Form 10-K PEOPLES FINANCIAL CORP For: Dec 31

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Peoples Financial Corporation

 

 

PART I

 

ITEM 1 – DESCRIPTION OF BUSINESS

 

BACKGROUND AND CURRENT OPERATIONS

 

General

Peoples Financial Corporation (the “Company”) is a corporation that was organized as a one bank holding company in 1985. The Company is headquartered in Biloxi, Mississippi. At December 31, 2020, the Company operated in the state of Mississippi through its wholly owned subsidiary, The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Company is engaged, through this subsidiary, in the banking business. The Bank is the Company’s principal asset and primary source of revenue.

 

The Main Office, operations center and asset management and trust services of the Bank are located in downtown Biloxi, MS. At December 31, 2020, the Bank also had 17 branches located throughout Harrison, Hancock, Jackson and Stone Counties. The Bank has automated teller machines (“ATM”) at its Main Office, all branch locations and at numerous non-proprietary locations.

 

The Bank Subsidiary

The Company’s wholly-owned bank subsidiary was originally chartered in 1896 in Biloxi, Mississippi, as The Peoples Bank of Biloxi. The Bank is a state chartered bank whose deposits are insured under the Federal Deposit Insurance Act. The Bank is not a member of the Federal Reserve System. The legal name of the Bank was changed to The Peoples Bank, Biloxi, Mississippi, during 1991.

 

Most of the Bank’s business originates from Harrison, Hancock, Stone and Jackson Counties in Mississippi; however, some business is obtained from other counties in southern Mississippi, southern Louisiana and southern Alabama.

 

Nonbank Subsidiary

In 1985, PFC Service Corp. (“PFC”) was chartered and began operations as the second wholly-owned subsidiary of Peoples Financial Corporation. The purpose of PFC was principally the leasing of automobiles and equipment. PFC is inactive at this time.

 

Products And Services                                    

The Bank currently offers a variety of services to individuals and small to middle market businesses within its trade area. The Company’s trade area 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’s three most outlying locations.

 

 

The Bank’s primary lending focus is to offer business, commercial, real estate, construction, personal and installment loans, with an emphasis on commercial lending. The Bank’s exposure for out of area, residential and land development, construction and commercial real estate loans as well as concentrations in the hotel/motel and gaming industries, are monitored by the Company. Each loan officer has board approved lending limits on the principal amount of secured and unsecured loans that can be approved for a single borrower without prior approval of the senior credit committee. All loans, however, must meet the credit underwriting standards and loan policies of the Bank.

 

Deposit services include interest bearing and non-interest bearing checking accounts, savings accounts, certificates of deposit, and IRA accounts. The Bank generally provides depository accounts to individuals; small and middle market businesses; and state, county and local government entities in its trade area at interest rates consistent with market conditions.

 

The Bank’s Asset Management and Trust Services Department (“Trust Department”) offers personal trust, agencies and estate services, including living and testamentary trusts, executorships, guardianships, and conservatorships. Benefit accounts maintained by the Trust Department primarily include self-directed individual retirement accounts. Escrow management, stock transfer and bond paying agency accounts are available to corporate customers.

 

The Bank also offers a variety of other services including safe deposit box rental, wire transfer services, night drop facilities, collection services, cash management and internet banking. The Bank has 30 ATMs at its branch locations and other off-site, non-proprietary locations, providing bank customers access to their depository accounts. The Bank is a member of the PULSE network.

 

Customers

The Bank has a large number of customers acquired over a period of many years and is not dependent upon a single customer or upon a few customers. The Bank also provides services to customers representing a wide variety of industries including seafood, retail, hospitality, hotel/motel, gaming and construction. While the Company has pursued external growth strategies on a limited basis, its primary focus has been on internal growth by the Bank through the establishment of new branch locations and an emphasis on strong customer relationships.

 

Employees

At December 31, 2020, the Bank employed 141 total employees, with 134 full-time employees and 7 part-time employees. The Company has no employees who are not employees of the Bank. Through the Bank, employees receive salaries and benefits, which include 401(k) and ESOP plans, cafeteria plan, and life, health and disability insurance. The Company considers its relationship with its employees to be good.

 

Competition

The Bank is in direct competition with numerous local and regional commercial banks as well as other non-bank institutions. Interest rates paid and charged on deposits and loans are the primary competitive factors within the Bank’s trade area. The Bank also competes for deposits and loans with insurance companies, finance companies, brokerage houses and credit unions. The principal competitive factors in the markets for deposits and loans are interest rates paid and charged. The Bank also competes through efficiency, quality of customer service, the range of services and products it provides, the convenience of its branch and ATM locations and the accessibility of its staff. The Bank intends to continue its strategy of being a local, community bank offering traditional bank services and providing quality service in its local trade area.

 

 

Miscellaneous

The Bank holds no patents, licenses (other than licenses required to be obtained from appropriate bank regulatory agencies), franchises or concessions.

 

The Bank has not engaged in any research activities relating to the development of new services or the improvement of existing services except in the normal course of its business activities. The Bank presently has no plans for any new line of business requiring the investment of a material amount of total assets.

 

Available Information

The Company maintains an internet website at www.thepeoples.com. The Company’s Annual Report to Shareholders is available on the Company’s website. Also available through the website is a link to the Company’s filings with the Securities and Exchange Commission (“SEC”). Information on the Company’s website is not incorporated into this Annual Report on Form 10-K or the Company’s other securities filings and is not part of them.

 

 

REGULATION AND SUPERVISION

 

General

 

As a bank holding company under the Bank Holding Company Act of 1956, the Company is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of Atlanta (the “Federal Reserve”). The Company is required to file semi-annual reports with the Federal Reserve and such other information as the Federal Reserve may require. The Company is also required to file certain reports with, and otherwise comply with the rules and regulations of, the SEC under the federal securities laws.

