVID-19. Accordingly, such
loans were not classified as TDRs. As of December 31, 2022, all extensions have expired and the customers have
resumed making regular payments.

Prior to 2020, certain loans were modified by granting interest rate concessions to these customers with such loans
being classified as TDRs. During 2022 and 2021 the Company did not restructure any additional loans. Specific
reserves of $0 and $50,000 were allocated to TDRs as of December 31, 2022 and 2021. The Bank had no commitments
to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of
December 31, 2022 and 2021.

Impaired loans, which include loans classified as nonaccrual and TDRs, segregated by class of loans, as of
December 31, 2022 and 2021 were as follows (in thousands):

Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

December 31, 2022:

With no related allowance recorded:

Real estate, construction ..................... $

Real estate, mortgage..........................

Other ....................................................

Total ....................................................

With a related allowance recorded: ........

Real estate, mortgage..........................

Total ....................................................

Total by class of loans:

Real estate, construction .....................

Real estate, mortgage..........................

Other ....................................................
Total .................................................... $

December 31, 2021:

With no related allowance recorded:

Real estate, construction ................ $

Real estate, mortgage ....................

Total ...............................................
With a related allowance recorded:

Real estate, mortgage ....................

Total ...............................................
Total by class of loans:

102

888

997

1,158

102

2,046

743

779

1,150

1,893

124

806

859

1,153

1,959

2,155

1,929

124

2,012 $

Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized

272
1,014

1,286

205
1,014

1,219

369
1,075

1,444

199

203

Real estate, construction ................
Real estate, mortgage ....................
Total ............................................... $

272
1,213
1,485

205
1,213
1,418

70
70

369
1,278
1,647

7
21

7
26
33

Transactions in the allowance for loan losses for the years ended December 31, 2022, 2021 and 2020, and the balances
of loans, individually and collectively evaluated for impairment, as of December 31, 2022, 2021 and 2020 are as
follows (in thousands):

Gaming

Hotel/Motel

Real Estate,
Construction

Real Estate,
Mortgage

Commercial
and
Industrial

Other

Total

December 31, 2022:

Allowance for Loan Losses:

Beginning Balance .................. $

102 $

691 $

139 $

2,049 $

252 $

78 $

3,311

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, 2021:

Allowance for Loan Losses:

(254)

253

(71)

(125)

(240)

124

260

(240)

187

119 $

437 $

392 $

2,026 $

142 $

222 $

3,338

229 $

229

119 $

437 $

392 $

1,797 $

142 $

222 $

3,109

31 $

2,756 $

14 $

2,801

9,965 $

35,737 $

30,115 $

141,287 $

10,497 $

7,476 $

235,077

Gaming

Hotel/Motel

Real Estate,
Construction

Real Estate,
Mortgage

Commercial
and
Industrial

Other

Total

Beginning Balance .................. $

186 $

754 $

111 $

2,849 $

417 $

109 $

4,426

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 ..... $

(84)

(63)

(2)

4,599

102

(5,397)

(267)

(286)

(290)

119

136

4,838

(5,663)

102 $

691 $

139 $

2,049 $

252 $

78 $

3,311

115 $

27 $

142

102 $

691 $

139 $

1,934 $

225 $

78 $

3,169

211 $

3,976 $

48 $

12 $

4,247

7,900 $

50,765 $

26,980 $

124,376 $

15,834 $

9,060 $

234,915

Gaming

Hotel/Motel

Real Estate,
Construction

Real Estate,
Mortgage

Commercial
and
Industrial

Other

Total

December 31, 2020:
Allowance for Loan Losses:

Beginning Balance
Charge-offs ............................
Recoveries .............................

223 $

779 $

(37)

(25)

102
(17)
15
11

2,454 $

553 $

(5,472)

5,867

(261)
34
91

96
(227)
145
95

4,207
(5,977)
194
6,002

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 ...... $

186 $

754

111 $

2,849 $

417 $

109

4,426

20 $

200 $

40 $

260

186 $

754

2,649 $

377 $

109 $

4,166

2,827 $

511 $

6,474 $

94 $

21 $

9,927

15,938

45,499 $

26,098 $

137,802 $

37,335 $

5,822

268,494

NOTE D - BANK PREMISES AND EQUIPMENT:

Bank premises and equipment are shown as follows (in thousands):

December 31,

Estimated Useful
Lives

Land .................................................................................
Building ........................................................................... 5 - 40 years

Furniture, fixtures, and equipment ..................................... 3 - 10 years
Totals, at cost ...................................................................

2022

5,554
34,319
16,585

56,458
37,959

2021

5,554
32,334
16,482

54,370
36,380

18,499

17,990

Less: Accumulated depreciation ........................................

Totals ...............................................................................

NOTE E – OTHER REAL ESTATE:

The Company’s other real estate consisted of the following as of December 31, 2022 and 2021 (in thousands except
number of properties):

December 31,

2022

2021

Number of
Properties

Balance

Number of
Properties

Construction, land development and other land .............
1 - 4 family residential properties ..................................
Nonfarm nonresidential ................................................
Other ............................................................................
Total ............................................................................

