UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934

☒

For the quarterly period ended

~~QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934~~

June 30, 2019

~~For the quarterly period ended~~ ~~September 30, 2017~~ or

or[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~Commission File Number~~ ~~001-12103~~

Commission File Number

001-12103

PEOPLES FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Mississippi
~~Mississippi~~		64-0709834
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Lameuse and Howard Avenues, Biloxi, Mississippi

39533

(Address of principal executive offices)

(Zip Code)

(228)435-5511

(~~Registrant’s~~Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ X No ☐___

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files.) Yes ☒X No ☐___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” ~~and~~, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	___	Accelerated filer		☐
				Smaller reporting company X
Non-accelerated filer	~~☐ (Do not check if a smaller reporting company)~~		~~Smaller reporting company~~		☒

		____	Emerging growth company		☐ ___

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐_____

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes ☐_____ No ☒X

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

None

PFBX

None

Indicate the number of shares outstanding of each of the ~~issuer’s~~issuer's classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At ~~October~~July 31, ~~2017,~~2019, there were 15,000,000 shares of $1 par value common stock authorized, with ~~5,123,186~~4,943,186 shares issued and outstanding.

Part 1 -– Financial Information

Item 1:1: Financial Statements

Peoples Financial Corporation and ~~Subsidiaries~~Subsidiaries

Consolidated Statements of Condition

(in thousands except share data)

					June 30, 2019		December 31, 2018
	September 30, 2017		December 31, 2016		(unaudited)		(audited)
	(unaudited)		(audited)
Assets
Cash and due from banks	$	42,278	$	41,116	$	34,054	$	17,191
Available for sale securities		245,788		233,578		218,082		222,110
Held to maturity securities, fair value of $49,303 at September 30, 2017; $46,935 at December 31, 2016		49,405		48,150
Held to maturity securities, fair value of $54,964 at June 30, 2019; $53,459 at December 31, 2018						54,254		54,598
Other investments		2,729		2,693		2,699		2,811
Federal Home Loan Bank Stock, at cost		544		539		2,103		2,069
Loans		272,823		315,355		266,097		273,346
Less: Allowance for loan losses		6,152		5,466		4,946		5,340

Loans, net		266,671		309,889		261,151		268,006
Bank premises and equipment, net of accumulated depreciation		20,541		21,644		18,240		18,879
Other real estate		8,081		8,513		9,012		8,943
Accrued interest receivable		1,991		1,855		1,937		1,956
Cash surrender value of life insurance		18,153		19,249		19,123		18,841
Other assets		806		788		1,767		1,382

Total assets	$	656,987	$	688,014	$	622,422	$	616,786

Peoples Financial Corporation and ~~Subsidiaries~~Subsidiaries

Consolidated Statements of Condition ~~(continued)~~(continued)

(in thousands except share ~~data)~~data)

   September 30,
2017    December 31,
2016
   (unaudited)    (audited)
Liabilities and Shareholders’ Equity Liabilities:

Deposits:

Demand,non-interest bearing
   $ 147,975    $ 132,381
Savings and demand, interest bearing
   310,725    364,975
Time, $100,000 or more
   55,719    38,650
Other time deposits
   30,648    39,010




Total deposits
   545,067    575,016
Borrowings from Federal Home Loan Bank
   1,216    6,257
Employee and director benefit plans liabilities
   17,217    16,768
Other liabilities
   1,688    1,512




Total liabilities
   565,188    599,553
Shareholders’ Equity:

Common stock, $1 par value, 15,000,000 shares authorized, 5,123,186 shares issued and outstanding at September 30, 2017 and December 31, 2016
   5,123    5,123
Surplus
   65,780    65,780
Undivided profits
   20,730    19,318
Accumulated other comprehensive income (loss), net of tax
   166    (1,760 )




Total shareholders’ equity
   91,799    88,461




Total liabilities and shareholders’ equity
   $ 656,987    $ 688,014

~~See notes to consolidated financial statements.~~

	June 30, 2019		December 31, 2018
	(unaudited)		(audited)
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand, non-interest bearing	$	123,571	$	114,512
Savings and demand, interest bearing		281,954		278,772
Time, $100,000 or more		61,567		52,787
Other time deposits		26,543		27,435
Total deposits		493,635		473,506
Borrowings from Federal Home Loan Bank		16,052		36,142
Employee and director benefit plans liabilities		18,669		18,415
Other liabilities		1,197		1,789
Total liabilities		529,553		529,852
Shareholders' Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 4,943,186 shares issued and outstanding at June 30, 2019 and December 31, 2018		4,943		4,943
Surplus		65,780		65,780
Undivided profits		20,351		20,324
Accumulated other comprehensive gain (loss)		1,795		(4,113	)
Total shareholders' equity		92,869		86,934
Total liabilities and shareholders' equity	$	622,422	$	616,786

~~Peoples Financial Corporation and Subsidiaries~~

~~Consolidated Statements of Income~~

~~(in thousands except per share data) (unaudited)~~

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Interest income:

Interest and fees on loans
   $ 3,165    $ 3,568    $ 9,734    $ 10,833
Interest and dividends on securities:

U.S. Treasuries
   413    283    1,203    740
U.S. Government agencies
   126    161    404    728
Mortgage-backed securities
   343    137    876    414
States and political subdivisions
   420    333    1,199    954
Corporate bonds
      7    8    23
Other investments
   8    9    14    19
Interest on balances due from depository institutions
   148    95    384    212








Total interest income
   4,623    4,593    13,822    13,923








Interest expense:

Deposits
   381    237    981    661
Borrowings from Federal Home Loan Bank
   8    30    32    115








Total interest expense
   389    267    1,013    776








Net interest income
   4,234    4,326    12,809    13,147
Provision for allowance for loan losses
   29       85    137








Net interest income after provision for allowance for loan losses
   $ 4,205    $ 4,326    $ 12,724    $ 13,010

~~Peoples Financial Corporation and Subsidiaries~~

~~Consolidated Statements of Income (continued)~~

~~(in thousands except per share data) (unaudited)~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2017    2016 2017 2016
Non-interest income:

Trust department income and fees
   $ 430    $ 429 $ 1,224 $ 1,192
Service charges on deposit accounts
   947    946 2,799 2,796
Gain on liquidation, sales and calls of securities
      67 137 158
Income (loss) from other investments
   7    (14 ) 36 (27 )
Increase in cash surrender value of life insurance
   98    102 326 295
Gain from death benefits from life insurance
      429
Other income
   128    236 376 523




Totalnon-interest income
   1,610    1,766 5,327 4,937




Non-interest expense:

Salaries and employee benefits
   2,746    2,776 8,344 8,305
Net occupancy
   493    559 1,548 1,798
Equipment rentals, depreciation and maintenance
   722    763 2,251 2,229
FDIC and state banking assessments
   130    232 327 661
Data processing
   322    334 972 1,006
ATM expense
   141    147 399 422
Other real estate expense
   305    26 635 500
Other expense
   720    849 2,450 2,405




Totalnon-interest expense
   5,579    5,686 16,926 17,326




Income before income taxes
   236    406 1,125 621
Income tax expense (benefit)
      (338 ) 78




Net income
   $ 236    $ 406 $ 1,463 $ 543




Basic and diluted earnings per share
   $ .05    $ .08 $ .29 $ .10




Dividends declared per share
   $ .01    $ $ .01 $

~~See notes to consolidated financial statements.~~

~~Peoples Financial Corporation and Subsidiaries~~

~~Consolidated Statements of Comprehensive Income (Loss)~~

~~(in thousands) (unaudited)~~

   Three Months Ended
September 30, Nine Months Ended
September 30,
   2017 2016 2017 2016
Net income
   $ 236 $ 406 $ 1,463 $ 543
Other comprehensive income (loss):

Net unrealized gain (loss) on available for sale securities
   (319 ) (598 ) 2,063 2,132
Reclassification adjustment for realized gain on available for sale securities called or sold
   (67 ) (137 ) (158 )


Total other comprehensive income (loss)
   (319 ) (665 ) 1,926 1,974


Total comprehensive income (loss)
   $ (83 ) $ (259 ) $ 3,389 $ 2,517

~~See notes to consolidated financial statements.~~

~~Peoples Financial Corporation and Subsidiaries~~

~~Consolidated Statement 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, 2017
   5,123,186    $ 5,123    $ 65,780    $ 19,318 $ (1,760 ) $ 88,461
Net income
            1,463 1,463
Dividend declared ($.01 per share)
            (51 ) (51 )
Other comprehensive income
            1,926 1,926








Balance, September 30, 2017
   5,123,186    $ 5,123    $ 65,780    $ 20,730 $ 166 $ 91,799

~~Note: Balances as of January 1, 2017 were audited.~~

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of ~~Cash Flows~~Operations

(in ~~thousands) (unaudited)~~thousands except per share data)(unaudited)

   Nine Months Ended
September 30,
   2017 2016
Cash flows from operating activities:

Net income
   $ 1,463 $ 543
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation
   1,426 1,356
Provision for allowance for loan losses
   85 137
Writedown of other real estate
   397 420
(Gains) losses on sales of other real estate
   95 (199 )
(Income) loss from other investments
   (36 ) 27
Gain from death benefits from life insurance
   (429 )
Amortization of held to maturity securities
   190 111
Amortization of available for sale securities
   130 17
Gain on sales and calls of securities
   (137 ) (158 )
Change in accrued interest receivable
   (136 ) 155
Increase in cash surrender value of life insurance
   (326 ) (295 )
Change in other assets
   (18 ) (274 )
Change in other liabilities
   574 217


Net cash provided by operating activities
   $ 3,278 $ 2,057

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Interest income:
Interest and fees on loans	$	3,415	$	3,230	$	7,104	$	6,463
Interest and dividends on securities:
U.S. Treasuries		295		368		589		747
U.S. Government agencies		117		114		242		236
Mortgage-backed securities		796		623		1,618		1,173
States and political subdivisions		436		440		896		879
Collateralized mortgage obligations		38				50
Other investments		29		7		40		10
Interest on balances due from depository institutions		104		60		191		99
Total interest income		5,230		4,842		10,730		9,607
Interest expense:
Deposits		810		536		1,612		1,007
Federal funds purchased				2				7
Borrowings from Federal Home Loan Bank		80		85		158		105
Total interest expense		890		623		1,770		1,119
Net interest income		4,340		4,219		8,960		8,488
Provision for allowance for loan losses		56		28		110		63
Net interest income after provision for allowance for loan losses	$	4,284	$	4,191	$	8,850	$	8,425

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Operations (continued)

(in thousands except per share data)(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019		2018
Non-interest income:
Trust department income and fees	$	415		$	452	$	786	$	885
Service charges on deposit accounts		918			919		1,800		1,830
Increase in cash surrender value of life insurance		111			133		216		240
Other income		155			130		263		241
Total non-interest income		1,599			1,634		3,065		3,196
Non-interest expense:
Salaries and employee benefits		2,777			2,725		5,511		5,554
Net occupancy		542			450		1,016		890
Equipment rentals, depreciation and maintenance		839			841		1,672		1,599
FDIC and state banking assessments		88			97		190		211
Data processing		310			330		657		657
ATM expense		161			134		330		272
Other real estate expense		440			364		490		484
Loss from other investments		52			60		112		99
Other expense		1,002			761		1,860		1,500
Total non-interest expense		6,211			5,762		11,838		11,266
Income (loss) before income taxes		(328	)		63		77		355
Income tax
Net income (loss)	$	(328	)	$	63	$	77	$	355
Basic and diluted earnings (loss) per share	$	( .06	)	$	.01	$	.02	$	.07
Dividends declared per share	$	.01		$	.01	$	.01	$	.01

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019		2018

Net income (loss)	$	(328	)	$	63		$	77	$	355
Other comprehensive income (loss):
Net unrealized gain (loss) on available for sale securities		2,562			(491	)		5,908		(3,085	)
Total other comprehensive income (loss)		2,562			(491	)		5,908		(3,085	)
Total comprehensive income (loss)	$	2,234		$	(428	)	$	5,985	$	(2,730	)

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(in thousands except share data)

												Accumulated
	Number of											Other
	Common			Common					Undivided			Comprehensive
	Shares			Stock			Surplus		Profits			Gain (Loss)			Total

Balance, January 1, 2018		5,083,186		$	5,083		$	65,780	$	21,563		$	(2,927	)	$	89,499
Net income										292						292
Other comprehensive loss													(2,594	)		(2,594	)
Retirement of stock		(10,392	)		(10	)				(135	)					(145	)
Balance, March 31, 2018		5,072,794			5,073			65,780		21,720			(5,521	)		87,052
Net income										63						63
Other comprehensive loss													(491	)		(491	)
Dividends ($ .01 per share)										(51	)					(51	)
Retirement of stock		(35,075	)		(35	)				(452	)					(487	)
Balance, June 30, 2018		5,037,719		$	5,038		$	65,780	$	21,280		$	(6,012	)	$	86,086

Balance, January 1, 2019		4,943,186		$	4,943		$	65,780	$	20,324		$	(4,113	)	$	86,934
Net income										405						405
Other comprehensive gain													3,346			3,346
Balance, March 31, 2019		4,943,186			4,943			65,780		20,729			(767	)		90,685
Net income										(328	)					(328	)
Other comprehensive gain													2,562			2,562
Dividends ($ .01 per share)										(50	)					(50	)
Balance, June 30, 2019		4,943,186		$	4,943		$	65,780	$	20,351		$	1,795		$	92,869

Note: Balances as of January 1, 2018 and 2019 were audited.