 

The Bank is incorporated under the laws of the State of Mississippi and is subject to the applicable provisions of Mississippi banking laws and the laws of the various states in which it operates, as well as federal law. The Bank is subject to the supervision of the Mississippi Department of Banking and Consumer Finance (the “MDBCF”) and to regular examinations by that department. Deposits in the Bank are insured by the Federal Deposit Insurance Corporation (the “FDIC”), and the Bank is thus subject to the provisions of the Federal Deposit Insurance Act and to supervision and examination by the FDIC. State and federal laws also govern the activities in which the Bank engages, the investments that it makes and the aggregate amount of loans that may be granted to one borrower. The MDBCF and the FDIC also regulate the branching authority of the Bank. In addition, various consumer and compliance laws and regulations affect the Bank’s operations.

 

 

The earnings of the Company’s subsidiaries, and therefore the earnings of the Company, are affected by general economic conditions, management policies, changes in state and federal legislation and actions of various regulatory authorities, including those referred to above. The following discussion summarizes some of the significant federal and state laws to which the Company and the Bank are subject. This discussion is a brief summary of the regulatory environment in which the Company and its subsidiaries operate and is not intended as a complete discussion of all statutes and regulations affecting such operations. Regulation of financial institutions is intended primarily for the protection of depositors, the deposit insurance fund and the banking system, and generally is not intended for the protection of shareholders.

 

The statutes, regulations and policies that govern the operations of the Company and the Bank are under continuous review and are subject to amendment from time to time by Congress, the Mississippi State Legislature and federal and state regulatory agencies. Any such future statutory or regulatory changes could adversely affect the Company’s operations and financial condition.

 

Regulation of the Bank

 

The Bank is subject to regulation and supervision by the MDBCF and by the FDIC, which regulation and supervision extends to all aspects of its operations, including but not limited to requirements concerning an allowance for loan losses, lending and mortgage operations, interest rates received on loans and paid on deposits, the payment of dividends to the Company, loans to officers and directors, mergers and acquisitions, capital adequacy, and the opening and closing of branches.

 

The Bank is subject to periodic examinations by the MDBCF and by the FDIC. In these examinations, the examiners assess compliance with state and federal banking regulations and the safety and soundness standards in such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure, and employee compensation and benefits.

 

The MDBCF and the FDIC have enforcement responsibility over the Bank and the authority to bring actions against the Bank and certain institution-affiliated parties, including officers, directors, and employees, for violations of laws or regulations and for engaging in unsafe and unsound practices. Formal enforcement actions include the issuance of a capital directive or cease and desist order, civil money penalties, removal of officers and/or directors, and receivership or conservatorship of the institution.

 

Insurance of Deposit Accounts

The FDIC insures deposits at federally insured depository institutions like the Bank. Deposit accounts in the Bank are insured by the FDIC’s Deposit Insurance Fund generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. The FDIC charges banks deposit insurance assessments to maintain the Deposit Insurance Fund. Under the FDIC’s risk-based assessment system, banks that are deemed to be less risky pay lower assessments. Assessments for institutions with assets of less than $10 billion of assets, such as the Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure of an institution’s failure within three years.

 

 

The FDIC’s currently effective deposit insurance assessment range for most insured depository institutions is 1.5 basis points to 30 basis points of total assets less tangible equity. The FDIC has the authority to increase insurance assessments and to impose special assessments. Any significant increases or special assessments could have an adverse effect on the results of operations of the Bank. We cannot predict what the FDIC’s deposit insurance assessment rates will be in the future.

 

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that may lead to termination of the Bank’s deposit insurance.

 

Regulatory Capital Requirements

The FDIC has implemented capital adequacy requirements for state-chartered banks that are not members of the Federal Reserve System. Effective January 1, 2015, the federal banking agencies’ capital rules were substantially revised to conform to the international regulatory standards agreed to by the Basel Committee on Banking Supervision in the accord often referred to as “Basel III.” The revised regulatory capital rules apply to all depository institutions as well as to all top-tier bank holding companies that are not subject to the Federal Reserve’s Small Bank Holding Company Policy Statement, which the Company is not. The capital requirements are quantitative measures established by regulation that require the Bank to maintain minimum amounts and ratios of capital. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by bank regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

 

The currently effective capital rule requires the maintenance of “common equity Tier 1” capital, Tier 1 capital and Total capital to risk-weighted assets of at least 4.5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, 6{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and 8{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, respectively. The rule also establishes a minimum leverage ratio of at least 4{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} Tier 1 capital to average consolidated assets. In addition to the above minimum requirements, the capital rule limits capital distributions and certain discretionary bonus payments if a banking organization does not hold a “capital conservation buffer” consisting of 2.5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement effectively increases the minimum required risk-based capital ratios to 7{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for common equity Tier 1 capital, 8.5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for Tier 1 capital and 10.5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for Total capital.

 

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, a bank’s assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes and residual interests), are multiplied by a risk weight factor assigned by the capital regulations based on the risk deemed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} is assigned to cash and U.S. government securities, a risk weight of 50{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} is generally assigned to prudently underwritten first lien one- to four-family residential mortgages, a risk weight of 100{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} is assigned to commercial and consumer loans, a risk weight of 150{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} is assigned to non-residential mortgage loans that are 90 days past due or otherwise on non-accrual status, and a risk weight of between 0{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} to 600{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} is assigned to permissible equity interests, depending on certain specified factors.