259

1
1

NOTE F - DEPOSITS:

At December 31, 2022, the scheduled maturities of time deposits are as follows (in thousands):

Balance

785

753
353

$ 1,891

2023 ..................... $

26,482

2024 .....................

2025 .....................

2026 .....................

2027 .....................

12,238

1,034

683

681

Total ..................... $

41,118

Deposits held for related parties amounted to $3,962,941 and $5,372,218 at December 31, 2022 and 2021, respectively.

Overdrafts totaling $636,210 and $770,542 were reclassified as loans at December 31, 2022 and 2021, respectively.

NOTE G – FEDERAL FUNDS PURCHASED:

At December 31, 2022, the Company had facilities in place to purchase federal funds up to $30,500,000 under
established credit arrangements.

NOTE H - BORROWINGS:

At December 31, 2022, the Company was able to borrow up to $8,587,575 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 the primary credit rate, which is established
periodically by the Federal Reserve Board, and have a maturity of one day. The primary credit rate was 4.50% at
December 31, 2022. There was no outstanding balance at December 31, 2022.

At December 31, 2022, the Company had $0 outstanding in advances under a $113,035,618 line of credit with the
FHLB. New advances may subsequently be obtained based on the liquidity needs of the bank subsidiary. Advances
are collateralized by a blanket floating lien on the Company’s residential first mortgage loans.

The Company has additional contingency funding capacity with various other financial institutions in the amount of
$30,500,000.

NOTE I - INCOME TAXES:

Deferred taxes (or deferred charges) as of December 31, 2022 and 2021, included in other assets, were as follows (in
thousands):

December 31,
Deferred tax assets:

2022

2021

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 .......................................................................................

701
3,376
10,029
356
1,126
1,683

610
(13,090)

4,791

Deferred tax liabilities:

Unrealized gain on available for sale securities, charged from equity ............
Unearned retiree health benefits plan asset ...................................................
Bank premises and equipment ......................................................................
Other ...........................................................................................................

Deferred tax liabilities .................................................................................

470

1,870
5

2,345

Net deferred taxes ......................................................................................... $

2,446

Income taxes consist of the following components (in thousands):

695
3,240

356
1,098
1,525
1,575
523
(6,889)

2,123

257

1,575
288

2,123

Years Ended December 31,
Current .............................................................................. $
Deferred:

Federal ............................................................................
Change in valuation allowance ........................................
Total deferred ..................................................................
Totals ................................................................................ $

2022

2021

2020

1,188
(3,634)

(2,446)

1,482
(1,482)

(809)
809

(2,431)

Income taxes amounted to less than the amounts computed by applying the U.S. Federal income tax rate of 21.0% for
2022, 2021 and 2020 income before income taxes. The reasons for these differences are shown below (in thousands):

2022

2021

2020

Tax

Taxes computed at statutory rate ......... $ 1,367
Increase (decrease) resulting from:

Tax-exempt interest income ..............
Income from BOLI ...........................
Federal tax credits.............................
Other ................................................
Other changes in valuation allowance

(198)
(93)
(45)
172
(3,634)

Rate
21

Tax

$ 1,815

Rate
21

Tax

$ (578)

Rate
(21)

(3)
(1)
(1)
2
(55)

(187)
(91)

6
(1,481)

(2)
(1)

(17)

(127)
(148)

44
809

(5)
(5)

2
29

Total income tax expense .................... $

(2,431)

(37)

During 2022, the Company recorded current and deferred income tax expense (benefit) of $15,000 and $(2,446,000),
respectively or a net income tax benefit of $2,431,000. During 2021 the Company recorded current and deferred
income tax expense of $62,000 and $0, respectively. During 2020 the Company recorded no income tax expense or
benefit.

During 2020 the Company recorded no income tax expense or benefit. 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 repealed 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 could 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. The Act also limits NOL usage to 80% of taxable income,
which resulted in the Company recording income tax expense for 2021.

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. As of December 31, 2021, the valuation allowance was $6,888,984.

Based on the Company’s projections, as of December 31, 2022, the Company determined that it was more likely than
not that it would realize a certain amount of its deferred tax assets. Prior to that time, the Company had recorded a
valuation allowance against its net deferred tax asset. As a result of the Company’s projections, as of December 31,
2022, the Company recorded a net deferred tax asset of $2,446,000.

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.

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.

NOTE J - SHAREHOLDERS' EQUITY:

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, 2022, $23,181,592 of undistributed earnings of the bank subsidiary
included in consolidated surplus and retained earnings was available for future distribution to the Company as
dividends without regulatory approval.

On November 8, 2019, the Board approved the repurchase of up to 65,000 of the outstanding shares of the Company’s
common stock. As a result of this repurchase plan, 65,000 shares have been repurchased for $741,574 and retired
through December 31, 2021. There were no additional shares repurchased through December 31, 2022.

On April 28, 2021, the Board approved the repurchase of 200,000 of the outstanding shares of the Company’s common
stock. As a result of this repurchase plan, 200,000 shares have been repurchased for $3,375,309 and retired through
December 31, 2021. There were no additional shares repurchased through December 31, 2022.

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.

As of December 31, 2022, 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. The Company must have a capital conservation buffer above these requirements of 2.50%. There are no
conditions or events since that notification that Management believes have changed the bank subsidiary’s category.