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows ~~(continued)~~

(in thousands) ~~(unaudited)~~(unaudited)

   Nine Months Ended
September 30,
   2017 2016
Cash flows from investing activities:

Proceeds from maturities, sales and calls of available for sale securities
   $ 58,201 $ 141,834
Proceeds from maturities of held to maturity securities
   7,725 510
Purchases of available for sale securities
   (68,478 ) (145,832 )
Purchases of held to maturity securities
   (9,170 ) (17,120 )
(Purchase) redemption of Federal Home Loan Bank stock
   (5 ) 1,101
Proceeds from sales of other real estate
   1,296 2,017
Loans, net change
   41,777 10,431
Acquisition of bank premises and equipment
   (323 ) (583 )
Investment in cash surrender value of life insurance
   (78 ) (85 )
Proceeds from death benefits from life insurance
   1,929


Net cash provided by (used in) investing activities
   32,874 (7,727 )


Cash flows from financing activities:

Demand and savings deposits, net change
   (38,656 ) 47,707
Time deposits, net change
   8,707 3,146
Borrowings from Federal Home Loan Bank
   98,920
Repayments to Federal Home Loan Bank
   (5,041 ) (110,990 )


Net cash provided by (used in) financing activities
   (34,990 ) 38,783


Net increase in cash and cash equivalents
   1,162 33,113
Cash and cash equivalents, beginning of period
   41,116 31,396


Cash and cash equivalents, end of period
   $ 42,278 $ 64,509


See notes to consolidated financial statements.

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	77		$	355
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		964			985
Provision for allowance for loan losses		110			63
Writedown of other real estate		442			257
(Gain) loss on sales of other real estate		(58	)		5
Loss from other investments		112			99
Amortization of held to maturity securities		133			126
Amortization of available for sale securities		93			208
Change in accrued interest receivable		19			105
Increase in cash surrender value of life insurance		(216	)		(240	)
Change in other assets		(385	)		(154	)
Change in employee and director benefit plan liabilities and other liabilities		(338	)		(395	)
Net cash provided by operating activities	$	953		$	1,414

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands) (unaudited)

	Six Months Ended June 30,
	2019			2018

Cash flows from investing activities:
Proceeds from maturities, sales and calls of available for sale securities	$	19,642		$	26,989
Proceeds from maturities of held to maturity securities		1,740			435
Purchases of available for sale securities		(9,799	)		(15,638	)
Purchases of held to maturity securities		(1,529	)		(2,155	)
Purchases of Federal Home Loan Bank stock		(34	)		(68	)
Proceeds from sales of other real estate		1,205			1,468
Loans, net change		5,087			4,560
Acquisition of bank premises and equipment		(325	)		(355	)
Investment in cash surrender value of life insurance		(66	)		(53	)
Net cash provided by investing activities		15,921			15,183
Cash flows from financing activities:
Demand and savings deposits, net change		12,241			(8,011	)
Time deposits, net change		7,888			1,704
Borrowings from Federal Home Loan Bank		649,550			629,900
Repayments to Federal Home Loan Bank		(669,640	)		(628,928	)
Cash dividends paid		(50	)		(51	)
Stock repurchase					(632	)
Net cash used in financing activities		(11	)		(6,018	)
Net increase in cash and cash equivalents		16,863			10,579
Cash and cash equivalents, beginning of period		17,191			25,281
Cash and cash equivalents, end of period	$	34,054		$	35,860

See notes to consolidated financial statements.

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

1. Basis of Presentation:

Peoples Financial Corporation (the “Company”) is aone-bank holding company headquartered in Biloxi, Mississippi. It has two operating subsidiaries, PFC Service Corp., an inactive company, and The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Bank 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”).

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company and its subsidiaries as of ~~September~~June 30, ~~2017~~2019 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s ~~2016~~2018 Annual Report and Form10-K.

The results of operations for the quarter or ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates - The preparation of financial statements in conformity with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those 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 and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies - The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in our Form10-K for the year ended December 31, ~~2016.~~2018.

~~New Accounting Pronouncements -~~

In ~~January 2017,~~April 2019, the Financial Accounting Standards Board ~~(the “FASB”~~(“FASB”) issued Accounting Standards Update 2019-04 (“~~ASU”~~ASU 2019-04”)~~2017-03,~~, ~~Accounting Changes~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and ~~Error Corrections (Topic 250)~~Hedging, and ~~Investments - Equity Method~~Topic 825, Financial Instruments.ASU 2019-04 includes technical corrections relating to scope, held to maturity disclosures, measurement alternative and ~~Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September~~ ~~22, 2016 and~~~~November~~ ~~17, 2016 EITF Meetings.~~~~ASU2017-03~~ ~~incorporates into the Accounting Standards~~

~~Codification recent SEC guidance about disclosing the effect on financial statements~~remeasurement of ~~adopting the revenue, leases and credit losses standards. This update~~equity securities. The effective date is ~~effective upon issuance.~~for fiscal years beginning after December 31, 2019, including interim periods within those fiscal years. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, ~~results~~result of operations or cash flows.

~~In February 2017,~~

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losseson Financial Instruments, 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 ~~FASB issued~~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~~2017-05,~~~~Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic610-20):~~ ~~Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~.~~ASU 2017-05~~ ~~conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. This update will be~~ 2016-13 is effective for ~~fiscal years,~~the Company for interim and ~~interim~~annual periods ~~within those fiscal years,~~ beginning after December 15, ~~2017.~~2019 and the Company intends to adopt ASU 2016-13 during the first quarter of 2020. The ~~adoption of~~Company’s Current Expected Credit Loss (CECL) Committee continues to evaluate the impact this ASU ~~is not expected to~~will have ~~a material effect~~ on the Company’s financial position, results of operations ~~or cash flows.~~

~~In March 2017,~~and financial statement disclosures and determine the ~~FASB issued ASU2017-07,~~~~Compensation - Retirement Benefits (Topic 715): Improving~~most appropriate method of implementing this ASU. Management will continue to evaluate the ~~Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit~~~~Cost.~~ ~~ASU2017-07~~ amends the requirements related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption ofimpact this ASU ~~is not expected to~~will have ~~a material effect~~ on the Company’s consolidated financial ~~position, results of operations or cash flows.~~

statements through its effective date. In ~~March 2017, the~~July, FASB issued ~~ASU2017-08,~~~~Receivables - Nonrefundable Fees and Other Costs (Subtopic310-20):~~ ~~Premium Amortization on Purchased Callable Debt Securities~~~~. ASU2017-08~~ ~~shortens~~a proposal to delay the ~~amortization period~~effective date of ASU 2016-13 for ~~the premium on such securities~~certain entities, which might apply to the ~~earliest call date. This update~~Company. The Company will ~~be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of~~monitor this ~~ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.~~development.

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of ~~5,123,186~~4,943,186 and 5,067,208 for the six months ended June 30, 2019 and 2018, respectively. Per share data is based on the weighted average shares of common stock outstanding of 4,943,186 and 5,054,047 for the quarters ended June 30, 2019 and ~~nine months ended September 30, 2017 and 2016.~~2018, respectively.

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid ~~$1,006,350~~$1,765,203 and ~~$761,440~~$1,120,269 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, for interest on deposits and borrowings. No income tax payments were made during the ~~nine~~six months ended ~~September~~June 30, ~~2017. Income tax payments of $78,435 were made during the nine months ended September 30, 2016.~~2019 and 2018. Loans transferred to other real estate amounted to ~~$1,355,642~~$1,658,274 and ~~$1,758,764~~$3,385,724 during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

4. Investments:

The amortized cost and fair value of securities at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, are as follows (in thousands):

September 30, 2017
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair Value
Available for sale securities:

Debt securities:

U.S. Treasuries
   $ 134,806    $ 5    $ (1,234 )    $ 133,577
U.S. Government agencies
   19,988    70    (86 )    19,972
Mortgage-backed securities
   77,415    349    (561 )    77,203
States and political subdivisions
   14,176    402       14,578








Total debt securities
   246,385    826    (1,881 )    245,330
Equity securities
   458          458








Total available for sale securities
   $ 246,843    $ 826    $ (1,881 )    $ 245,788








Held to maturity securities:

U.S. Government agencies
   $ 8,185    $    $ (220 )    $ 7,965
States and political subdivisions
   41,220    424    (306 )    41,338








Total held to maturity securities
   $ 49,405    $ 424    $ (526 )    $ 49,303

			Gross		Gross
			Unrealized		Unrealized
June 30, 2019	Amortized Cost		Gains		Losses			Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries	$	80,889	$	19	$	(600	)	$	80,308
U.S. Government agencies		12,493		56		(26	)		12,523
Mortgage-backed securities		110,224		1,627		(102	)		111,749
Collateralized mortgage obligations		4,827		231					5,058
States and political subdivisions		8,375		69					8,444
Total available for sale securities	$	216,808	$	2,002	$	(728	)	$	218,082
Held to maturity securities:
U.S. Government agencies	$	8,185	$		$	(3	)	$	8,182
States and political subdivisions		46,069		776		(63	)		46,782
Total held to maturity securities	$	54,254	$	776	$	(66	)	$	54,964

			Gross		Gross
			Unrealized		Unrealized
December 31, 2018	Amortized Cost		Gains		Losses			Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries	$	85,866	$		$	(2,443	)	$	83,423
U.S. Government agencies		17,492		14		(259	)		17,247
Mortgage-backed securities		112,391		231		(2,278	)		110,344
States and political subdivisions		10,994		102					11,096
Total available for sale securities	$	226,743	$	347	$	(4,980	)	$	222,110
Held to maturity securities:
U.S. Government agencies	$	8,185	$		$	(371	)	$	7,814
States and political subdivisions		46,413		89		(857	)		45,645
Total held to maturity securities	$	54,598	$	89	$	(1,228	)	$	53,459

December 31, 2016
   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair Value
Available for sale securities:

Debt securities:

U.S. Treasuries
   $ 149,676    $ 39    $ (2,091 )    $ 147,624
U.S. Government agencies
   24,973    58    (206 )    24,825
Mortgage-backed securities
   43,939    74    (1,305 )    42,708
States and political subdivisions
   17,513    450       17,963








Total debt securities
   236,101    621    (3,602 )    233,120
Equity securities
   458          458








Total available for sale securities
   $ 236,559    $ 621    $ (3,602 )    $ 233,578








Held to maturity securities:

U.S. Government agencies
   $ 10,009    $    $ (315 )    $ 9,694
States and political subdivisions
   36,677    29    (927 )    35,779
Corporate bond
   1,464       (2 )    1,462