 

 

Under federal statute, the federal bank regulatory agencies are required to take “prompt corrective action” with respect to institutions that do not meet specified minimum capital requirements. For these purposes, the statute establishes five capital categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under the prompt corrective action regulations, in order to be considered well-capitalized, a bank must have a ratio of common equity Tier 1 capital to risk-weighted assets of 6.5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, a ratio of Tier 1 capital to risk-weighted assets of 8{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, a ratio of total capital to risk-weighted assets of 10{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, and a leverage ratio of 5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}. In order to be considered adequately capitalized, a bank must have the minimum capital ratios required by the regulatory capital rule described above. Institutions with lower capital ratios are assigned to lower capital categories. Based on safety and soundness concerns, a bank may be assigned to a lower capital category than would otherwise apply based on its capital ratios. A bank that is not well-capitalized is subject to certain restrictions on brokered deposits and interest rates on deposits. A bank that is not at least adequately capitalized is subject to numerous additional restrictions, and a guaranty by its holding company is required. A bank with a ratio of tangible equity to total assets of 2.0{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} or less is subject to the appointment of the FDIC as receiver if its capital level does not improve within 90 days.

 

As of December 31, 2020, the Bank was in compliance with all regulatory capital requirements and qualified as “well-capitalized” under the prompt corrective action regulations.

 

The Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in 2018, introduced an optional simplified measure of capital adequacy for qualifying community banking organizations with total consolidated assets of less than $10 billion by instructing the federal banking regulators to establish a single “Community Bank Leverage Ratio” (“CBLR”) of tangible equity capital divided by average consolidated assets of between 8 and 10 percent in satisfaction of any other leverage or capital requirements to which such organizations are subject.

 

The federal banking regulators jointly issued a final rule, effective January 1, 2020, which provided that a community banking organization with less than $10 billion in assets may elect to use the CBLR capital framework so long as the bank has a Tier 1 leverage ratio of greater than 9{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying banking organization that elects to use the CBLR will be deemed to satisfy the generally applicable leverage and risk-based regulatory capital requirements, will be considered to have met the well-capitalized ratio requirements under the prompt corrective action regulations, and will not be required to report or calculate risk-based capital. As of December 31, 2020, the Bank qualified to use the CBLR; however, it has elected not to opt into the CBLR framework.

 

Transactions with Related Parties

The Bank is subject to the Federal Reserve’s Regulation W, which implements the restrictions of Sections 23A and 23B of the Federal Reserve Act on transactions between a bank and its “affiliates.” The “affiliates” of the Bank, as defined in Regulation W, are the Company and its non-bank subsidiary. Section 23A and the implementing provisions of Regulation W generally place limits on the amount of a bank’s loans or extensions of credit to, investments in, or certain other transactions with its affiliates, and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Section 23B and Regulation W generally require a bank’s transactions with affiliates to be on terms substantially the same, or at least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies.

 

 

The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders and the related interests of those persons. Such extensions of credit must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not involve more than the normal risk of repayment or present other unfavorable features.

 

Community Reinvestment Act and Fair Lending Laws

All insured depository institutions have a responsibility under the Community Reinvestment Act of 1977 (the “CRA”) and the federal regulations thereunder to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. In connection with its examination of the Bank, the FDIC is required to assess the Bank’s record of meeting the credit needs of its entire community. The CRA requires the Bank’s record of compliance with the CRA to be taken into account in the evaluation of applications by the Bank or the Company for approval of an expansionary proposal, such as a merger or other acquisition of another bank or the opening of a new branch office. The Bank received a “satisfactory” rating in its most recent CRA assessment by the FDIC.

 

In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A failure to comply with the Equal Credit Opportunity Act or the Fair Housing Act, or the regulations thereunder, could result in enforcement actions by the FDIC or the Department of Justice.

 

Consumer Privacy and Other Consumer Protection Laws

The Bank is required under federal privacy statutes and regulations to maintain the privacy of its customers’ non-public, personal information. Such privacy requirements direct financial institutions to:

 

•         provide notice to customers regarding privacy policies and practices;

 

•         inform customers regarding the conditions under which their non-public personal information may be disclosed to non-affiliated third parties; and

 

•         give customers an option to prevent disclosure of such information to non-affiliated third parties.

 

Under the Fair and Accurate Credit Transactions Act of 2003, the Bank’s customers may also opt out of information sharing between and among the Bank and its affiliates.

 

 

The Bank’s lending and deposit-taking operations are subject to numerous other federal and state laws designed to protect consumers. The Consumer Financial Protection Bureau (“CFPB”) issues regulations and standards under the federal consumer protection laws, which include, among others, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Electronic Fund Transfer Act, the Truth in Savings Act, the Fair Credit Reporting Act, the National Flood Insurance Act, the Flood Protection Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair, deceptive or abusive acts or practices. The Bank’s consumer financial products and services are subject to examination by the FDIC for compliance with these and other CFPB regulations and standards.

 

Bank Secrecy Act / Anti-Money Laundering Laws

The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. These laws and regulations require each financial institution to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants.

 

Incentive Compensation

The federal banking agencies have issued guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

 

The federal banking agencies will review, as part of their examination process, the incentive compensation arrangements of depository institutions and their holding companies. The findings of the supervisory review will be included in reports of examination. Any deficiencies in compensation practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance also provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

 

The scope and content of the banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect the ability of the Bank and the Company to hire, retain and motivate their key employees.

 

 

Regulation of the Company

 

As a bank holding company under the Bank Holding Company Act, the Company is subject to regulation, supervision, and examination by the Federal Reserve. The Company is required to file semi-annual reports with the Federal Reserve and provide such additional information as the Federal Reserve may require. The Federal Reserve has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.