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 2022 and 2021, are as follows (in thousands):

Actual

For Capital Adequacy
Purposes

To Be Well Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2022:
Total Capital (to Risk Weighted

Assets) ............................................. $ 101,221

21.18%

$ 38,239

8.00%

$ 47,799

10.00%

Common Equity Tier 1 Capital (to

Risk Weighted Assets) ......................

97,883

20.48%

21,510

4.50%

31,069

6.50%

Tier 1 Capital (to Risk Weighted

Assets) .............................................
Tier 1 Capital (to Average Assets) .......

97,883
97,883

20.48%
10.78%

28,680
36,328

6.00%
4.00%

38,239
45,410

8.00%
5.00%

December 31, 2021:
Total Capital (to Risk Weighted

Assets) ............................................. $ 93,988

20.98%

$ 35,839

8.00%

$ 44,799

10.00%

Common Equity Tier 1 Capital (to

Risk Weighted Assets) ......................

90,677

20.24%

20,160

4.50%

29,119

6.50%

Tier 1 Capital (to Risk Weighted

Assets) .............................................
Tier 1 Capital (to Average Assets) .......

90,677
90,677

20.24%
11.13%

26,879
32,599

6.00%
4.00%

35,839
40,749

8.00%
5.00%

NOTE K - OTHER INCOME AND EXPENSES:

Other income consisted of the following (in thousands):

Years Ended December 31,

2022

2021

2020

Other service charges, commissions, and fees..................... $
Rentals ..............................................................................
Other .................................................................................
Totals ................................................................................ $

81
375
315

771

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 ................................................................................ $

2022

376
1,430
429
256
81
1,217
501
1,564

5,854

86
364
136

586

2021

377
1,408
415
1,930
86
1,084
347
1,529

7,176

80
369
94

543

2020

350
1,226
359
532
1,044
917
338
1,492

6,258

NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:

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, 2022 and 2021, the Company had outstanding irrevocable letters of credit aggregating $141,136 and
$138,318, respectively. At December 31, 2022 and 2021, the Company had outstanding unused loan commitments
aggregating approximately $48,920,000 and $55,297,000, respectively. Approximately $28,691,000 and $34,623,000
of outstanding commitments were at fixed rates and the remainder were at variable rates at December 31, 2022 and
2021, respectively.

NOTE M - CONTINGENCIES:

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. However, the Company settled a lawsuit for $1,125,000
during 2021 after consulting with legal counsel in the long-term best interest of the Company. The Company received
a recovery in the amount of $486,000 in 2022 related to the settlement recorded in 2021.

Additionally, a Complaint has been filed by Stilwell Activist Investments, L.P., against the Company in the Chancery
Court of Harrison County, Mississippi, requesting that the Company be compelled to allow the plaintiff to inspect and
copy certain corporate records of the Company. The plaintiff, Stilwell Activist Investments, L.P., is a shareholder of
record of the Company and is controlled by Joseph Stilwell, an individual who beneficially owns 11.3% of the issued
and outstanding common stock of the Company according to an Amended Schedule 13D filed by Mr. Stilwell and his
related entities with the SEC on January 23, 2023, disclosing Company stock beneficially owned by Mr. Stilwell’s
group. Mr. Stilwell and his related entities, including Stilwell Activist Investments, L.P., have nominated Mr. Rodney
H. Blackwell for election to the Board of Directors of the Company at its 2023 annual meeting. The Complaint filed
by Stilwell Activist Investments, L.P., alleges that it is entitled to inspect and copy certain Company records under
the Mississippi Business Corporations Act based upon a request previously made and refused by the Company for
non-compliance with state law; however, the plaintiff does not seek damages. The Company disputes the allegations
in the Complaint. The Company filed on August 26, 2022, an answer to the Complaint disputing the allegations
therein.

NOTE N - CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION:

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 SHEETS (IN THOUSANDS):

December 31,

2022

2021

Assets
Investments in subsidiaries, at underlying equity:

Bank subsidiary .............................................................. $
Nonbank subsidiary.........................................................
Cash in bank subsidiary .....................................................
Other assets .......................................................................
Total assets ...................................................................... $

Liabilities and Shareholders' Equity:
Other liabilities ................................................................. $
Total liabilities ..................................................................
Shareholders' equity ..........................................................
Total liabilities and shareholders' equity ........................ $

54,664

193
337

91,189
1
166
373

55,194

91,729

91,729
91,729

55,194
55,194

CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS):

Years Ended December 31,

2022

2021

2020

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.........................................................................
Net income (loss) .............................................................. $

1,243
8,061
7

9,311

370

8,941

4,610
4,686
4

9,300

389

8,911

250
(2,745)
4

(2,491)

(2,558)

8,941

8,911

(2,558)

CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS):

Years Ended December 31,

2022

2021

2020

Cash flows from operating activities:
Net income (loss)............................................................... $
Adjustments to reconcile net income (loss) to net cash

provided by (used in) operating activities:
Undistributed (income) loss of subsidiaries ......................
Other assets .......................................................................

Net cash provided by operating activities .....................