Total held to maturity securities
   $ 48,150    $ 29    $ (1,244 )    $ 46,935

The amortized cost and fair value of debt securities at ~~September~~June 30, ~~2017~~2019 (in thousands), by contractual maturity, are shown on the following page. 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	$	31,850	$	31,744
Due after one year through five years		62,000		61,642
Due after five years through ten years		9,900		10,050
Due after ten years		2,834		2,897
Mortgage-backed securities		110,224		111,749
Totals	$	216,808	$	218,082

Held to maturity securities:
Due in one year or less	$	2,718	$	2,728
Due after one year through five years		18,470		18,626
Due after five years through ten years		19,349		19,623
Due after ten years		13,717		13,987
Totals	$	54,254	$	54,964

   Amortized
Cost    Fair Value
Available for sale securities:

Due in one year or less
   $ 46,961    $ 46,895
Due after one year through five years
   98,693    98,384
Due after five years through ten years
   22,983    22,496
Due after ten years
   333    352
Mortgage-backed securities
   77,415    77,203




Totals
   $ 246,385    $ 245,330




Held to maturity securities:

Due in one year or less
   $ 696    $ 697
Due after one year through five years
   11,641    11,724
Due after five years through ten years
   20,588    20,576
Due after ten years
   16,480    16,306




Totals
   $ 49,405    $ 49,303

Available for sale and held to maturity securities with gross unrealized losses at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, 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
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
June 30, 2019:	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
U.S. Treasuries	$		$		$	74,300	$	600	$	74,300	$	600
U.S. Government agencies						9,963		29		9,963		29
Mortgage-backed securities						14,872		102		14,872		102
States and political subdivisions		384		1		5,854		62		6,238		63
TOTAL	$	384	$	1	$	104,989	$	793	$	105,373	$	794

December 31, 2018:
U.S. Treasuries	$	999	$	1	$	82,424	$	2,442	$	83,423	$	2,443
U.S. Government agencies		4,939		61		17,608		569		22,547		630
Mortgage-backed securities		24,834		293		55,649		1,985		80,483		2,278
States and political subdivisions		8,470		122		19,678		735		28,148		857
TOTAL	$	39,242	$	477	$	175,359	$	5,731	$	214,601	$	6,208

   Less Than
Twelve Months    Over
Twelve Months    Total
September 30, 2017:    Fair Value    Gross
Unrealized
Losses    Fair Value    Gross
Unrealized
Losses    Fair Value    Gross
Unrealized
Losses
U.S. Treasuries
   $ 113,777    $ 1,058    $ 9,815    $ 176    $ 123,592    $ 1,234
U.S. Government agencies
   8,085    90    9,783    216    17,868    306
Mortgage-backed securities
   31,326    382    3,902    179    35,228    561
States and political subdivisions
   4,729    168    4,054    138    8,783    306












TOTAL
   $ 157,917    $ 1,698    $ 27,554    $ 709    $ 185,471    $ 2,407












December 31, 2016:

U.S. Treasuries
   $ 97,634    $ 2,091    $    $    $ 97,634    $ 2,091
U.S. Government agencies
   24,478    521          24,478    521
Mortgage-backed securities
   37,663    1,305          37,663    1,305
States and political subdivisions
   24,627    926    589    1    25,216    927
Corporate bond
         1,462    2    1,462    2












TOTAL
   $ 184,402    $ 4,843    $ 2,051    $ 3    $ 186,453    $ 4,846

At ~~September~~June 30, ~~2017, 25~~2019, 15 of 2717 securities issued by the U.S. Treasury, 42 of the 65 securities issued by U.S. Government agencies, 2720 of the ~~155~~136 securities issued by states and political subdivisions and 167 of the 3246 mortgage-backed securities 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 it 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 the evaluation of these securities, the Company has determined that the unrealized losses summarized in the tables above are not deemed to be other-than-temporary.

~~Proceeds from~~There were no sales ~~and~~or calls of available for sale securities ~~were $23,703,484 and $29,250,806~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively. Available for sale debt securities were sold or called for a realized gain of $136,781 and $157,918 for the nine months ended September 30, 2017 and 2016, respectively.~~2018.

Securities with a fair value of ~~$180,107,293~~$251,813,256 and ~~$180,659,168~~$206,017,056 at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law.

5. Loans:

The composition of the loan portfolio at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, is as follows (in thousands):

					June 30, 2019		December 31, 2018
	September 30, 2017		December 31, 2016
Gaming	$	18,824	$	31,311	$	20,703	$	25,767
Residential and land development		273		291
Hotel/Motel						48,295		44,112
Real estate, construction		30,998		32,503		24,699		31,597
Real estate, mortgage		190,003		206,172		136,633		137,437
Commercial and industrial		26,009		37,035		28,205		27,505
Other		6,716		8,043		7,562		6,928

Total	$	272,823	$	315,355	$	266,097	$	273,346

The age analysis of the loan portfolio, segregated by class of loans, as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, is as follows (in thousands):

													Loans Past
													Due Greater
	Number of Days Past Due												Than 90
					Greater		Total				Total		Days &
		30 - 59		60 - 89	Than 90		Past Due		Current		Loans		Still Accruing
June 30, 2019:
Gaming	$		$		$		$		$	20,703	$	20,703	$
Hotel/Motel										48,295		48,295
Real estate, construction		1,358				46		1,404		23,295		24,699
Real estate, mortgage		3,245		958		4,904		9,107		127,526		136,633
Commercial and industrial		239		5		789		1,033		27,172		28,205
Other		64		4				68		7,494		7,562

Total	$	4,906	$	967	$	5,739	$	11,612	$	254,485	$	266,097	$
December 31, 2018:
Gaming	$		$		$		$		$	25,767	$	25,767	$
Hotel/Motel										44,112		44,112
Real estate, construction		1,987		340		860		3,187		28,410		31,597
Real estate, mortgage		2,866		7,129		1,730		11,725		125,712		137,437
Commercial and industrial		9		110		1,661		1,780		25,725		27,505
Other		107		3				110		6,818		6,928

Total	$	4,969	$	7,582	$	4,251	$	16,802	$	256,544	$	273,346	$

Number of Days Past Due
            Loans Past Due
Greater Than
90 Days & Still
Accruing
   30 - 59    60 - 89    Greater
Than 90    Total Past
Due    Current    Total
Loans
September 30, 2017:

Gaming
   $    $    $    $    $ 18,824    $ 18,824    $
Residential and land development
         273    273       273
Real estate, construction
   1,343    130    747    2,220    28,778    30,998
Real estate, mortgage
   4,640    139    7,815    12,594    177,409    190,003    256
Commercial and industrial
   882    1,364    668    2,914    23,095    26,009
Other
   45    8       53    6,663    6,716














Total
   $ 6,910    $ 1,641    $ 9,503    $ 18,054    $ 254,769    $ 272,823    $ 256














December 31, 2016:

Gaming
   $    $    $    $    $ 31,311    $ 31,311    $
Residential and land development
         291    291       291
Real estate, construction
   902    216    1,082    2,200    30,303    32,503
Real estate, mortgage
   4,608    1,923    4,471    11,002    195,170    206,172
Commercial and industrial
   867       8    875    36,160    37,035
Other
   44    36    80    160    7,883    8,043














Total
   $ 6,421    $ 2,175    $ 5,932    $ 14,528    $ 300,827    $ 315,355    $

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 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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, is as follows (in thousands):

   Loans With A Grade Of:
   A, B or C    S    D    E    F    Total
September 30, 2017:

Gaming
   $ 18,824    $    $    $    $                 $ 18,824
Residential and land development
            273       273
Real estate, construction
   29,323       368    1,307       30,998
Real estate, mortgage
   142,805    15,833    20,861    10,504       190,003
Commercial and industrial
   13,720    9,132    271    2,886       26,009
Other
   6,688       24    4       6,716












Total
   $ 211,360    $ 24,965    $ 21,524    $ 14,974    $    $ 272,823












December 31, 2016:

Gaming
   $ 31,311    $    $    $    $    $ 31,311
Residential and land development
            291       291
Real estate, construction
   29,954    435    517    1,597       32,503
Real estate, mortgage
   155,671    17,651    22,901    9,949       206,172
Commercial and industrial
   13,926    21,680    867    562       37,035
Other
   7,996       42    5       8,043












Total
   $ 238,858    $ 39,766    $ 24,327    $ 12,404    $    $ 315,355

	Loans With A Grade Of:
	A, B or C		S		D		E		F	Total
June 30, 2019:
Gaming	$	20,703	$		$		$		$	$	20,703
Hotel/Motel		48,295									48,295
Real estate, construction		23,911				208		580			24,699
Real estate, mortgage		106,992		15,027		5,973		8,641			136,633
Commercial and industrial		18,084		8,882		148		1,091			28,205
Other		7,548				12		2			7,562
Total	$	225,533	$	23,909	$	6,341	$	10,314	$	$	266,097

December 31, 2018:
Gaming	$	21,080	$		$	4,687	$		$	$	25,767
Hotel/Motel		44,112									44,112
Real estate, construction		29,930				217		1,450			31,597
Real estate, mortgage		108,885		10,430		12,992		5,130			137,437
Commercial and industrial		25,335				218		1,952			27,505
Other		6,904				20		4			6,928
Total	$	236,246	$	10,430	$	18,134	$	8,536	$	$	273,346

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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, are as follows (in thousands):

					June 30, 2019		December 31, 2018
	September 30, 2017		December 31, 2016
Residential and land development	$	273	$	291
Real estate, construction		1,307		1,598	$	580	$	1,439
Real estate, mortgage		9,992		9,445		8,554		4,954
Commercial and industrial		2,808		515		1,007		1,855
Other		4		5		2		2

Total	$	14,384	$	11,854	$	10,143	$	8,250

Prior to ~~2016,~~2018, certain loans were modified by granting interest rate concessions to these customers with such loans being classified as troubled debt restructurings. During ~~2016~~2018 and ~~2017,~~2019, the Company did not restructure any additional loans. Specific reserves of ~~$88,000~~$63,106 and ~~$100,000~~$69,000 were allocated to troubled debt restructurings as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The Bank had no commitments to lend additional amounts to customers with outstanding loans classified as troubled debt restructurings as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016.~~2018.

Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, are as follows (in thousands):

   Unpaid
Principal
Balance    Recorded
Investment    Related
Allowance    Average
Recorded
Investment    Interest
Income
Recognized
September 30, 2017:

With no related allowance recorded:

Real estate, construction
   $ 1,562    $ 1,088    $    $ 1,132    $
Real estate, mortgage
   9,354    8,382       9,053    21
Commercial and industrial
   2,797    2,758       2,780
Other
   4    4       4










Total
   13,717    12,232       12,969    21










With a related allowance recorded:

Residential and land development
   273    273    49    278
Real estate, construction
   219    219    112    230
Real estate, mortgage
   3,653    2,769    722    2,751    23
Commercial and industrial
   50    50    15    49










Total
   4,195    3,311    898    3,308    23










Total by class of loans:

Residential and land development
   273    273    49    278
Real estate, construction
   1,781    1,307    112    1,362
Real estate, mortgage
   13,007    11,151    722    11,804    44
Commercial and industrial
   2,847    2,808    15    2,829
Other
   4    4       4










Total
   $ 17,912    $ 15,543    $ 898    $ 16,277    $ 44

	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
June 30, 2019:
With no related allowance recorded:
Real estate, construction	$	349	$	349	$		$	362	$
Real estate, mortgage		8,782		8,782				8,858		15
Commercial and industrial		1,189		962				1,120
Other		2		2				2

Total		10,322		10,095				10,342		15

With a related allowance recorded:
Real estate, construction		231		231		20		232
Real estate, mortgage		838		838		99		842		14
Commercial and industrial		45		45		4		40

Total		1,114		1,114		123		1,114		14

Total by class of loans:
Real estate, construction		580		580		20		594
Real estate, mortgage		9,620		9,620		99		9,700		29
Commercial and industrial		1,234		1,007		4		1,160
Other		2		2				2

Total	$	11,436	$	11,209	$	123	$	11,456	$	29

   Unpaid
Principal
Balance    Recorded
Investment    Related
Allowance    Average
Recorded
Investment    Interest
Income
Recognized
December 31, 2016:

With no related allowance recorded:

Real estate, construction
   $ 2,023    $ 1,331    $    $ 1,395    $
Real estate, mortgage
   11,811    9,282       10,582    23
Commercial and industrial
   553    515       538










Total
   14,387    11,128       12,515    23










With a related allowance recorded:

Residential and land development
   291    291    66    304
Real estate, construction
   267    267    141    283
Real estate, mortgage
   1,347    1,347    195    1,080    30
Other
   5    5    1    1










Total
   1,910    1,910    403    1,668    30










Total by class of loans:

Residential and land development
   291    291    66    304
Real estate, construction
   2,290    1,598    141    1,678
Real estate, mortgage
   13,158    10,629    195    11,662    53
Commercial and industrial
   553    515       538
Other
   5    5    1    1










Total
   $ 16,297    $ 13,038    $ 403    $ 14,183    $ 53

	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2018:
With no related allowance recorded:
Real estate, construction	$	1,171	$	784	$		$	785	$
Real estate, mortgage		5,508		5,474				5,826		29
Commercial and industrial		2,083		1,855				2,204
Other		2		2				3

Total		8,764		8,115				8,818		29

With a related allowance recorded:
Real estate, construction		742		655		283		633
Real estate, mortgage		574		574		101		589		25

Total		1,316		1,229		384		1,222		25

Total by class of loans:
Real estate, construction		1,913		1,439		283		1,418
Real estate, mortgage		6,082		6,048		101		6,415		54
Commercial and industrial		2,083		1,855				2,204
Other		2		2				3

Total	$	10,080	$	9,344	$	384	$	10,040	$	54

6. Allowance for Loan Losses:

Transactions in the allowance for loan losses for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, and the balances of loans, individually and collectively evaluated for impairment, as of ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, are as follows (in thousands):

   Gaming Residential
and Land
Development Real Estate,
Construction    Real
Estate,
Mortgage Commercial
and Industrial Other Total
For the Nine Months Ended September 30, 2017:

Allowance for Loan Losses:

Beginning balance
   $ 545 $ 66 $ 199    $ 3,800 $ 651 $ 205 $ 5,466
Charge-offs
      (8 ) (32 ) (158 ) (198 )
Recoveries
   685 31    12 11 60 799
Provision
   (119 ) (701 ) 43    854 (99 ) 107 85




Ending Balance
   $ 426 $ 50 $ 273    $ 4,658 $ 531 $ 214 $ 6,152




For the Quarter Ended September 30, 2017:

Allowance for Loan Losses:

Beginning Balance
   $ 396 $ 58 $ 232    $ 3,916 $ 672 $ 207 $ 5,481
Charge-offs
      (32 ) (63 ) (95 )
Recoveries
   685 19    4 29 737
Provision
   30 (693 ) 22    738 (109 ) 41 29




Ending Balance
   $ 426 $ 50 $ 273    $ 4,658 $ 531 $ 214 $ 6,152




Allowance for Loan Losses, September 30, 2017:

Ending balance: individually evaluated for impairment
   $ $ 50 $ 112    $ 999 $ 211 $ 14 $ 1,386




Ending balance: collectively evaluated for impairment
   $ 426 $ $ 161    $ 3,659 $ 320 $ 200 $ 4,766




Total Loans, September 30, 2017:


Ending balance: individually evaluated for impairment
   $ $ 273 $ 1,675    $ 31,365 $ 3,157 $ 28 $ 36,498




Ending balance: collectively evaluated for impairment
   $ 18,824 $ $ 29,323    $ 158,638 $ 22,852 $ 6,688 $ 236,325

	Gaming			Hotel/Motel		Real Estate, Construction			Real Estate, Mortgage			Commercial and Industrial			Other			Total
For the Six Months Ended June 30, 2019:
Allowance for Loan Losses:
Beginning balance	$	416		$	1,443	$	429		$	2,443		$	476		$	133		$	5,340
Charge-offs							(403	)		(46	)					(139	)		(588	)
Recoveries							2			2			21			59			84
Provision		(127	)		223		193			(175	)		(57	)		53			110
Ending Balance	$	289		$	1,666	$	221		$	2,224		$	440		$	106		$	4,946

For the Quarter Ended June 30, 2019:
Allowance for Loan Losses:
Beginning Balance	$	399		$	1,617	$	401		$	2,360		$	480		$	119		$	5,376
Charge-offs							(403	)		(46	)					(63	)		(512	)
Recoveries													7			19			26
Provision		(110	)		49		223			(90	)		(47	)		31			56
Ending Balance	$	289		$	1,666	$	221		$	2,224		$	440		$	106		$	4,946

Allowance for Loan Losses, June 30, 2019:
Ending balance: individually evaluated for impairment	$			$		$	20		$	254		$	91		$	4		$	369
Ending balance: collectively evaluated for impairment	$	289		$	1,666	$	201		$	1,970		$	349		$	102		$	4,577

Total Loans, June 30, 2019:
Ending balance: individually evaluated for impairment	$			$		$	788		$	14,614		$	1,239		$	14		$	16,655
Ending balance: collectively evaluated for impairment	$	20,703		$	48,295	$	23,911		$	122,019		$	26,966		$	7,548		$	249,442

	Gaming			Hotel/Motel		Real Estate, Construction			Real Estate, Mortgage			Commercial and Industrial			Other			Total
For the Six Months Ended June 30, 2018:
Allowance for Loan Losses:
Beginning balance	$	536		$	936	$	242		$	3,369		$	892		$	178		$	6,153
Charge-offs										(429	)		(369	)		(156	)		(954	)
Recoveries							1			118			45			82			246
Provision		(83	)		419		(44	)		(218	)		(65	)		54			63
Ending Balance	$	453		$	1,355	$	199		$	2,840		$	503		$	158		$	5,508

For the Quarter Ended June 30, 2018:
Allowance for Loan Losses:
Beginning Balance	$	438		$	1,182	$	230		$	3,403		$	798		$	161		$	6,212
Charge-offs										(415	)		(325	)		(62	)		(802	)
Recoveries							1						32			37			70
Provision		15			173		(32	)		(148	)		(2	)		22			28
Ending Balance	$	453		$	1,355	$	199		$	2,840		$	503		$	158		$	5,508

Allowance for Loan Losses, June 30, 2018:
Ending balance: individually evaluated for impairment	$			$		$	118		$	681		$	230		$	2		$	1,031
Ending balance: collectively evaluated for impairment	$	453		$	1,355	$	81		$	2,159		$	273		$	156		$	4,477

Total Loans, June 30, 2018:
Ending balance: individually evaluated for impairment	$			$		$	1,623		$	20,405		$	2,375		$	14		$	24,417
Ending balance: collectively evaluated for impairment	$	25,399		$	40,849	$	35,943		$	117,079		$	21,749		$	6,359		$	247,378

   Gaming    Residential
and Land
Development    Real Estate,
Construction Real
Estate,
Mortgage Commercial
and Industrial Other Total
For the Nine Months Ended September 30, 2016:

Allowance for Loan Losses:

Beginning balance
   $ 582    $ 189    $ 589 $ 5,382 $ 1,075 $ 253 $ 8,070
Charge-offs
         (173 ) (700 ) (509 ) (153 ) (1,535 )
Recoveries
         57 107 61 50 275
Provision
   48    20    (113 ) (24 ) 127 79 137






Ending Balance
   $ 630    $ 209    $ 360 $ 4,765 $ 754 $ 229 $ 6,947






For the Quarter Ended September 30, 2016:

Allowance for Loan Losses:

Beginning Balance
   $ 582    $ 202    $ 375 $ 4,976 $ 718 $ 256 $ 7,109
Charge-offs
         (147 ) (59 ) (206 )
Recoveries
         19 8 1 16 44
Provision
   48    7    (34 ) (72 ) 35 16






Ending Balance
   $ 630    $ 209    $ 360 $ 4,765 $ 754 $ 229 $ 6,947






Allowance for Loan Losses, September 30, 2016:

Ending balance: individually evaluated for impairment
   $    $ 109    $ 239 $ 1,311 $ 218 $ 17 $ 1,894






Ending balance: collectively evaluated for impairment
   $ 630    $ 100    $ 121 $ 3,454 $ 536 $ 212 $ 5,053






Total Loans, September 30, 2016:


Ending balance: individually evaluated for impairment
   $    $ 300    $ 2,285 $ 35,260 $ 1,733 $ 33 $ 39,611






Ending balance: collectively evaluated for impairment
   $ 33,442    $ 610    $ 38,062 $ 167,348 $ 37,359 $ 7,675 $ 284,496

7. Deposits:

~~Time deposits of $100,000 or more at December 31, 2016 included brokered deposits of $5,000,000, which matured in 2017.~~

Time deposits of $250,000 or more totaled approximately ~~$32,483,000~~$42,438,000 and ~~$25,143,000~~$32,137,000 at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively.

8. Shareholders’ Equity:

On ~~September 20, 2017,~~April 24, 2019, the Company declared a dividend of $ .01 per ~~share. The dividend had a~~share, which was payable on May 10, 2019 to shareholders of record ~~date~~as of ~~October 2, 2017 and a payment date of October 13, 2017.~~May 6, 2019.

9. 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 anon-recurring basis, such as impaired loans and ORE. Thesenon-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 Interactive Data Corporation, which utilizes 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. If the fair value of available for sale securities is generated through model-based techniques, including the discounting of estimated cash flows, such securities are classified as Level 3 assets.

Held to Maturity Securities

The fair value of held to maturity securities is based on quoted market prices.

Other Investments

The carrying amount shown as other investments approximates fair value.

Federal Home Loan Bank Stock

The carrying amount shown as Federal Home Loan Bank Stock approximates fair value.

Loans

The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the remaining maturities. The cash flows considered in computing the fair value of such loans are segmented into categories relating to the nature of the contract and collateral based on contractual principal maturities. Appropriate adjustments are made to reflect probable credit losses. Cash flows have not been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value of floating rate loans is estimated to be its carrying value. At each reporting period, the Company determines which loans are impaired. Accordingly, the Company’s impaired loans are reported at their estimated fair value on anon-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 arenon-recurring Level 3 assets.

Other ~~Real Estate~~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’sin-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 anon-recurring Level 3 asset.

Cash Surrender Value of Life Insurance

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

Deposits

The fair value ofnon-interest bearing demand and interest bearing savings and demand deposits is the amount reported in the financial statements. The fair value of time deposits is estimated by discounting the cash flows using current rates of time deposits with similar remaining maturities. The cash flows considered in computing the fair value of such deposits are based on contractual maturities, since approximately 98% of time deposits provide for automatic renewal at current

interest rates.

~~interest rates.~~

Borrowings from Federal Home Loan Bank

The fair value of Federal Home Loan Bank (“FHLB”) fixed rate borrowings is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements. The fair value of FHLB variable rate borrowings is estimated to be its carrying value.

The balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level within the fair value hierarchy and by investment type, as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 are as follows (in thousands):

									Fair Value Measurements Using
			Fair Value Measurements Using				Total		Level 1	Level 2		Level 3
June 30, 2019:
U.S. Treasuries							$	80,308	$	$	80,308	$
U.S. Government agencies								12,523			12,523
Mortgage-backed securities								111,749			111,749
Collateralized mortgage obligations								5,058			5,058
States and political subdivisions								8,444			8,444
Total							$	218,082	$	$	218,082	$
	Total		Level 1	Level 2		Level 3
September 30, 2017:
December 31, 2018:
U.S. Treasuries	$	133,577	$	$	133,577	$	$	83,423	$	$	83,423	$
U.S. Government agencies		19,972			19,972			17,247			17,247
Mortgage-backed securities		77,203			77,203			110,344			110,344
States and political subdivisions		14,578			14,578			11,096			11,096
Equity securities		458			458

Total	$	245,788	$	$	245,788	$	$	222,110	$	$	222,110	$

December 31, 2016:
U.S. Treasuries	$	147,624	$	$	147,624	$
U.S. Government agencies		24,825			24,825
Mortgage-backed securities		42,708			42,708
States and political subdivisions		17,963			17,963
Equity securities		458			458

Total	$	233,578	$	$	233,578	$

Impaired loans, which are measured at fair value on anon-recurring basis, by level within the fair value hierarchy as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 are as follows (in thousands):

      Fair Value Measurements Using
   Total    Level 1    Level 2    Level 3
September 30, 2017
   $ 5,134    $             $             $ 5,134
December 31, 2016
   5,006          5,006

			Fair Value Measurements Using
	Total		Level 1	Level 2	Level 3
June 30, 2019	$	2,057	$	$	$	2,057
December 31, 2018		3,311				3,311

Other real estate, which is measured at fair value on anon-recurring basis, by level within the fair value hierarchy as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 are as follows (in thousands):

      Fair Value Measurements Using
   Total    Level 1    Level 2    Level 3
September 30, 2017
   $ 8,081    $             $             $ 8,081
December 31, 2016
   8,513          8,513

			Fair Value Measurements Using
	Total		Level 1	Level 2	Level 3
June 30, 2019	$	9,012	$	$	$	9,012
December 31, 2018		8,943				8,943

The following table presents a summary of changes in the fair value of other real estate which is measured using level 3 inputs (in thousands):

							For the Six			For the Year
							Months Ended			Ended
	For the Nine Months Ended September 30, 2017			For the Year Ended December 31, 2016			June 30, 2019			December 31, 2018
Balance, beginning of period	$	8,513		$	9,916		$	8,943		$	8,232
Loans transferred to ORE		1,356			1,903			1,658			4,707
Sales		(1,391	)		(2,524	)		(1,147	)		(3,232	)
Writedowns		(397	)		(782	)		(442	)		(764	)

Balance, end of period	$	8,081		$	8,513		$	9,012		$	8,943

The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, are as follows (in thousands):

															Carrying		Fair Value Measurements Using
	Carrying Amount			Fair Value Measurements Using											Amount		Level 1		Level 2		Level 3		Total
			Level 1			Level 2			Level 3			Total
September 30, 2017:	Carrying Amount
June 30, 2019:
Financial Assets:
Cash and due from banks	$	42,278		$	42,278		$			$			$	42,278	$	34,054	$	34,054	$		$		$	34,054
Available for sale securities		245,788						245,788						245,788		218,082				218,082				218,082
Held to maturity securities		49,405						49,303						49,303		54,254				54,964				54,964
Other investments		2,729			2,729									2,729		2,699		2,699						2,699
Federal Home Loan Bank stock		544						544						544		2,103				2,103				2,103
Loans, net		266,671									262,170			262,170		261,151						254,365		254,365
Other real estate		8,081									8,081			8,081		9,012						9,012		9,012
Cash surrender value of life insurance		18,153						18,153						18,153		19,123				19,123				19,123
Financial Liabilities:
Deposits:
Non-interest bearing		147,975			147,975									147,975		123,571		123,571						123,571
Interest bearing		397,092									397,562			397,562		370,064						370,458		370,458
Borrowings from Federal Home Loan Bank		1,216						1,509						1,509
Borrowings from Federal Home Loan
Bank																16,052				16,325				16,325

	Carrying		Fair value Measurements Using
	Amount		Level 1		Level 2		Level 3		Total
December 31, 2018:
Financial Assets:
Cash and due from banks	$	17,191	$	17,191	$		$		$	17,191
Available for sale securities		222,110				222,110				222,110
Held to maturity securities		54,598				53,459				53,459
Other investments		2,811		2,811						2,811
Federal Home Loan Bank stock		2,069				2,069				2,069
Loans, net		268,006						260,560		260,560
Other real estate		8,943						8,943		8,943
Cash surrender value of life insurance		18,841				18,841				18,841
Financial Liabilities:
Deposits:
Non-interest bearing		114,512		114,512						114,512
Interest bearing		358,994						359,386		359,386
Borrowings from Federal Home Loan
Bank		36,142				36,211				36,211

10. Reclassifications:

Certain reclassifications have been made to prior year statements to conform to current year presentations. The reclassifications had no effect on prior year net income.

   Carrying
Amount    Fair value Measurements Using
      Level 1    Level 2    Level 3    Total
December 31, 2016:

Financial Assets:

Cash and due from banks
   $ 41,116    $ 41,116    $    $    $ 41,116
Available for sale securities
   233,578       233,578       233,578
Held to maturity securities
   48,150       46,935       46,935
Other investments
   2,693    2,693          2,693
Federal Home Loan Bank stock
   539       539       539
Loans, net
   309,889          313,613    313,613
Other real estate
   8,513          8,513    8,513
Cash surrender value of life insurance
   19,249       19,249       19,249
Financial Liabilities:

Deposits:

Non-interest bearing
   132,381    132,381          132,381
Interest bearing
   442,635          442,937    442,937
Borrowings from Federal Home Loan Bank
   6,257       6,491       6,491

Item 2: ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

The Company is aone-bank holding company headquartered in Biloxi, Mississippi. The Company has two operating subsidiaries, PFC Service Corp., an inactive company, and The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Bank 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”).

The following presents ~~Management’s~~Management's discussion and analysis of the consolidated financial condition and results of operations of Peoples Financial Corporation and Subsidiaries. These comments should be considered in combination with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report on Form10-Q and the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management’s Discussion and Analysis included in the Company’s Form10-K for the year ended December 31, ~~2016.~~2018.

Forward-Looking Information

Congress passed the Private Securities Litigation Act of 1995 in an effort to encourage corporations to provide information about a company’s anticipated future financial performance. This act provides a safe harbor for such disclosure which protects the companies from unwarranted litigation if actual results are different from management expectations. This report contains forward-looking statements and reflects industry conditions, company performance and financial results. These forward-looking statements are subject to a number of factors and uncertainties which could cause the Company’s actual results and experience to differ from the anticipated results and expectations expressed in such forward-looking statements. Such factors and uncertainties include, but are not limited to: changes in interest rates and market prices, changes in local economic and business conditions, increased competition for deposits and loans, a deviation in actual experience from the underlying assumptions used to determine and establish the allowance for loan losses, changes in the availability of funds resulting from reduced liquidity, changes in government regulations and acts of terrorism, weather or other events beyond the Company’s control.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued ~~several~~ new accounting ~~standards updates for the first three quarters of 2017 which are disclosed in the~~standards. The Notes to Unaudited Consolidated Financial ~~Statements.~~Statements include disclosure of the standard which is applicable to the Company. The Company ~~does not generally expect that these updates~~is in the process of determining the effect of ASU 2016-03, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will ~~have a material effect~~be effective for the Company on January 1, 2020, on its financial position, or results of operations ~~but the effect of ASU2016-13~~or cash flows. Further disclosure relating to these efforts is ~~still being considered.~~

included in Note 1.

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 anon-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 tonon-credit related factors is recognized in other comprehensive income. The determination of the fair value of securities may require Management to develop estimates and assumptions regarding the amount and timing of cash flows.

Allowance for loan losses

The Company’s allowance for loan losses (“ALL”) reflects the estimated losses resulting from the inability of its borrowers to make loan payments. The ALL is established and maintained at an amount sufficient to cover the estimated loss associated with the loan portfolio of the Company as of the date of the financial statements. Credit losses arise not only from credit risk, but also from other risks inherent in the lending process including, but not limited to, collateral risk, operation risk, concentration risk and economic risk. As such, all related risks of lending are considered when assessing the adequacy of the ALL. On a quarterly basis, Management estimates the probable level of losses to determine whether the allowance is adequate to absorb reasonably foreseeable, anticipated losses in the existing portfolio based on our past loan loss experience, known and inherent risk in the portfolio, adverse situations that may affect the borrowers’ ability to repay and the estimated value of any underlying collateral and current economic conditions. Management believes that the ALL is adequate and appropriate for all periods presented in these financial statements. If there was a deterioration of any of the factors considered by Management in evaluating the ALL, the estimate of loss would be updated, and additional provisions for loan losses may be required. The analysis divides the portfolio into two segments: a pool analysis of loans based upon a five year average loss history which is updated on a quarterly basis and which may be adjusted by qualitative factors by loan type and a specific reserve analysis for those loans considered impaired under GAAP. All credit relationships with an outstanding balance of $100,000 or greater that are included in Management’s loan watch list are individually reviewed for impairment. All losses are charged to the ALL when the loss actually occurs or when a determination is made that a loss is likely to occur; recoveries are credited to the ALL at the time of receipt.

Other Real Estate

Other real estate (“ORE”) includes real estate acquired through foreclosure. Each ORE property

is carried at fair value, less estimated costs to sell. Fair value is principally based on appraisals performed by third-party valuation specialists. If Management determines that the fair value of a property has decreased subsequent to foreclosure, the Company records a write down which is included innon-interest expense.

Employee Benefit Plans

Employee benefit plan liabilities and pension costs are determined utilizing actuarially determined present value calculations. The valuation of the benefit obligation and net periodic expense is considered critical, as it requires Management and its actuaries to make estimates regarding the amount and timing of expected cash outflows including assumptions about mortality, expected service periods and the rate of compensation increases.

Income Taxes

GAAP requires the asset and liability approach for financial accounting and reporting for deferred income taxes. We use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences. 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 or benefit within the tax provision in the consolidated statement of income.

GAAP Reconciliation and Explanation

This Form10-Q containsnon-GAAP financial measures determined by methods other than in accordance with GAAP. Suchnon-GAAP financial measures include taxable equivalent interest income and taxable equivalent net interest income. Management uses thesenon-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 thesenon-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. Thesenon-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 three months and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 is included in the table on the following page.

RECONCILIATION OFNON-GAAP PERFORMANCE MEASURES (In thousands)

													Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,						2019			2018			2019			2018
	2017			2016			2017			2016
Interest income reconciliation:
Interest income - taxable equivalent	$	4,751		$	4,753		$	14,232		$	14,401		$	5,285		$	4,908		$	10,844		$	9,736
Taxable equivalent adjustment		(128	)		(160	)		(410	)		(478	)		(55	)		(66	)		(114	)		(129	)

Interest income (GAAP)	$	4,623		$	4,593		$	13,822		$	13,923		$	5,230		$	4,842		$	10,730		$	9,607

Net interest income reconciliation:
Net interest income - taxable equivalent	$	4,362		$	4,486		$	13,219		$	13,625		$	4,395		$	4,285		$	9,074		$	8,617
Taxable equivalent adjustment		(128	)		(160	)		(410	)		(478	)		(55	)		(66	)		(114	)		(129	)

Net interest income (GAAP)	$	4,234		$	4,326		$	12,809		$	13,147		$	4,340		$	4,219		$	8,960		$	8,488

OVERVIEW

The Company is a community bank serving the financial and trust needs of its customers in our trade area, which is defined as those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the bank subsidiary’s three most outlying locations. Maintaining a strong core deposit base and providing commercial and real estate lending in our trade area are the traditional focuses of the Company. Growth has largely been achieved through de novo branching activity, and it is expected that these strategies will continue to be emphasized in the future.

The Company ~~earned~~recorded a net ~~income~~loss of ~~$236,000~~$328,000 for the ~~third~~second quarter of ~~2017~~2019 compared with net income of ~~$406,000~~$63,000 for the ~~third~~second quarter of ~~2016~~2018 and earned net income of ~~$1,463,000~~$77,000 for the first ~~three~~two quarters of ~~2017~~2019 compared with net income of ~~$543,000~~$355,000 for the first ~~three~~two quarters of ~~2016.~~2018. Results ~~for the first three quarters of 2017 were significantly impacted~~in 2019 included an increase in net interest income which was partially or entirely offset by a~~non-recurring~~ ~~gain of $429,000 from the redemption of death benefits on bank owned life insurance~~ decrease in non-interest income and ~~a tax benefit of $338,000, which reflects a correction to expected refunds for prior years.~~an increase in non-interest expense as compared with 2018.