 

Regulatory Capital Requirements

The federal regulatory capital rules apply to all depository institutions as well as to bank holding companies with consolidated assets of $3 billion or more. The regulatory capital requirements generally do not apply on a consolidated basis to a bank holding company that is a small bank holding company, which is a holding company with total consolidated assets of less than $3 billion, unless it: (1) is engaged in significant nonbanking activities either directly or through a nonbank subsidiary; (2) conducts significant off-balance sheet activities (including securitization and asset management or administration) either directly or through a nonbank subsidiary; or (3) has a material amount of debt or equity securities outstanding (other than trust preferred securities) that are registered with the SEC. Since the Company’s common stock is registered with the SEC, it is not a small bank holding company, and the federal regulatory capital rules apply to the Company. The Federal Reserve may apply the regulatory capital standards at its discretion to any bank holding company, regardless of asset size, if such action is warranted for supervisory purposes.

 

Acquisitions

Under the Bank Holding Company Act, the Company is required to obtain the prior approval of the Federal Reserve to acquire ownership or control of more than 5{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the voting shares or substantially all of the assets of any bank holding company or bank or to merge or consolidate with another bank holding company. Federal law authorizes bank holding companies to make interstate acquisitions of banks without geographic limitation.

 

Permissible Activities

In general, the Bank Holding Company Act limits the activities of a bank holding company to those of banking, managing or controlling banks, or any other activity that the Federal Reserve has determined to be so closely related to banking or to managing or controlling banks that an exception is allowed for those activities. Bank holding companies that qualify and elect to be treated as “financial holding companies” may engage in a broad range of additional activities that are (i) financial in nature or incidental to such financial activities or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include securities underwriting and dealing, insurance agency and underwriting, and making merchant banking investments. The Company has not made an election to be treated as a financial holding company.

 

 

Source of Strength

Under the Bank Holding Company Act, a bank holding company is required to act as a source of financial and managerial strength for each of its subsidiary banks and to commit resources to support each subsidiary bank. Under this source of strength doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank. The Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices if it fails to commit resources to such a subsidiary bank or if it undertakes actions that the Federal Reserve believes might jeopardize its ability to commit resources to such subsidiary bank. A capital injection may be required at times when the holding company does not have the resources to provide it.

 

In addition, any loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, the bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations.

 

Dividends

The Company is a legal entity that is separate and distinct from its subsidiaries. The primary source of funds for dividends paid to the Company’s shareholders is dividends paid to the Company by the Bank.

 

Various federal and state laws limit the amount of dividends that the Bank may pay to the Company without regulatory approval. Under Mississippi law, the Bank must obtain the non-objection of the Commissioner of the MDBCF prior to paying any dividend on the Bank’s common stock. In addition, the Bank may not pay any dividends if, after paying the dividend, it would be undercapitalized under applicable capital requirements. Furthermore, if the Bank does not maintain the capital conservation buffer required by applicable regulatory capital rules, its ability to pay dividends to the Company would be limited. The FDIC also has the authority to prohibit the Bank from engaging in business practices that the FDIC considers to be unsafe or unsound, which, depending on the financial condition of the Bank, could include the payment of dividends.

 

The Company is subject to various restrictions relating to the payment of dividends. The Federal Reserve has issued guidance indicating that bank holding companies should generally pay dividends only if the company’s net income available to common shareholders over the preceding year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve’s guidance also states that a bank holding company should inform and consult with its regional Federal Reserve Bank in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure. The Federal Reserve has indicated that, in some instances, it may be appropriate for a bank holding company to eliminate its dividends.

 

 

Federal Securities Law

 

The Company’s common stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Company is subject to the periodic reporting and other requirements of the SEC under Section 12(g) of the Exchange Act and SEC regulations. The common stock of the Company is listed on the OTCQX Best Market, such listing subjecting the Company to compliance with the market’s requirements with respect to reporting and other rules and regulations.

 

 

SUPPLEMENTAL STATISTICAL INFORMATION

 

Schedules I-A through VII present certain statistical information regarding the Company. This information is not audited and should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements found in Item 8 of this Annual Report on Form 10-K.

 

Distribution of Assets, Liabilities and Shareholders’ Equity and Interest Rates and Differentials

Net Interest Income, the difference between Interest Income and Interest Expense, is the most significant component of the Company’s earnings. For interest analytical purposes, Management adjusts Net Interest Income to a “taxable equivalent” basis using a Federal Income Tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} in 2020, 2019 and 2018 on tax-exempt items (primarily interest on municipal securities).

 

Another significant statistic in the analysis of Net Interest Income is the net yield on earning assets. The net yield is the difference between the rate of interest earned on earning assets and the effective rate paid for all funds, non-interest bearing as well as interest bearing. Since a portion of the Bank’s deposits do not bear interest, such as demand deposits, the rate paid for all funds is lower than the rate on interest bearing liabilities alone.

 

Recognizing the importance of interest differential to total earnings, management places great emphasis on managing interest rate spreads. Although interest differential is affected by national, regional and local economic conditions, including the level of credit demand and interest rates, there are significant opportunities to influence interest differential through appropriate loan and investment policies which are designed to maximize the differential while maintaining sufficient liquidity and availability of incremental funds for purposes of meeting existing commitments and investment in lending and investment opportunities that may arise.

 

The information included in Schedule I-F presents the change in interest income and interest expense along with the reason(s) for these changes. The change attributable to volume is computed as the change in volume times the old rate. The change attributable to rate is computed as the change in rate times the old volume. The change in rate/volume is computed as the change in rate times the change in volume.

 

 

Credit Risk Management and Loan Loss Experience

In the normal course of business, the Bank assumes risks in extending credit. The Bank manages these risks through its lending policies, credit underwriting analysis, appraisal requirements, concentration and exposure limits, loan review procedures and the diversification of its loan portfolio. Although it is not possible to predict loan losses with complete accuracy, Management constantly reviews the characteristics of the loan portfolio to determine its overall risk profile and quality.

 

Constant attention to the quality of the loan portfolio is achieved by the loan review process. Throughout this ongoing process, Management is advised of the condition of individual loans and of the quality profile of the entire loan portfolio. Any loan or portion thereof which is classified “loss” by regulatory examiners or which is determined by Management to be uncollectible because of such factors as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged-off.