Cash flows from investing activities:

Net cash provided by investing activities:

Cash flows from financing activities:

8,941

$8,911

(2,558)

(8,061)
36

916

(4,686)
(1)

4,224

2,745
(2)

185

Stock repurchase .............................................................
Dividends paid ................................................................

Net cash used in financing activities

Net increase (decrease) in cash ........................................
Cash, beginning of year ...................................................
Cash, end of year ............................................................. $

(889)

27
166

193

(3,381)
(769)

(4,150)

74
92

166

(735)
(98)

(833)

(648)
740

NOTE O - EMPLOYEE AND DIRECTOR BENEFIT PLANS:

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 for each of 2022, 2021 and 2020.

The ESOP was frozen to further contributions and eligibility effective January 1, 2019. The ESOP held 214,961,
222,891 and 223,976 allocated shares at December 31, 2022, 2021 and 2020, 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. Through December 31, 2021, interest on deferred fees accrued at an annual rate of 10%, compounded
annually. Also through December 31, 2021, after payments commenced, interest accrued at an annual rate of
7.50%, compounded monthly. The Board amended the plan on November 23, 2021, providing that, effective
January 1, 2022, on a prospective basis, interest on deferred fees shall accrue at an annual rate equal to the Chase
Manhattan Bank Prime Rate as of December 31st of each year, compounded annually, before payments
commence under the plan, and that after payments have commenced, interest will accrue on the account balance
at an annual fixed rate equal to Chase Manhattan Bank Prime Rate as of the Director’s separation from service,
compounded monthly. 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 $17,969,670 and $17,544,449 at December 31, 2022 and 2021,
respectively. The present value of accumulated benefits under these plans, using an interest rate of 3.00% and 3.50%
at December 31, 2022 and 2021, respectively, and the interest ramp-up method has been accrued. The accrual
amounted to $14,099,626 and $13,556,638 at December 31, 2022 and 2021, 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 $2,288,322 and $2,109,593 at December 31, 2022 and 2021, respectively. The present value of accumulated benefits
under these plans using an interest rate of 3.00% and 3.50% at December 31, 2022 and 2021, respectively, and the
projected unit cost method has been accrued. The accrual amounted to $1,646,068 and $1,559,728 at December 31,
2022 and 2021, 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 $329,684 and $324,538 at December 31, 2022 and 2021, respectively. The present value of
accumulated benefits under these plans using an interest rate of 3.00% and 3.50% at December 31, 2022 and 2021,
respectively, and the projected unit cost method has been accrued. The accrual amounted to $111,217 and $105,076
at December 31, 2022 and 2021, 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 $180,559 and
$172,034 at December 31, 2022 and 2021, respectively. The present value of accumulated benefits under these plans
using an interest rate of 3.00% and 3.50% at December 31, 2022 and 2021, respectively, and the projected unit cost
method has been accrued. The accrual amounted to $219,540 and $208,590 at December 31, 2022 and 2021,
respectively, and is included in Employee and director benefit plans liabilities.

The Company provides post-retirement health insurance to certain of its retired employees. Employees are eligible to
participate in the retiree health plan if they retire from active service no earlier than 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 employment 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 net postretirement benefit cost was as follows (in thousands):

For the Year Ended December 31,
Net Postretirement Benefit Cost ................................................. $

2022

2021

118

139

The accumulated postretirement benefit obligation and the balance in accumulated other comprehensive income was
as follows (in thousands):

December 31,
Accumulated Postretirement Benefit Obligation .......................... $
Fair Value of Plan Assets ...........................................................

Unfunded Status ......................................................................... $

Balance in Accumulated Other Comprehensive Income .............. $

2022

2021

3,121

4,003

3,121

2,237

4,003

1,224

Amounts recognized in Accumulated Other Comprehensive Income were as follows (in thousands):

For the Year Ended December 31,

2022

2021

Net Gain ..................................................................... $
Prior Service Credit ....................................................

1,702 $
535

606
618

Total ........................................................................... $

2,237 $

1,224

The prior service credit and net gain that will be recognized in accumulated other comprehensive income during 2023
is $107,973.

The following is a summary of the actuarial assumptions used to determine the accumulated postretirement benefit
obligation:

December 31,
Equivalent APBO Single Discount Rate .....................
Rate of Increase in Future Compensation Levels .........
Current Pre 65 Health Care Trend Rate.......................
Current Post 64 Health Care Trend Rate .....................
Ultimate Health Care Trend Rate................................
Year Ultimate Trend Rate Reached ............................

2022
5.20%
N/A
6.50%
6.50%
4.56%
2041

2021
2.80%
N/A
5.50%
5.50%
4.50%
2026

The following is a summary of the assumptions used to determine the net postretirement benefit cost:

January 1,

Equivalent APBO Single Discount Rate .....................
Rate of Increase in Future Compensation Levels .........
Current Pre 65 Health Care Trend Rate.......................
Current Post 64 Health Care Trend Rate .....................
Ultimate Health Care Trend Rate................................
Year Ultimate Trend Rate Reached ............................