Managing the net interest margin inis a key component of the Company’s ~~highly competitive market and in the context of larger economic conditions has been very challenging and will continue to be so, for the foreseeable future.~~earnings strategy. Net interest income for the ~~third~~second quarter of ~~2017~~2019 as compared with the ~~third~~second quarter of ~~2016 decreased $92,000~~2018 increased $121,000 and net interest income for the two quarters ended June 30, 2019 as compared with the ~~reduction~~two quarters ended June 30, 2018, increased $472,000. The increase in both periods is attributed to the increase in total interest income, particularly interest and fees on loans ~~was offset by~~and interest on mortgage-backed securities, exceeding the increase in total interest and dividends on securities. Net interest income for the three quarters ended September 30, 2017, decreased $338,000 as compared with the three quarters ended September 30, 2016 as the reduction in interest and fees on loans decreased more than the increase in interest expense on deposits.expense.

Monitoring asset quality, estimating potential losses in our loan portfolio and addressingnon-performing loans continue to be emphasized during these difficult economic times, as the local economy continues to negatively impact collateral values and borrowers’ ability to repay their

loans. The provision for the allowance for loan losses was ~~$29,000~~$56,000 and ~~$85,000~~$110,000 for the ~~third~~second quarter and first ~~three~~two quarters of ~~2017,~~2019, respectively, compared with ~~no provision~~$28,000 and ~~$137,000,~~$63,000, respectively, for the ~~third~~second quarter and first ~~three~~two quarters of ~~2016.~~2018. The Company is working diligently to address and reduce itsnon-performing assets. The Company’s nonaccrual loans totaled ~~$14,384,000~~$10,143,000 and ~~$11,854,000~~$8,250,000 at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, 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 decreased ~~$156,000~~$35,000 and ~~increased $390,000~~$131,000 for the ~~third~~second quarter and first ~~three~~two quarters of ~~2017~~2019, respectively, as compared with ~~2016. The~~2018 results primarily as a result of the decrease in Trust Department income and fees.

Non-interest expense increased $449,000 and $572,000 for the ~~third~~second quarter and first two quarters of ~~2017~~2019, respectively, as compared with 2018 results. This increase for the ~~third~~second quarter of ~~2016~~2019 was primarily the result of ~~the prior year including a gain from the sale~~an increase in net occupancy expense of ~~bank premises. The~~$92,000 and an increase in other expense of $241,000 as compared with 2018. This increase for the first ~~three~~two quarters of ~~2017 as compared with the first three quarters of 2016~~2019 was ~~a result of the gain discussed in the Overview.~~

~~Non-interest~~ ~~expense decreased $107,000 and $400,000 for the third quarter and first three quarters of 2017 as compared with 2016 results. The decrease for the third quarter of 2017 was primarily~~ the result of ~~decreases~~increase in net occupancy expenses of ~~$66,000~~$126,000 and ~~FDIC and state banking assessments of $102,000, which were partially offset by an increase in Other real estate~~other expense of ~~$279,000~~$360,000 as compared with 2016. This decrease for the first three quarters of 2017 was the result of decreases in net occupancy expenses of $250,000 and FDIC and state banking assessments of $334,000, which were partially offset by an increase in Other real estate expense of $135,000 as compared with 2016.2018.

Total assets at ~~September~~June 30, ~~2017 decreased $31,027,000~~2019 increased $5,636,000 as compared with December 31, ~~2016.~~2018. Available for sale securities ~~increased $12,210,000~~decreased $4,028,000 as ~~excess funds were invested to increase earnings.~~maturities and unrealized losses on these securities exceeded investments. Total loans decreased ~~$42,532,000~~$7,249,000 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans. Total deposits ~~decreased $29,949,000~~increased $20,129,000 at ~~September~~June 30, ~~2017~~2019 as compared with December 31, ~~2016~~2018 as customers in the casino industry and county and municipal entities reallocate their resources periodically. These fluctuations resulted in the decrease in borrowings from the Federal Home Loan Bank of $20,090,000 and the increased in cash and due from banks of $16,863,000.

~~RESULTS~~

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~~Company's income. ~~Management’s~~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.

Quarter Ended ~~September~~June 30, ~~2017~~ 2019as Compared with Quarter Ended ~~September~~June 30, ~~2016~~2018

The Company’s average interest-earning assets decreased approximately ~~$12,876,000,~~$20,560,000, or 2%4%, from approximately ~~$604,008,000~~$576,208,000 for the ~~third~~second quarter of ~~2016~~2018 to approximately ~~$591,132,000~~$555,648,000 for the ~~third~~second quarter of ~~2017. Average held to maturity taxable securities increased~~2019. The Company’s average balance sheet decreased primarily as average loans decreased approximately

~~$21,538,000~~ $6,767,000 and average taxable available for sale ~~taxable~~ securities ~~increased~~decreased approximately $46,819,000 as a result of the decrease in average balances due from financial institutions and average loans. Average balances due from financial institutions decreased $29,325,000 as the Company’s liquidity needs decreased.$13,211,000. The Company’s average loans decreased ~~approximately $44,389,000~~ as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans.

The average yield on earning assets increased by 639 basis points, from ~~3.15%~~3.41% for the ~~third~~second quarter of ~~2016~~2018 to ~~3.21%~~3.80% for the ~~third~~second quarter of ~~2017.~~2019. The yield on average loans increased from ~~4.40%~~4.73% for the ~~third~~second quarter of ~~2016~~2018 to ~~4.53%~~5.12% for the ~~third~~second quarter of ~~2017~~2019 primarily as a result of the effect of the increase in prime rate during ~~2016 and 2017~~2018 on the Company’s floating rate loans. The yield on average taxable available for sale securities increased from ~~1.27%~~1.90% for the ~~third~~second quarter of ~~2016~~2018 to ~~1.52%~~2.29% for the ~~third~~second quarter of ~~2017~~2019 as the Company ~~has~~ changed its investment strategy to improve yield while not compromising duration and credit risk.

Average interest-bearing liabilities decreased approximately ~~$10,639,000,~~$33,425,000, or 2%8%, from approximately ~~$443,591,000~~$426,935,000 for the ~~third~~second quarter of ~~2016~~2018 to approximately ~~$432,952,000~~$393,510,000 for the ~~third~~second quarter of ~~2017.~~2019. Average savings and ~~interest-bearing~~interest bearing DDA ~~balances~~deposits decreased ~~$7,850,000~~approximately $33,990,000, primarily as ~~a result of one~~several large ~~public fund reallocating most of~~customers reallocated their ~~balance~~funds to ~~another institution. Average borrowings from~~other institutions in the ~~Federal Home Loan Bank decreased approximately $5,694,000 due to the reduced liquidity needs of the bank subsidiary.~~current year.

The average rate paid on interest-bearing liabilities for the ~~third~~second quarter of ~~2016~~2018 was ~~.24%~~.58% as compared with ~~.36%~~.90% for the ~~third~~second quarter of ~~2017. The~~2019. This increase ~~was the result of time deposit~~is primarily due to increased rates ~~increasing~~ in ~~our trade area and the Company being able to pay off lower rate borrowings from FHLB.~~2018.

The Company’s net interest margin on atax-equivalent basis, which is net interest income as a percentage of average earning assets, was 2.97% for the ~~third~~second quarter of ~~2016~~2018 as compared with ~~2.95%~~3.16% for the ~~third~~second quarter of ~~2017.~~2019.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 as Compared with ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2018

The Company’s average interest-earning assets ~~increased~~decreased approximately ~~$13,349,000,~~$18,581,000, or 2%3%, from approximately ~~$592,372,000~~$580,577,000 for the first ~~three~~two quarters of ~~2016~~2018 to approximately ~~$605,721,000~~$561,996,000 for the first ~~three~~two quarters of ~~2017. Average~~2019. The Company’s average balance sheet decreased primarily as average loans decreased approximately $7,465,000 and average taxable available for sale securities decreased approximately $15,897,000 while average taxable held to maturity ~~taxable~~ securities increased approximately ~~$24,538,000~~$4,193,000 and average ~~available for sale taxable securities~~balances due from depository institutions increased approximately ~~$27,743,000 as a result of the decrease in average loans.~~$5,505,000. The Company’s average loans decreased ~~approximately $36,530,000~~ as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans. Average balances due from financial institutions increased and average taxable held to maturity increased as excess funds were invested to increase interest income. Average taxable available for sale securities decreased as average deposits decreased for the same time periods.

The average yield on earning assets ~~decreased by 11 basis points,~~increased from ~~3.24%~~3.35% for the first ~~three~~two quarters of ~~2016~~2018 to ~~3.13%~~3.86% for the first ~~three~~two quarters of ~~2017. This decrease was~~2019. The yield on average loans increased from 4.69% for the first two quarters of 2018 to 5.30% for the first two quarters of 2019 primarily as a result of the effect of the increase in ~~volume~~prime rate during 2018 on the Company’s floating rate loans as well as the recovery of $135,000 in ~~lower yielding assets, such~~interest income on previously non-performing loans. The yield on average taxable available for sale securities increased from 1.83% for the first two quarters of 2018 to 2.30% for the first two quarters of 2019 as the Company changed its investment ~~securities, as compared with higher yielding assets, such as loans.~~

strategy to improve yield while not compromising duration and credit risk.

Average interest-bearing liabilities ~~increased~~decreased approximately ~~$638,000,~~$25,707,000, or 1%6%, from approximately ~~$446,475,000~~$428,226,000 for the first ~~three~~two quarters of ~~2016~~2018 to approximately ~~$447,113,000~~$402,519,000 for the first ~~three~~two quarters of ~~2017.~~2019. Average savings and interest bearing DDA balances ~~increased~~decreased approximately ~~$4,605,000 and average time deposits increased $3,483,000~~$30,532,000 primarily as several large commercial customers ~~in the casino industry and county and municipal entities reallocate~~reallocated their ~~balances periodically. Average borrowings from the Federal Home Loan Bank decreased approximately $7,450,000 due~~funds to ~~the liquidity needs of the bank subsidiary.~~other institutions.

The average rate paid on interest-bearing liabilities for the first ~~three~~two quarters of ~~2016~~2018 was ~~.23%~~.52% compared with ~~.30%~~.88% for the first ~~three~~two quarters of ~~2017 as a result of~~2019. This increase is primarily due to the ~~increase~~increased rates in ~~prime rate.~~2018.

The Company’s net interest margin on atax-equivalent basis, which is net interest income as a percentage of average earning assets, was ~~3.07%~~2.97% for the first ~~three~~two quarters of ~~2016~~2018 as compared with ~~2.91%~~3.23% for the first ~~three~~two quarters of ~~2017.~~2019.

The tables on the following pages analyze the changes intax-equivalent net interest income for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~

2018.

Analysis of Average Balances, Interest Earned/Paid and Yield

(In Thousands)


	Quarter Ended September 30, 2017							Quarter Ended September 30, 2016								Quarter Ended June 30, 2019							Quarter Ended June 30, 2018
	Average Balance		Interest Earned/Paid		Rate			Average Balance		Interest Earned/Paid		Rate				Average Balance		Interest Earned/Paid		Rate			Average Balance		Interest Earned/Paid		Rate
Loans (2)(3)	$	279,771	$	3,165		4.53	%	$	324,160	$	3,568		4.40	%		$	266,627	$	3,415		5.12	%	$	273,394	$	3,230		4.73	%
Balances due from depository institutions		25,409		148		2.33	%		54,734		95		0.69	%			13,092		104		3.18	%		11,718		61		2.08	%
HTM:
Taxable		30,131		207		2.75	%		8,593		60		0.01	%			37,397		284		3.04	%		33,568		241		2.87	%
Non taxable (1)		18,802		177		3.77	%		19,981		191		3.82	%			16,317		132		3.24	%		18,332		146		3.19	%
AFS:
Taxable		221,196		842		1.52	%		174,377		553		1.27	%			210,460		1,206		2.29	%		223,671		1,062		1.90	%
Non taxable (1)		14,821		204		5.51	%		20,422		277		5.43	%			9,665		115		4.76	%		13,635		161		4.72	%
Other		1,002		8		3.19	%		1,741		9		2.07	%			2,090		29		5.55	%		1,890		7		1.48	%

Total	$	591,132	$	4,751		3.21	%	$	604,008	$	4,753		3.15	%		$	555,648	$	5,285		3.80	%	$	576,208	$	4,908		3.41	%

Savings & interest-bearing DDA	$	350,100	$	218		0.25	%	$	357,950	$	116		0.13	%
Savings & interest- bearing DDA																$	289,567	$	466		0.64	%	$	323,557	$	320		0.40	%
Time deposits		81,632		163		0.80	%		78,727		121		0.61	%			90,075		344		1.53	%		85,986		216		1.00	%
Federal funds purchased																								340		2		2.35	%
Borrowings from FHLB		1,220		8		2.62	%		6,914		30		1.74	%			13,868		80		2.31	%		17,052		85		1.99	%

Total	$	432,952	$	389		0.36	%	$	443,591	$	267		0.24	%		$	393,510	$	890		0.90	%	$	426,935	$	623		0.58	%

Nettax-equivalent spread						2.86	%						2.91	%	Net tax-equivalent spread						2.90	%						2.83	%

Nettax-equivalent margin on earning assets						2.95	%						2.97	%	Net tax-equivalent margin on earning assets						3.16	%						2.97	%

~~(1)~~

~~All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2017 and 2016. See disclosure ofNon-GAAP~~ ~~financial measures on pages 31 and 32.~~

~~(2)~~

~~Loan fees of $59 and $119 for 2017 and 2016, respectively, are included in these figures.~~

~~(3)~~

~~Includes~~

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21% in 2019 and 2018. See disclosure of Non-GAAP financial measures on pages 31 and 32.