 

Provisions are charged to operating expense based upon historical loss experience, and additional amounts are provided when, in the opinion of Management, such provisions are not adequate based upon the current factors affecting loan collectability.

 

The allocation of the allowance for loan losses by loan category is based on the factors mentioned in the preceding paragraphs. Accordingly, since all of these factors are subject to change, the allocation is not necessarily indicative of the breakdown of future losses. In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-03, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology with a methodology that reflects all current expected credit losses (“CECL”) and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-13 was originally to become effective for the Company for interim and annual periods beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates. ASU 2019-10 amends the effective date for certain entities, including the Company, for ASU 2016-13, which is now effective for the Company in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of this ASU could materially affect its allowance for loan loss methodology, including the calculation of its provision for loan losses. For additional details regarding the pending adoption of this accounting pronouncement, see Note A – Business and Summary of Significant Accounting Policies included in Part II. Item 8. – Financial Statements and Supplementary Data of this report.

 

Further information concerning the provision for loan losses and the allowance for loan losses is presented in “Management’s Discussion and Analysis” in Item 7 of this Annual Report on Form 10-K and in “Note A – Business and Summary of Significant Accounting Policies” to the 2020 Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

 

Return on Equity and Assets

The Company’s results and key ratios for 2016 – 2020 are summarized in the “Selected Financial Data” in Item 6 and “Management’s Discussion and Analysis” in Item 7 of this Annual Report on Form 10-K.

 

Dividends

The Company paid a cash dividend of $.02, $.03 and $.02 per share for the years ended December 31, 2020, 2019 and 2018, respectively.

 

 

SCHEDULE I-A

Distribution of Average Assets, Liabilities and Shareholders’ Equity (1) (In thousands)

 

For the Years Ended December 31,		2020				2019				2018
ASSETS:
Cash and due from banks		$	26,975			$	21,571			$	23,113
Available for sale securities:
Taxable securities			193,627				206,231				220,076
Non-taxable securities			6,426				8,953				13,055
Other securities			2,153				2,096				1,519
Held to maturity securities:
Taxable securities			42,648				37,987				33,864
Non-taxable securities			15,985				16,460				18,208
Other investments			2,593				2,644				2,811
Net loans (2)			276,865				262,259				268,019
Balances due from depository institutions			56,103				15,404				9,498
Other assets			45,004				49,314				51,114
TOTAL ASSETS		$	668,379			$	622,919			$	641,277
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Non-interest bearing deposits		$	151,729			$	121,829			$	121,055
Interest bearing deposits			397,071				378,758				401,365
Total deposits			548,800				500,587				522,420
Other liabilities			22,545				30,778				33,731
Total liabilities			571,345				531,365				556,151
Shareholders’ equity			97,034				91,554				85,126
TOTAL LIABILITIES AND SHARE- HOLDERS’ EQUITY		$	668,379			$	622,919			$	641,277

 

(1) All averages are computed on a daily basis.

(2) Gross loans and discounts, net of unearned income and allowance for loan losses.

 

 

SCHEDULE I-B

Average (1) Amount Outstanding for Major Categories of Interest Earning Assets

And Interest Bearing Liabilities (In thousands)

 

For the Years Ended December 31,		2020				2019				2018
INTEREST EARNING ASSETS:
Loans (2)		$	281,225			$	267,263			$	273,724
Balances due from depository institutions			56,103				15,404				9,498
Available for sale securities:
Taxable securities			193,627				206,231				220,076
Non-taxable securities			6,426				8,953				13,055
Other securities			2,153				2,096				1,519
Held to maturity securities:
Taxable securities			42,468				37,987				33,864
Non-taxable securities			15,985				16,460				18,208
TOTAL INTEREST EARNING ASSETS		$	597,987			$	554,394			$	569,944
INTEREST BEARING LIABILITIES:
Savings and negotiable interest bearing deposits		$	324,289			$	291,152			$	317,197
Time deposits			72,782				87,606				84,168
Federal funds purchased											369
Borrowings from FHLB			1,660				10,242				13,044
TOTAL INTEREST BEARING LIABILITIES		$	398,731			$	389,000			$	414,778

 

(1) All averages are computed on a daily basis.

(2) Net of unearned income. Includes nonaccrual loans

 

 

SCHEDULE I-C

Interest Earned or Paid on Major Categories of Interest Earning Assets

And Interest Bearing Liabilities (In thousands)

 

For the Years Ended December 31,		2020				2019				2018
INTEREST EARNED ON:
Loans		$	13,076			$	13,812			$	13,265
Balances due from depository institutions			227				346				205
Available for sale securities:
Taxable securities			4,140				4,788				4,349
Non-taxable securities			240				422				608
Other securities			27				71				22
Held to maturity securities:
Taxable securities			1,235				1,141				970
Non-taxable securities			525				551				580
TOTAL INTEREST EARNED (1)		$	19,470			$	21,131			$	19,999
INTEREST PAID ON:
Savings and negotiable interest bearing deposits		$	833			$	1,662			$	1,468
Time deposits			716				1,336				886
Federal funds purchased											10
Other borrowed funds			32				248				294
TOTAL INTEREST PAID		$	1,581			$	3,246			$	2,658

 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020, 2019 and 2018. See disclosure of non-GAAP financial measures on pages 36 and 37.