2022

2.80%
N/A
5.50%
5.50%
4.50%
2026

2021

2.50%
N/A
5.75%
5.75%
4.50%
2026

The following is a reconciliation of the accumulated postretirement benefit obligation, which is included in employee
and director benefit plans liabilities (in thousands):

Accumulated
Postretirement
Benefit
Obligation

Reconciliation of Funded Status
December 31, 2021: ................................ $
Service cost .............................................
Interest cost .............................................
Gains/(Losses).........................................
Benefits paid ...........................................
Participant contributions ..........................
Employer Contributions...........................

(4,003)
(116)
(110)
1,121
47
(60)

December 31, 2022.................................. $

(3,121)

Fair Value of
Plan Assets

Funded Status

(4,003)
(116)
(110)
1,121

(47)
60
(13)

(13)

(3,121)

The following is a reconciliation of the accumulated other comprehensive income (in thousands):

December 31, 2021:.................... $
Amortization payment ................
Liability (Gain)/Loss ..................
December 31, 2022 ..................... $

Net Gain/Loss
(606)
26
(1,121)
(1,701)

Prior Service
Cost/(Credit)
(618)
81

Accumulated Other
Comprehensive Income
$

(1,224)
107
(1,121)
(2,238)

(537)

The following table displays the benefits expected to be paid from the plan during each of the next five fiscal years,
and in aggregate for the five fiscal years thereafter (in thousands):

Fiscal 2023 ..................................................... $
Fiscal 2024 .....................................................
Fiscal 2025 .....................................................
Fiscal 2026 .....................................................
Fiscal 2027 .....................................................
Fiscal 2028-2032 ............................................ $

151
190
211
212
249
1,173

NOTE P - FAIR VALUE MEASUREMENTS AND DISCLOSURES:

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to
determine fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis.
Additionally, from time to time, the Company may be required to record other assets at fair value on a non-recurring
basis, such as impaired loans, ORE and intangible assets. These non-recurring fair value adjustments typically involve
application of lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is
required to disclose, but not record, the fair value of other financial instruments.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and
liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and model-based valuation techniques for which all
significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not
observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants
would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted
cash flow models and similar techniques.

Following is a description of valuation methodologies used to determine the fair value of financial assets and liabilities.

Cash and Due from Banks

The carrying amount shown as cash and due from banks approximates fair value.

Available for Sale Securities

The fair value of available for sale securities is based on quoted market prices. The Company’s available for sale
securities are reported at their estimated fair value, which is determined utilizing several sources. The primary source
is ICE Data Pricing and Reference Date, LLC (“ICE”) which purchased Interactive Data Corporation (“IDC”) but
kept the IDC methodologies. Those methodologies include utilizing pricing models that vary based on asset class and

include available trade, bid and other market information and whose methodology includes broker quotes, proprietary
models and vast descriptive databases. Another source for determining fair value is matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted
prices for the specific securities but rather by relying on the securities’ relationship to other benchmark securities. The
Company’s available for sale securities for which fair value is determined through the use of such pricing models and
matrix pricing are classified as Level 2 assets.

Held to Maturity Securities

The fair value of held to maturity securities is based on quoted market prices. The Company’s held to maturity
securities are reported at their amortized cost, and their estimated fair value, which is determined utilizing several
sources, is disclosed in the financial statements and footnotes. The primary source is ICE Data Pricing and Reference
Date, LLC (“ICE”) which purchased Interactive Data Corporation (“IDC”) but kept the IDC methodologies. Those
methodologies include utilizing pricing models that vary based on asset class and include available trade, bid and other
market information and whose methodology includes broker quotes, proprietary models and vast descriptive
databases. Another source for determining fair value is matrix pricing, which is a mathematical technique used widely
in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather
by relying on the securities’ relationship to other benchmark securities. The Company’s held to maturity securities for
which fair value is determined through the use of such pricing models and matrix pricing are classified as Level 2
assets.

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 both fixed and floating 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 been adjusted for such factors as prepayment risk or the effect of the maturity
of balloon notes. The fair value of floating rate loans are estimated at market 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.

Cash Surrender Value of Life Insurance

The carrying amount of cash surrender value of bank-owned life insurance approximates fair value.

Intangible Asset

The carrying amount shown as intangible asset approximates fair value.

Deposits

The fair value of all deposits both non-interest bearing and interest bearing demand and savings deposits along with
time deposits are estimated by discounting the cash flows using the Federal Home Loan Bank bulletin curve rates
deposits with similar remaining maturities. The cash flows considered in computing the fair value of such deposits are
based on contractual maturities.

Borrowings from Federal Home Loan Bank

The fair value of Federal Home Loan Bank (“FHLB”) fixed and variable rate borrowings is estimated using repricing
rates for similar types of borrowing arrangements.

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, 2022 and 2021, were as follows (in
thousands):

Total

Level 1

Level 2

Level 3

Fair Value Measurements Using

December 31, 2022:
U.S. Treasuries ................................... $
Mortgage-backed securities .................

Collateralized mortgage obligations.....

States and political subdivisions ..........

108,368 $

108,368

56,439

107,377

77,984

56,439

107,377

77,984

Total ................................................... $

350,168 $

350,168

December 31, 2021:
U.S. Treasuries ................................... $
Mortgage-backed securities .................

Collateralized mortgage obligations.....

States and political subdivisions ..........