(2) Loan fees of $76 and $35 for 2019 and 2018, respectively, are included in these figures.

(3) Average balance includes nonaccrual loans.

Analysis of Average Balances, Interest Earned/Paid and Yield

(In Thousands)


	Nine Months Ended September 30, 2017							Nine Months Ended September 30, 2016								Six Months Ended June 30, 2019							Six Months Ended June 30, 2018
	Average Balance		Interest Earned/Paid		Rate			Average Balance		Interest Earned/Paid		Rate				Average Balance		Interest Earned/Paid		Rate			Average Balance		Interest Earned/Paid		Rate
Loans (2)(3)	$	294,492	$	9,734		4.41	%	$	331,022	$	10,833		4.36	%		$	268,240	$	7,104		5.30	%	$	275,705	$	6,463		4.69	%
Balances due from depository institutions		34,050		384		1.50	%		29,814		212		0.95	%			16,767		191		2.28	%		11,262		99		1.76	%
HTM:
Taxable		28,449		524		2.46	%		3,911		61		2.08	%			37,238		555		2.98	%		33,045		473		2.86	%
Non taxable (1)		19,239		541		3.75	%		19,473		541		3.70	%			16,903		289		3.42	%		18,439		292		3.17	%
AFS:
Taxable		212,435		2,370		1.49	%		184,692		1,870		1.35	%			210,390		2,417		2.30	%		226,287		2,073		1.83	%
Non taxable (1)		16,055		665		5.52	%		21,482		865		5.37	%			10,375		248		4.78	%		13,966		326		4.67	%
Other		1,001		14		1.86	%		1,978		19		1.28	%			2,083		40		3.84	%		1,873		10		1.07	%

Total	$	605,721	$	14,232		3.13	%	$	592,372	$	14,401		3.24	%		$	561,996	$	10,844		3.86	%	$	580,577	$	9,736		3.35	%

Savings & interest-bearing DDA	$	364,732	$	535		0.20	%	$	360,127	$	330		0.12	%
Savings & interest- bearing DDA																$	301,767	$	957		0.63	%	$	332,299	$	602		0.36	%
Time deposits		80,928		446		0.73	%		77,445		331		0.57	%			88,530		655		1.48	%		84,953		405		0.95	%
Federal funds purchased																								554		7		2.53	%
Borrowings from FHLB		1,453		32		2.94	%		8,903		115		1.72	%			12,222		158		2.59	%		10,420		105		2.02	%

Total	$	447,113	$	1,013		0.30	%	$	446,475	$	776		0.23	%		$	402,519	$	1,770		0.88	%	$	428,226	$	1,119		0.52	%

Nettax-equivalent spread						2.83	%						3.01	%	Net tax-equivalent spread						2.98	%						2.83	%

Nettax-equivalent margin on earning assets						2.91	%						3.07	%	Net tax-equivalent margin on earning assets						3.23	%						2.97	%

~~(1)~~

~~All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2017 and 2016. See disclosure ofNon-GAAP~~ ~~financial measures on pages 31 and 32.~~

~~(2)~~

~~Loan fees of $238 and $314 for 2017 and 2016, respectively, are included in these figures.~~

~~(3)~~

~~Includes~~

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21% in 2019 and 2018. See disclosure of Non-GAAP financial measures on pages 31 and 32.

(2) Loan fees of $149 and $157 for 2019 and 2018, respectively, are included in these figures.

(3) Average balance includes nonaccrual loans.

Analysis of Changes in Interest Income and Interest Expense

(In Thousands)

   For the Quarter Ended
   September 30, 2017 compared with
September 30, 2016
   Volume    Rate    Rate/Volume    Total
Interest earned on:

Loans
   $ (489 )    $ 99    $ (13 )    $ (403 )
Balances due from financial institutions
   (51 )    224    (120 )    53
Held to maturity securities:

Taxable
   150    (1 )    (2 )    147
Non taxable
   (11 )    (3 )       (14 )
Available for sale securities:

Taxable
   148    111    30    289
Non taxable
   (76 )    4    (1 )    (73 )
Other
   (4 )    5    (2 )    (1 )








Total
   $ (333 )    $ 439    $ (108 )    $ (2 )








Interest paid on:

Savings & interest-bearing DDA
   $ (3 )    $ 107    $ (2 )    $ 102
Time deposits
   4    36    2    42
Borrowings from FHLB
   (25 )    15    (12 )    (22 )








Total
   $ (24 )    $ 158    $ (12 )    $ 122

	For the Quarter Ended
	June 30, 2019 compared with June 30, 2018
	Volume			Rate			Rate/Volume			Total
Interest earned on:
Loans	$	(80	)	$	272		$	(7	)	$	185
Balances due from financial institutions		7			32			4			43
Held to maturity securities:
Taxable		27			14			2			43
Non taxable		(16	)		2						(14	)
Available for sale securities:
Taxable		(63	)		220			(13	)		144
Non taxable		(47	)		1						(46	)
Other		1			19			2			22
Total	$	(171	)	$	560		$	(12	)	$	377
Interest paid on:
Savings & interest-bearing DDA	$	(34	)	$	201		$	(21	)	$	146
Time deposits		10			113			5			128
Federal funds purchased		(1	)		(1	)					(2	)
Borrowings from FHLB		(16	)		13			(2	)		(5	)
Total	$	(41	)	$	326		$	(18	)	$	267

Analysis of Changes in Interest Income and Interest Expense

(In Thousands)


	For the Nine Months Ended											For the Six Months Ended
	September 30, 2017 compared with September 30, 2016											June 30, 2019 compared with June 30, 2018
	Volume			Rate		Rate/Volume			Total			Volume			Rate		Rate/Volume			Total
Interest earned on:
Loans	$	(1,195	)	$	108	$	(12	)	$	(1,099	)	$	(175	)	$	839	$	(23	)	$	641
Balances due from financial institutions		30			124		18			172			48			29		15			92
Held to maturity securities:
Taxable		383			11		69			463			60			20		2			82
Non taxable		(7	)		7								(24	)		23		(2	)		(3	)
Available for sale securities:
Taxable		281			190		29			500			(146	)		527		(37	)		344
Non taxable		(219	)		25		(6	)		(200	)		(84	)		8		(2	)		(78	)
Other		(9	)		8		(4	)		(5	)		1			26		3			30

Total	$	(736	)	$	473	$	94		$	(169	)	$	(320	)	$	1,472	$	(44	)	$	1,108

Interest paid on:
Savings & interest-bearing DDA	$	4		$	198	$	3		$	205		$	(55	)	$	452	$	(42	)	$	355
Time deposits		15			96		4			115			17			224		9			250
Federal funds purchased													(7	)							(7	)
Borrowings from FHLB		(96	)		81		(68	)		(83	)		18			30		5			53

Total	$	(77	)	$	375	$	(61	)	$	237		$	(27	)	$	706	$	(28	)	$	651

Provision for the 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 its 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 addressnon-performing loans. A watch list of credits which pose a potential loss to the Company is prepared based on the loan grading system. This list forms the foundation of the Company’s allowance for loan loss computation.

Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and identify and estimate potential losses based on the best available information. The potential effect of ~~the continuing decline~~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.

The Company’s analysis includes evaluating the current values of collateral securing all nonaccrual loans. Even though nonaccrual loans were ~~$14,384,000~~$10,143,000 and ~~$11,854,000~~$8,250,000 at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, specific reserves of only ~~$810,000~~$60,000 and ~~$303,000,~~$315,000, respectively, have been allocated to these loans as collateral values appear sufficient to cover loan losses or the loan balances have been charged down to their realizable value.

The Company’son-going, systematic evaluation resulted in the Company recording a provision for the allowance for loan losses of ~~$29,000~~$56,000 and $28,000 for the ~~third quarter~~second quarters of ~~2017~~2019 and ~~$85,000~~2018, respectively, and ~~$137,000~~$110,000 and $63,000 for the first ~~three~~two quarters of ~~2017~~2019 and ~~2016,~~2018, respectively. The allowance for loan losses as a percentage of loans was ~~2.25%~~1.86% and ~~1.73%~~1.95% at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively. The Company believes that its allowance for loan losses is appropriate as of ~~September~~June 30, ~~2017.~~2019.

The allowance for loan losses is an estimate, and as such, events may occur in the future which may affect its accuracy. The Company anticipates that it is possible that additional information will be gathered in future quarters which may require an adjustment to the allowance for loan losses. Management will continue to closely monitor its portfolio and take such action as it deems appropriate to accurately report its financial condition and results of operations.

Non-interest income

Quarter Ended ~~September~~June 30, ~~2017~~2019 as Compared with Quarter Ended ~~September~~June 30, ~~2016~~2018

Non-interest income decreased ~~$156,000~~$35,000 for the ~~third~~second quarter of ~~2017~~2019 as compared with the ~~third~~second quarter of 2016 primarily as the result of the decrease in gain on liquidation, sales and calls of securities and other income. The Company had opportunities to sell securities in order to generate gains in the prior year and, as a result, recognized $67,000 in 2016. Other income decreased $108,000 in 2017 as compared with 20162018 primarily as a result of the ~~prior year including a gain of $88,000 from~~$37,000 decrease in Trust department income and fees. This decrease is attributable to the ~~sale of bank premises.~~decrease in account relationships in 2019.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 as Compared with ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2018

Non-interest income ~~increased $390,000~~decreased $131,000 for the first ~~three~~two quarters of ~~2017~~2019 as compared with the first ~~three~~two quarters of 2016 primarily as the result of the increase in income from other investments as well as the gain from death benefits from life insurance. These increases were partially offset by the decrease in other income of $147,000 in 2017 as compared with 2016. Income from other investments increased $63,000 from operations of the investment in a low income housing partnership as a result of increased occupancy in 2017 as compared with 2016. As a result of the death of a participant in the Company’s deferred compensation plans during 2017, a~~non-recurring~~

~~gain of $429,000 from the redemption of bank owned life insurance was recorded. Other income decreased $108,000 in 2017 as compared with 2016~~2018 primarily as a result of the ~~prior year including a gain of $88,000 from~~$99,000 decrease in Trust department income and fees. This decrease is attributable to the ~~sale of bank premises.~~decrease in account relationships in 2019.

Non-interest expense

Quarter Ended ~~September~~June 30, ~~2017~~2019 as Compared with Quarter Ended ~~September~~June 30, ~~2016~~2018

Totalnon-interest expense ~~decreased $107,000~~increased $449,000 for the ~~third~~second quarter of ~~2017~~2019 as compared with the ~~third~~second quarter of ~~2016. Net~~2018. Salaries and employee benefits increased $52,000, net occupancy ~~decreased $66,000, Equipment rentals, depreciation and maintenance decreased $41,000, FDIC and state banking assessments decreased $102,000~~increased $92,000, ORE expense increased $76,000 and other expense ~~decreased $129,000 while other real estate expense~~ increased ~~$279,000~~$241,000 in ~~2017~~2019 as compared with ~~2016.~~2018.