 

 

SCHEDULE I-D

Average Interest Rate Earned or Paid for Major Categories of

Interest Earning Assets And Interest Bearing Liabilities

 

For the Years Ended December 31,		2020				2019				2018
AVERAGE RATE EARNED ON:
Loans			4.65	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			5.17	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			4.85	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Balances due from depository institutions			.40	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.16	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Available for sale securities:
Taxable securities			2.14	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.32	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			1.98	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Non-taxable securities			3.74	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			4.71	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			4.66	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Other securities			1.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.39	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			1.45	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Held to maturity securities:
Taxable securities			2.90	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.00	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.86	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Non-taxable securities			3.28	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.35	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.19	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
TOTAL (weighted average rate)(1)			3.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.81	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.51	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
AVERAGE RATE PAID ON:
Savings and negotiable interest bearing deposits			.26	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			.57	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			.46	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Time deposits			.98	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			1.53	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			1.05	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Federal funds purchased											2.71	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Other borrowed funds			1.93	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.42	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
TOTAL (weighted average rate)			.40	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			.83	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			.64	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020, 2019 and 2018. See disclosure of non-GAAP financial measures on pages 36 and 37.

 

 

SCHEDULE I-E

Net Interest Earnings and Net Yield on Interest Earning Assets

(In thousands, except percentages)

 

For the Years Ended December 31,		2020				2019				2018
Total interest income (1)		$	19,470			$	21,131			$	19,999
Total interest expense			1,581				3,246				2,658
Net interest earnings		$	17,889			$	17,885			$	17,341
Net yield on interest earning assets			2.99	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.23	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.04	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020, 2019 and 2018. See disclosure of non-GAAP financial measures on pages 36 and 37.

 

 

SCHEDULE I-F

Analysis of Changes in Interest Income and Interest Expense

(In thousands)

 

For the Years Ended December 31,		2020				2019				Increase (Decrease)				Volume				Rate				Rate/Volume
INTEREST EARNED ON:
Loans (1)		$	13,076			$	13,812			$	(736	)		$	722			$	(1,385	)		$	(73	)
Balances due from depository institutions			227				346				(119	)			914				(284	)			(749	)
Available for sale securities:
Taxable securities			4,140				4,788				(648	)			(293	)			(378	)			23
Non-taxable securities			240				422				(182	)			(119	)			(88	)			25
Other securities			27				71				(44	)			2				(45	)			(1	)
Held to maturity securities:
Taxable securities			1,235				1,141				94				140				(41	)			(5	)
Non-taxable securities			525				551				(26	)			(16	)			(10	)
TOTAL INTEREST EARNED (2)		$	19,470			$	21,131			$	(1,661	)		$	1,350			$	(2,231	)		$	(780	)
INTEREST PAID ON:
Savings and negotiable interest bearing deposits		$	833			$	1,662			$	(829	)		$	189			$	(914	)		$	(104	)
Time deposits			716				1,336				(620	)			(226	)			(474	)			80
Federal funds purchased
Other borrowed funds			32				248				(216	)			(208	)			(51	)			43
TOTAL INTEREST PAID		$	1,581			$	3,246			$	(1,665	)		$	(245	)		$	(1,439	)		$	19

 

(1) Loan fees of $814 and $304 for 2020 and 2019, respectively, are included in these figures. Of the loan fees recognized in 2020, $448 were related to PPP loans.

(2) All interest earned is reported on a taxable equivalent basis using a tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020 and 2019. See disclosure of non-GAAP financial measures on pages 36 and 37.

 

 

SCHEDULE I-F (continued)

Analysis of Changes in Interest Income and Interest Expense

(In thousands)

 

										Increase
For the Years Ended December 31,		2019				2018				(Decrease)				Volume				Rate				Rate/Volume
INTEREST EARNED ON:
Loans (1)		$	13,812			$	13,265			$	547			$	(313	)		$	881			$	(21	)
Balances due from depository institutions			346				205				141				128				8				5
Available for sale securities:
Taxable securities			4,788				4,349				439				(273	)			760				(48	)
Non-taxable securities			422				608				(186	)			(191	)			7				(2	)
Other securities			71				22				49				8				30				11
Held to maturity securities:
Taxable securities			1,141				970				171				118				47				6
Non-taxable securities			551				580				(29	)			(56	)			30				(3	)
TOTAL INTEREST EARNED (2)		$	21,131			$	19,999			$	1,132			$	(579	)		$	1,763			$	(52	)
INTEREST PAID ON:
Savings and negotiable interest bearing deposits		$	1,662			$	1,468			$	194			$	(121	)		$	343			$	(28	)
Time deposits			1,336				886				450				36				398				16
Federal funds purchased							10				(10	)			(10	)
Other borrowed funds			248				294				(46	)			(63	)			22				(5	)
TOTAL INTEREST PAID		$	3,246			$	2,658			$	588			$	(158	)		$	763			$	(17	)

 

(1) Loan fees of $310 and $338 for 2018 and 2017, respectively, are included in these figures.

(2) All interest earned is reported on a taxable equivalent basis using a tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 and 2018. See disclosure of non-GAAP financial measures on pages 36 and 37.

 

 

SCHEDULE II-A

Book Value of Securities Portfolio

(In thousands)

 

December 31,		2020				2019				2018
Available for sale securities:
U.S. Treasuries, U.S. Government agencies, Mortgage-backed securities and Collateralized Mortgage Obligations		$	140,820			$	189,864			$	211,014
States and political subdivisions			39,310				6,447				11,096
Total		$	180,130			$	196,311			$	222,110
Held to maturity securities:
U.S. Government Agencies		$				$	5,000			$	8,185
States and political subdivisions			75,688				47,231				46,413
Total		$	75,688			$	52,231			$	54,598

 

 

SCHEDULE II-B

Maturity of Securities Portfolio at December 31, 2020

And Weighted Average Yields of Such Securities

(In thousands, except percentage data)

 

		Maturity
										After one year but within five years								After five years but within ten years								After ten years
		Within one year
December 31, 2020		Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield
Available for sale securities:
U.S. Treasuries, U.S. Government agencies, Mortgage-backed securities and Collateralized Mortgage Obligations		$	20,124				1.26	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	1,306				2.22	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	54,323				2.40	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	65,067				2.23	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
States and political subdivisions			245				4.76	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			1,506				3.89	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2,636				1.86	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			34,923				1.78	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Total		$	20,369				1.41	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	2,812				3.33	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	56,959				2.38	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	99,990				1.56	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Held to maturity securities:
States and political subdivisions		$	2,278				2.77	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	19,822				2.87	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	18,466				2.94	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	35,122				2.46	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Total		$	2,278				2.77	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	19,822				2.87	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	18,466				2.94	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	35,122				2.46	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

Note: The weighted average yields are calculated on the basis of cost. Average yields on investments in states and political subdivisions are based on their contractual yield. Available for sale securities are stated at fair value and held to maturity securities are stated at amortized cost.