73,154 $

71,982

129,987
101,680

Total ................................................... $

376,803 $

Total ................................................... $

753,606 $

73,154

71,982

129,987
101,680

376,803

753,606

Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as
of December 31, 2022 and 2021 were as follows (in thousands):

December 31:
2022 ................................................... $

2021 ................................................... $

Total

1,026

129

Level 1

Level 2

Level 3

1,026

129

Fair Value Measurements Using

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, 2022 and 2021 are as follows (in thousands):

December 31:
2022 ................................................... $

2021 ................................................... $

Total

259

1,891

Level 1

Level 2

Level 3

259

1,891

Fair Value Measurements Using

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):

2022

2021

Balance, beginning of year................................ $

1,891

Loans transferred to ORE .................................

Sales ...............................................................

Write-downs .....................................................

Balance, end of year ......................................... $

(1,477)

(155)

259

3,475

(1,299)

(299)

1,891

The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at
December 31, 2022 and 2021 are as follows (in thousands):

Carrying
Amount

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

December 31, 2022:

Financial Assets:

Other investments.................................

Available for sale securities ..................

Held to maturity securities ....................

Cash and due from banks ...................... $ 32,836
350,168
195,217
350
2,175
234,540
20,768
600

Loans, net ............................................

Federal Home Loan Bank stock ............

Cash surrender value of life insurance ...

Intangible asset.....................................

$ 32,836

350

350,168
180,050

2,175

20,768

$ 32,836
350,168
180,050
350
2,175
223,494
20,768
600

223,494

600

Financial Liabilities:

Deposits:

Non-interest bearing ...........................

Interest bearing ..................................

Borrowings from Federal Home Loan

Bank ....................................................

198,097
587,683

198,097

497,950

198,097
497,950

Carrying
Amount

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

December 31, 2021:

Financial Assets:

Cash and due from banks ...................... $

49,991

Available for sale securities ..................

Held to maturity securities ....................

Other investments.................................

Federal Home Loan Bank stock ............

Loans, net ............................................

Cash surrender value of life insurance ...

Financial Liabilities:

Deposits:

Non-interest bearing ...........................

Interest bearing ..................................

Borrowings from Federal Home Loan

376,803

110,208

2,404

2,153

235,851

20,150

193,473

511,365

376,803

111,340

2,153

20,150

2,404

193,473

Bank ....................................................

889

1,072

NOTE Q: ACQUISITION OF CORPORATE TRUST BUSINESS

376,803

111,340

2,404

2,153

238,305

20,150

193,473

512,034

1,072

238,305

512,034

On March 17, 2022, the bank subsidiary signed a definitive agreement with Trustmark National Bank (“Trustmark”)
to acquire substantially all of the Trustmark’s corporate trust business for a purchase price of $650,000. This book of
business was added to the bank subsidiary’s existing corporate trust portfolio in its Asset Management and Trust
Services Department. The purchase was approved by the Federal Deposit Insurance Corporation and closed on August
15, 2022, during the third quarter of 2022.

NOTE R: SUBSEQUENT EVENTS:

The Company has evaluated subsequent events through the time of the filing of its Annual Report on Form 10K. As
of the time of filing, there were no material, reportable subsequent events.

235 Peachtree Street, NE
Suite 1800
Atlanta, GA 30303

404 588 4200
wipfli.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of condition of Peoples Financial Corporation and
subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations,
comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2022, and
changes in shareholders’ equity for each of the two years in the period ended December 31, 2022, and the related notes
to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in
conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Estimate of allowance for loan losses – reserves related to loans collectively evaluated for impairment

As described in Notes A and C to the financial statements, the Company’s allowance for loan losses (“ALL”) totaled
$3,109,000 relating to loans collectively evaluated for impairment (general reserve). The Company estimated the
general reserve using the historical loss method which utilizes historical loss rates of pools of loans with similar risk
characteristics applied to the respective loan pool balances. These amounts are then adjusted for certain qualitative
factors related to current economic and general conditions currently observed by management.

We identified the estimate of the general reserve portion of the ALL as a critical audit matter because auditing this
portion of the ALL required significant auditor judgment and involved significant estimation uncertainty requiring
industry knowledge and experience.

The primary audit procedures we performed to address this critical audit matter included:

• We tested the completeness and accuracy of the data used by management to calculate historical loss rates.

• We tested the completeness and accuracy of the data used by management in determining qualitative factor
adjustments, including the reasonable and supportable factors, by agreeing them to internal and external
information.

• We analyzed the qualitative factors in comparison to historical periods to evaluate the directional consistency in

relation to the Company’s loan portfolio and local economy.

We have served as the Company’s auditor since 2006.

Atlanta, Georgia
March 15, 2023

Changes in Company’s Certifying Accountant

Wipfli LLP (“Wipfli”) has served as the independent registered public accounting firm for the Company since October
2019 following its acquisition of Porter Keadle Moore, LLC, a predecessor firm which had served as the independent
registered public accounting firm for the Company since 2006. However, as announced on its Form 8-K Current
Report filed on October 3, 2022, the Board of the Company, through its Audit Committee, conducted a competitive
process to determine the Company’s independent registered public accounting firm commencing with the Company’s
fiscal year ending December 31, 2023. The Audit Committee invited several independent registered public accounting
firms to participate in this process, including Wipfli.