Salaries and employee benefits increased as a result of an increase in the liability for our retiree health plan.

Net occupancy expense ~~decreased~~increased as result of ~~the Company’s efforts~~upgrades to ~~decrease its telecommunication~~telecommunications and increased liability insurance costs.

~~Equipment rentals, depreciation and maintenance primarily decreased as a result of the Company reducing its janitorial costs.~~

~~FDIC and state banking assessments decreased as the regulators decreased the premiums for deposit insurance in the current year.~~

ORE expense increased due to the increase in ~~writedowns~~write downs in the value of ORE.

Other expense ~~decreased as~~increased a result of ~~the reduction of legal, advertising and other costs largely due~~non-recurring expenses related to the ~~time in which services were performed.~~settlement of a lawsuit of $201,000 as well as consulting fees for operations and strategic planning projects for $30,000.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 as Compared with ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2018

Totalnon-interest expense ~~decreased $400,000~~increased $572,000 for the first ~~three~~two quarters of ~~2017~~2019 as compared with the first ~~three~~two quarters of ~~2016.~~2018. Net occupancy ~~decreased $250,000~~increased $126,000, equipment rentals, depreciation and ~~FDIC~~maintenance increased $73,000 and ~~state banking assessments decreased $334,000, while~~ other ~~real estate~~ expense increased ~~$135,000~~$360,000 in ~~2017~~2019 as compared with ~~2016.~~2018.

Net occupancy expense ~~decreased~~increased as result of ~~the Company’s efforts~~upgrades to ~~decrease its telecommunication~~telecommunications and increased liability insurance costs.

~~FDIC~~

Equipment rentals, depreciation and ~~state banking assessments decreased~~maintenance increased as a result of purchases of depreciable assets, primarily technology-related, and an increase in service contracts related to technology services.

Other expense increased a result of non-recurring expenses related to the ~~regulators decreased the premiums~~settlement of a lawsuit of $201,000 as well as consulting fees for ~~deposit insurance~~operations and strategic planning projects for $60,000.

FINANCIAL CONDITION

Cash and due from banks increased $16,863,000 at June 30, 2019, compared with December 31, 2018 in the ~~current year.~~

~~ORE expense increased due to~~management of the ~~increase in writedowns in the value of ORE.~~

bank subsidiary’s liquidity position.

~~Income Taxes~~

At December 31, 2014, the Company established a full valuation allowance on its deferred tax assets. Until such time as the Company returns to sustained earnings, and it is determined that it is more likely than not that the deferred tax asset will be realized, no income tax benefit or expense will generally be recorded.

~~The Company did record income tax expense of $78,000 during the second quarter of 2016 relating to the resolution of a recent examination by the Internal Revenue Service.~~

For the year ended December 31, 2014, the Company estimated it would be able to carryback net operating losses and general business credits resulting in Federal refunds totaling $300,000. Accordingly, a $300,000 income tax receivable was recorded at December 31, 2014. Upon preparation of the amended 2011 and 2012 Federal tax returns, the actual refunds recoverable were $642,000. As a result, the Company recorded an income tax benefit of $338,000 during the second quarter of 2017 as an immaterial correction of an error.

~~FINANCIAL CONDITION~~

Available for sale securities ~~increased $12,210,000~~decreased $4,028,000 at ~~September~~June 30, ~~2017,~~2019, as compared with December 31, ~~2016. This is the result of the Company investing excess funds not needed currently for loans in order to improve earnings.~~2018 as maturities and unrealized losses exceeded investment purchases.

Loans decreased ~~$42,532,000~~$7,249,000 at ~~September~~June 30, ~~2017,~~2019, as compared with December 31, ~~2016~~2018 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans.

Total deposits ~~decreased $29,949,000~~increased $20,129,000 at ~~September~~June 30, ~~2017,~~2019, as compared with December 31, ~~2016.~~2018. Typically, significant increases or decreases in total deposits and/or significant fluctuations among the different types of deposits from quarter to quarter are anticipated by Management as customers in the casino industry and county and municipal entities reallocate their resources periodically.

Borrowings from the Federal Home Loan Bank decreased $20,090,000 at June 30, 2019 compared with December 31, 2018 as the Company utilized funds from increased deposits to reduce borrowings.

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.

As of ~~September~~June 30, ~~2017,~~2019, the most recent notification from the Federal Deposit Insurance Corporation 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. As of January 1, ~~2017,~~2019, the Company must have a capital conservation buffer above these requirements of ~~1.25% for 2017.~~2.50%. There are no conditions or events since that notification that Management believes have changed the bank subsidiary’s category.

The Company’s actual capital amounts and ratios and required minimum capital amounts and ratios as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018 are as follows (in thousands):

											Actual					For Capital Adequacy Purposes
	Actual					For Capital Adequacy Purposes					Amount		Ratio			Amount		Ratio
	Amount		Ratio			Amount		Ratio
September 30, 2017 :
June 30, 2019:
Total Capital (to Risk Weighted Assets)	$	96,231		25.41	%	$	30,293		8.00	%	$	95,595		25.58	%	$	29,893		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		91,480		24.16	%		17,040		4.50	%		90,921		24.33	%		16,815		4.50	%
Tier 1 Capital (to Risk Weighted Assets)		91,480		24.16	%		22,719		6.00	%		90,921		24.33	%		22,420		6.00	%
Tier 1 Capital (to Average Assets)		91,480		13.13	%		27,863		4.00	%		90,921		14.55	%		24,995		4.00	%

December 31, 2016:
December 31, 2018:
Total Capital (to Risk Weighted Assets)	$	95,262		22.94	%	$	33,220		8.00	%	$	95,627		25.30	%	$	30,240		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		90,068		21.69	%		18,687		4.50	%
												90,894		24.05	%		17,010		4.50	%
Tier 1 Capital (to Risk Weighted Assets)		90,068		21.69	%		24,915		6.00	%		90,894		24.05	%		22,680		6.00	%
Tier 1 Capital (to Average Assets)		90,068		13.12	%		27,464		4.00	%		90,894		14.35	%		25,344		4.00	%

The actual capital amounts and ratios and required minimum capital amounts and ratios for the Bank as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, are as follows (in thousands):

																					For Capital Adequacy
	For Capital Adequacy															Actual					Purposes					To Be Well Capitalized
	Actual					Purposes					To Be Well Capitalized					Amount		Ratio			Amount		Ratio			Amount		Ratio
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2017 :
June 30, 2019:
Total Capital (to Risk Weighted Assets)	$	92,980		24.68	%	$	30,142		8.00	%	$	37,678		10.00	%	$	92,631		25.19	%	$	29,414		8.00	%	$	36,768		10.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		88,252		23.42	%		16,955		4.50	%		24,491		6.50	%		88,031		23.94	%		16,545		4.50	%		23,899		6.50	%
Tier 1 Capital (to Risk Weighted Assets)		88,252		23.42	%		22,607		6.00	%		30,142		8.00	%		88,031		23.94	%		22,061		6.00	%		29,414		8.00	%
Tier 1 Capital (to Average Assets)		88,252		13.13	%		26,876		4.00	%		33,596		5.00	%		88,031		14.10	%		24,973		4.00	%		31,216		5.00	%

December 31, 2016:
December 31, 2018:
Total Capital (to Risk Weighted Assets)	$	91,882		22.29	%	$	32,975		8.00	%	$	41,219		10.00	%	$	92,485		24.61	%	$	30,062		8.00	%	$	37,577		10.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		86,726		21.04	%		18,548		4.50	%		26,792		6.50	%
																	87,780		23.36	%		16,910		4.50	%		24,425		6.50	%
Tier 1 Capital (to Risk Weighted Assets)		86,726		21.04	%		24,731		6.00	%		32,975		8.00	%		87,780		23.36	%		22,546		6.00	%		30,062		8.00	%
Tier 1 Capital (to Average Assets)		86,726		12.47	%		27,820		4.00	%		34,775		5.00	%		87,780		14.11	%		24,884		4.00	%		31,105		5.00	%

Management continues to emphasize the importance of maintaining the appropriate ~~capitallevels~~capitallevels of the Company and has established the goal of being “well-capitalized” by the banking regulatory authorities.

43LIQUIDITY

~~LIQUIDITY~~

Liquidity represents the ~~Company’s~~Company's ability to adequately provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing sources of funds. Management monitors these funds requirements in such a manner as to satisfy these demands and provide the maximum earnings on its earning assets. The Company manages and monitors its liquidity position 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 monthly basis in the management of its liquidity needs and also conducts periodic contingency testing on its liquidity plan.

Deposits, payments of principal and interest on loans, proceeds from maturities of investment securities and earnings on investment securities are the principal sources of funds for the Company. Borrowings from the FHLB, federal funds sold and federal funds purchased are utilized by the Company to manage its daily liquidity position. The Company has also been approved to participate in the Federal Reserve Bank’s Discount Window Primary Credit Program, which it intends to use only as a contingency.

REGULATORY MATTERS

During 2016, Management identified opportunities for improving information technology operations and security, risk management and earnings, addressing asset quality concerns, analyzing and assessing the Bank’s management and staffing needs, and managing concentrations of credit risk as a result of its own investigation as well as examinations performed by certain bank regulatory agencies. In concert with the regulators, the Company had identified specific corrective steps and actions to enhance its information technology operations and security, risk management, earnings, asset quality and staffing. The Company and the Bank may not declare or pay any cash dividends without the prior written approval of their regulators.

Item 4: Controls and Procedures

As of ~~September~~June 30, ~~2017,~~2019, an evaluation was performed under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the period ended ~~September~~June 30, ~~2017~~2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1: Legal Proceedings

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 is expected, in the opinion of Management, to have a material adverse effect upon the financial position or results of operations of the Company.

Item 5:5: Other Information

None.

Item 6 - Exhibits and Reports on Form8-K

~~(a) Exhibits~~


Exhibit 31.1:		Certification of Chief Executive Officer Pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes - Oxley Act of 2002

	Exhibit 31.2:		Certification of Chief Financial Officer Pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes - Oxley Act of 2002

	Exhibit 32.1:		Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350

	Exhibit 32.2:		Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350

	Exhibit 101		The following materials from the Company’s quarterly report onForm 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2019, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Condition at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, (ii) Consolidated Statements of ~~Income~~Operations for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, (iv) Consolidated ~~Statement~~Statements of Changes in Shareholders’ Equity for the ~~nine months~~quarters ended ~~September~~March 31, 2018 and June 30, ~~2017,~~2018 and March 31, 2019 and June 30, 2019, (v) Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and (vi) Notes to the Unaudited Consolidated Financial Statements for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018.

~~(b) Reports on Form8-K~~

~~A Form8-K~~ ~~was filed onJuly 26, 2017, September 20, 2017 and October 25, 2017.~~

45SIGNATURES

~~SIGNATURES~~

Pursuant to the requirement of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PEOPLES FINANCIAL CORPORATION

(Registrant)

Date:	August 13, 2019
~~PEOPLES FINANCIAL CORPORATION~~
~~(Registrant)~~
By:
~~Date:~~		~~November 13, 2017~~

~~By:~~		~~/s/~~ /s/ Chevis C. Swetman

Chevis C. Swetman

Chairman, President and Chief Executive Officer

(principal executive officer)

Date:	August 13, 2019
		~~Chevis C. Swetman~~
~~Chairman, President and Chief Executive Officer~~
~~(principal executive officer)~~
By:
~~Date:~~		~~November 13, 2017~~

~~By:~~		~~/s/~~ /s/ Lauri A. Wood
		~~Lauri A. Wood~~
~~Chief Financial Officer and Controller~~
~~(principal financial and accounting officer)~~

Lauri A. Wood

Chief Financial Officer and Controller

(principal financial and accounting officer)