 

 

SCHEDULE III-A

Loan Portfolio

Loans by Type Outstanding (1) (In thousands)

 

December 31,		2020				2019				2018				2017				2016
Real estate, construction		$	26,609			$	26,188			$	34,229			$	32,211			$	32,794
Real estate, mortgage			202,468				198,907				197,113				206,528				226,157
Loans to finance agricultural production							92
Commercial and industrial			43,500				37,340				35,076				35,174				48,361
Loans to individuals for household, family and other consumer expenditures			4,404				5,254				5,694				5,310				6,264
Obligations of states and political subdivisions			1,406				1,006				956				839				1,646
All other loans			34				162				278				387				133
Total		$	278,421			$	268,949			$	273,346			$	280,449			$	315,355

 

(1) No foreign debt outstanding.

 

 

SCHEDULE III-B

Maturities and Sensitivity to Changes in

Interest Rates of the Loan Portfolio as of December 31, 2020

(In thousands)

 

		Maturity
December 31, 2020		One year or less				Over one year through 5 years				Over 5 years				Total
Real estate, construction		$	6,545			$	17,627			$	2,437			$	26,609
Real estate, mortgage			11,853				65,602				125,013				202,468
Commercial and industrial			14,570				23,617				5,313				43,500
Loans to individuals for household, family and other consumer expenditures			1,387				2,592				425				4,404
Obligations of states and political subdivisions			478				810				118				1,406
All other loans							34								34
Total		$	34,833			$	110,282			$	133,306			$	278,421
Loans with pre-determined interest rates		$	32,361			$	93,270			$	103,656			$	229,287
Loans with floating interest rates			2,472				17,012				29,650				49,134
Total		$	34,833			$	110,282			$	133,306			$	278,421

 

 

SCHEDULE III-C

Non-Performing Loans (In thousands)

 

December 31,		2020				2019				2018				2017				2016
Loans accounted for on a nonaccrual basis (1)		$	3,027			$	9,266			$	8,250			$	13,810			$	11,854
Loans which are contractually past due 90 or more days as to interest or principal payment, but are not included above											55

 

(1) The Bank places loans on a nonaccrual status when, in the opinion of Management, they possess sufficient uncertainty as to timely collection of interest or principal so as to preclude the recognition in reported earnings of some or all of the contractual interest. See “Note A – Business and Summary of Significant Accounting Policies” and “Note C – Loans” to the 2020 Consolidated Financial Statements in Item 8 in this Annual Report on Form 10-K for discussion of impaired loans.

 

 

SCHEDULE IV-A

Summary of Loan Loss Expenses

(In thousands, except percentage data)

 

December 31,		2020				2019				2018				2017				2016
Average amount of loans outstanding (1)(2)		$	281,225			$	267,263			$	273,724			$	290,329			$	327,819
Balance of allowance for loan losses at beginning of period		$	4,207			$	5,340			$	6,153			$	5,466			$	8,070
Loans charged-off:
Commercial, financial and agricultural			261				591				372				36				509
Consumer and other			5,716				737				1,038				243				3,013
Total loans charged-off			5,977				1,328				1,410				279				3,522
Recoveries of loans:
Commercial, financial and agricultural			34				55				112				11				62
Consumer and other			160				140				363				839				288
Total recoveries			194				195				475				850				350
Net loans charged-off (recovered)			5,783				1,133				935				(571	)			3,172
Provision for loan losses charged to operating expense			6,002								122				116				568
Balance of allowance for loan losses at end of period		$	4,426			$	4,207			$	5,340			$	6,153			$	5,466
Ratio of net charge-offs during period to average loans outstanding			2.06	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.42	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.34	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			(.20{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}	)			0.97	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

(1) Net of unearned income.

(2) Includes nonaccrual loans.

 

 

SCHEDULE IV-B

Allocation of the Allowance for Loan Losses

(In thousands except percentage data)

 

		2020								2019								2018								2017								2016
						{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of								{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of								{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of								{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of								{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of
						Loans to								Loans to								Loans to								Loans to								Loans to
						Total								Total								Total								Total								Total
December 31,		Amount				Loans				Amount				Loans				Amount				Loans				Amount				Loans				Amount				Loans
Real estate, construction		$	111				9			$	102				9			$	428				12			$	242				11			$	262				10
Real estate, mortgage			3,727				72				3,457				73				4,181				72				4,574				73				4,150				71
Loans to finance agricultural production															1
Commercial and industrial			479				16				553				13				599				12				1,161				12				850				15
Loans to individuals for household, family and other consumer expenditures			104				2				91				2				128				2				174				2				200				2
Obligations of states and political subdivisions			1								1				1				1				1				1				1								1
All other loans			4				1				3				1				3				1				1				1				4				1
Total		$	4,426				100			$	4,207				100			$	5,340				100			$	6,153				100			$	5,466				100

 

 

SCHEDULE V

Summary of Average Deposits and Their Yields

(In thousands, except percentage data)

 