Following review of proposals from the independent registered public accounting firms that participated in the process,
on September 28, 2022, upon recommendation from the Audit Committee, the Board of the Company approved the
engagement of Postlethwaite & Netterville (“P&N”) as the Company’s independent registered public accounting firm
for the Company’s fiscal year ending December 31, 2023, subject to ratification of the engagement at the Annual
Meeting. Wipfli, the Company’s current independent registered public accounting firm, continued as the Company’s
independent registered public accounting firm for the year ended December 31, 2022.

Wipfli’s reports on the Company’s consolidated financial statements as of and for the fiscal years ended December 31,
2020, 2021 and 2022 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope, or accounting principles.

During the fiscal years ended December 31, 2020, 2021 and 2022, there were: (i) no disagreements within the meaning
of Item 304(a)(1)(v) of Regulation S-K and the related instructions between the Company and Wipfli on any matters
of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not
resolved to Wipfli’s satisfaction, would have caused Wipfli to make reference thereto in their reports; and (ii) no
“reportable events” within the meaning of Item 604(a)(1)(v) of Regulation S-K.

The Company has been advised that neither P&N nor any of its partners has any direct or any material indirect financial
interest in the securities of the Company or any of its subsidiaries, except as auditors and consultants on accounting
procedures. The Board does not anticipate that representatives of Wipfli LLP or P&N will attend the Annual Meeting.

During the fiscal years ended December 31, 2022, 2021 and 2020, (i) neither the Company, nor anyone on its behalf,
consulted with P&N with respect to the application of accounting principles to a specified transaction, either completed
or proposed or the type of audit opinion that might be rendered on the Company’s financial statements, and (ii) neither
a written report nor oral advice was provided to the Company that P&N concluded was an important factor considered
by the Company in reaching a decision as to: (a) any accounting, auditing or financial reporting issue; (b) any matter
that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) and the related instructions,
or (c) any reportable event of the type described in Item 304(a)(1)(v) of Regulation S-K.

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
FIVE-YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL INFORMATION

(In thousands except per share data)

2022

2021

2020

2019

2018

Balance Sheet Summary

Total assets ..................................... $ 861,639

$ 818,950

$ 668,019

$ 594,552

$ 616,493

Available for sale securities .............

350,168

Held to maturity securities ..............

195,217

Loans, net of unearned discount ......

237,878

Deposits .........................................

785,780

Borrowings from FHLB ..................

Shareholders' equity ........................

55,194

376,803

110,208

239,162

704,838

889

91,729

180,130

75,688

278,421

550,498

969

94,859

196,311

52,231

268,949

476,143

3,526

94,973

Summary of Operations

Interest income ............................... $

Interest expense ..............................

Net interest income .........................
Provision for (reduction of) 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) ............................ $

23,708
2,158

21,550

20,292
830

19,462

19,308
1,581

17,727

20,928
3,246

17,682

(5,663)

6,002

21,470

6,895
21,855

6,510

(2,431)

25,125

6,470
22,622

8,973

11,725

7,251
21,534

(2,558)

17,682

6,367
22,202

1,847

8,941

8,911

(2,558)

1,847

222,110

54,598

273,346

473,506

36,142

86,641

19,750
2,658

17,092

122

16,970

6,103
22,206

867

(36)

903

Per Share Data
Basic and diluted earnings (loss) per

share ............................................ $

Dividends per share ........................

1.91

.19

Book value .....................................

11.80

1.84

.16

19.61

(.52)

.02

19.44

.37

.03

19.21

.18

.02

17.53

Weighted average number of shares 4,678,186

4,844,248

4,893,151

4,943,186

5,031,778

Selected Ratios

Return on average assets .................

Return on average equity.................

Risk-based capital ratios:

Tier 1 ...........................................

Total ..............................................

1.06%

12.17%

20.48%

21.18%

1.19%

9.55%

20.71%

21.44%

(.40%)

(2.70%)

21.91%

23.00%

0.30%

2.03%

25.08%

26.22%

0.15%

1.05%

24.05%

25.30%

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CORPORATE INFORMATION AND MARKET INFORMATION

Corporate Information:
Mailing Address
P.O. Box 529
Biloxi, MS 39533-0529

Physical Address
152 Lameuse Street
Biloxi, MS 39530

Website
www.thepeoples.com

Corporate Stock
The common stock of Peoples Financial
Corporation is traded on the OTCQX Best
Market under the symbol: PFBX.

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:

Peoples Financial Corporation
Chief Financial Officer
P.O. Box 529, Biloxi, MS 39533-0529
investorrelations@thepeoples.com

Shareholder Information
For investor relations and general information about
Biloxi, MS 39533-0529
Peoples Financial Corporation:

Investor Relations
The Peoples Bank, Biloxi, Mississippi
P.O. Box 529, Biloxi, MS 39533-0529
(228) 435-8205
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
P.O. Box 1416, Biloxi, MS 39533-1416
(228) 435-8208
investorrelations@thepeoples.com

Independent Registered Public Accounting Firm
Wipfli LLP
Atlanta, Georgia

Market Information:
The Company's stock is traded on the OTCQX Best Market ("OTCQX") under the symbol PFBX. As of March 08,
2023, there were approximately 381 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 4,678,186 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 OTCQX. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.

Year

Quarter

2022 ............

2021 ............

1st
2nd
3rd
4th

High

17.75
16.30
17.75
16.25

17.08
17.87
16.60
17.00

Low

15.70
15.25
14.80
14.11

13.16
16.00
15.15
15.79

Dividend Per share

.09

.10

.06

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
BRANCH LOCATIONS
The Peoples Bank, Biloxi, Mississippi

BILOXI BRANCHES

OTHER BRANCHES

Main
152 Lameuse Street, Biloxi, MS 39530
(228) 435-5511

Asset Management and Trust Department
Personal and Corporate Trust Services
758 Vieux Marche, Biloxi, MS 39530
(228) 435-8208

Cedar Lake
1740 Popps Ferry Road, Biloxi, MS 39532
(228) 435-8688

West Biloxi
2560 Pass Road, Biloxi, MS 39531
(228) 435-8203

GULFPORT BRANCHES

Armed Forces Retirement Home
1800 Beach Drive, Gulfport, MS 39507
(228) 897-8724

Downtown Gulfport
1105 30th Avenue, Gulfport, MS 39501
(228) 897-8715

Handsboro
0412 E. Pass Road, Gulfport, MS 39507
(228) 897-8717

Orange Grove
12020 Highway 49 North, Gulfport, MS 39503
(228) 897-8718

Bay St. Louis
408 Highway 90 East, Bay St. Louis, MS 39520
(228) 897-8710

Diamondhead
5429 West Aloha Drive, Diamondhead, MS 39525
(228) 897-8714

D’Iberville – St. Martin
10491 Lemoyne Blvd, D’Iberville, MS 39540
(228) 435-8202

Gautier
2609 Highway 90, Gautier, MS 39553
(228) 497-1766

Long Beach
298 Jeff Davis Avenue, Long Beach, MS 39560
(228) 897-8712

Ocean Springs
2015 Bienville Blvd., Ocean Springs, MS 39564
(228) 435-8204

Pass Christian
301 East Second Street, Pass Christian, MS 39571
(228) 897-8719

Saucier
17689 Second Street, Saucier, MS 39574
(228) 897-8716

Waveland
470 Highway 90, Waveland, MS 39576
(228) 467-7257

Wiggins
1312 S. Magnolia Drive, Wiggins, MS 39577
(228) 897-8722

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

BOARD OF DIRECTORS
Peoples Financial Corporation

Chevis C. Swetman

Jeffrey H. O’Keefe
Ronald G. Barnes
Padrick D. Dennis
Paige Reed Riley
George J. Sliman, III

Chairman; President and Chief Executive Officer, Peoples Financial Corporation and
The Peoples Bank, Biloxi, Mississippi
Vice Chairman; Chief Executive Officer, Bradford-O’Keefe Funeral Homes, Inc.
President and Chief Executive Officer, Coast Electric Power Association
Vice-President, Specialty Contractors & Associates, Inc.
Owner, Hillyer House
President, SunStates Holdings, Inc.

EXECUTIVE OFFICERS
Peoples Financial Corporation

Chevis C. Swetman
A. Wes Fulmer
J. Patrick Wild
A. Tanner Swetman
Brian J. Kozlowski
Christy N. Ireland
Leslie B. Fulton

President and Chief Executive Officer
Executive Vice-President
First Vice-President
Second Vice-President
Vice-President and Secretary
Third Vice-President
Chief Financial Officer and Controller

BOARD OF DIRECTORS
The Peoples Bank, Biloxi, Mississippi

Chevis C. Swetman

Liz Corso Joachim
Ronald G. Barnes
Padrick D. Dennis
A. Wes Fulmer

Jeffrey H. O’Keefe
Paige Reed Riley
George J. Sliman, III
A. Tanner Swetman

Chairman; President and Chief Executive Officer, Peoples Financial Corporation and
The Peoples Bank, Biloxi, Mississippi
Vice Chairperson; President, Frank P. Corso, Inc.
President and Chief Executive Officer, Coast Electric Power Association
Vice-President, Specialty Contractors & Associates, Inc.
Executive Vice-President, Peoples Financial Corporation and The Peoples Bank, Biloxi,
Mississippi
Chief Executive Officer, Bradford-O’Keefe Funeral Homes, Inc.
Owner, Hillyer House
President, SunStates Holdings, Inc.
Senior Vice-President, The Peoples Bank, Biloxi, Mississippi and Second Vice-President,
Peoples Financial Corporation

EXECUTIVE OFFICERS
The Peoples Bank, Biloxi, Mississippi

Chevis C. Swetman
A. Wes Fulmer
Leslie B. Fulton
J. Patrick Wild
A. Tanner Swetman
Brian J. Kozlowski
Christy N. Ireland

President and Chief Executive Officer
Executive Vice-President and Chief Banking Officer
Senior Vice-President and Cashier
Senior Vice-President and Chief Credit Officer
Senior Vice-President and Chief Operating Officer
Senior Vice-President and Chief Administration Officer
Senior Vice-President and Chief Risk Officer