		2020								2019								2018
Years Ended December 31,		Amount				Rate				Amount				Rate				Amount				Rate
Demand deposits in domestic offices		$	151,729				N/A			$	121,829				N/A			$	121,055				N/A
Negotiable interest bearing deposits in domestic offices			255,700				.31	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			230,492				.69	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			257,750				.55	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Savings deposits in domestic offices			68,589				.06	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			60,660				.13	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			59,447				.09	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Time deposits in domestic offices			72,782				.98	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			87,606				1.53	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			84,168				1.05	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Total		$	548,800				.61	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	500,587				1.05	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	522,420				.73	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

Certificates of deposit in amounts of $100,000 or more by the amount of time remaining until maturity as of December 31, 2020, are as follows (in thousands):

 

Remaining maturity:
3 months or less		$	16,108
Over 3 months through 6 months			4,885
Over 6 months through 12 months			6,902
Over 12 months			10,686
Total		$	38,581

 

 

SCHEDULE VI

Short Term Borrowings

(In thousands, except percentage data)

 

			2020				2019				2018
Balance, December 31,			$				$	2,500			$	35,000
Weighted average interest rate at December 31,				N/A				2.07	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.65	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Maximum outstanding at any month-end during year			$	54,000			$	26,064			$	35,000
Average amount outstanding during year			$	1,660			$	10,242			$	13,044
Weighted average interest rate				1.93	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.42	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2.27	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

Note: Short term borrowings include federal funds purchased from other banks and short term borrowings from the Federal Home Loan Bank.

 

 

SCHEDULE VII

Interest Sensitivity/Gap Analysis

(In thousands)

 

 

December 31, 2020:		0 – 3 Months				4 – 12 Months				1 – 5 Years				Over 5 Years				Total
ASSETS:
Loans (1)		$	56,591			$	24,272			$	92,830			$	101,701			$	275,394
Available for sale securities							20,369				2,812				156,949				180,130
Held to maturity securities			730				1,548				19,822				53,588				75,688
Totals		$	57,321			$	46,189			$	115,464			$	312,238			$	531,212
FUNDING SOURCES:
Interest bearing deposits		$	340,408			$	21,399			$	18,422							$	380,229
Borrowings from FHLB			15				44				252				658				969
Totals		$	340,423			$	21,443			$	18,674			$	658			$	381,198
REPRICING/MATURITY GAP:
Period		$	(283,102	)		$	24,746			$	96,790			$	311,580
Cumulative			(283,102	)			(258,356	)			(161,566	)			150,014
Cumulative Gap/Total Assets			(42	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3})			(39	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3})			(24	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3})			22	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

(1) Amounts stated include fixed and variable rate loans that are still accruing interest. Variable rate loans are included in the next period in which they are subject to a change in rate. The principal portions of scheduled payments on fixed instruments are included in the period in which they become due or mature.

 

Capital Resources

Information about the Company’s capital resources is included in “Note J – Shareholders’ Equity” to the 2020 Consolidated Financial Statements in this Annual Report on Form 10-K.

 

 

ITEM 1A – RISK FACTORS

 

As a smaller reporting company, the Company is not required to provide this information.

 

 

ITEM 1B – UNRESOLVED STAFF COMMENTS

 

None.

 

 

ITEM 2 – PROPERTIES

 

The principal properties of the Company are its 18 business locations, including the Main Office, which is located at 152 Lameuse Street in Biloxi, MS, 39530. The Armed Forces Retirement Home (“AFRH”) Branch located at 1800 Beach Drive, Gulfport, MS 39507, is located in space provided by the AFRH. The Keesler Branch located at 1507 Meadows Drive, Keesler AFB, MS 39534, is rented from the Department of Defense. All other branch locations are owned by the Company. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future. The addresses of the other branch locations are:

 

Bay St. Louis Office	408 Highway 90 East, Bay St. Louis, MS 39520
Cedar Lake Office	1740 Popps Ferry Road, Biloxi, MS 39532
Diamondhead Office	5429 West Aloha Drive, Diamondhead, MS 39525
D’Iberville-St. Martin Office	10491 Lemoyne Boulevard, D’Iberville, MS 39540
Downtown Gulfport Office	1105 30th Avenue, Gulfport, MS 39501
Gautier Office	2609 Highway 90, Gautier, MS 39553
Handsboro Office	0412 E. Pass Road, Gulfport, MS 39507
Long Beach Office	298 Jeff Davis Avenue, Long Beach, MS 39560
Ocean Springs Office	2015 Bienville Boulevard, Ocean Springs, MS 39564
Orange Grove Office	12020 Highway 49 North, Gulfport, MS 39503
Pass Christian Office	301 East Second Street, Pass Christian, MS 39571
Saucier Office	17689 Second Street, Saucier, MS 39574
Waveland Office	470 Highway 90, Waveland, MS 39576
West Biloxi Office	2560 Pass Road, Biloxi, MS 39531
Wiggins Office	1312 S. Magnolia Drive, Wiggins, MS 39577

 

 

ITEM 3 – LEGAL PROCEEDINGS

 

Information relating to legal proceedings is included in Note M – Contingencies to the 2020 Consolidated Financial Statements which is in Item 8 in this Annual Report on Form 10-K.

 

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5 – MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Dividends to the Company’s shareholders can generally be paid only from dividends paid to the Company by the Bank. Consequently, dividends are dependent upon the earnings, capital needs, regulatory policies and statutory limitations affecting the Bank. The Company and the Bank may not declare or pay any cash dividends without prior written approval of their regulators.

 

At March 19, 2021, there were 391 holders of the common stock of the Company, which does not reflect persons or entities that hold the common stock in nominee or “street” name through various brokerage firms. At March 19, 2021, there were 4,878,557 shares of common stock issued and outstanding.

 

On November 8, 2019, the Board approved the repurchase of up to 65,000 of the outstanding shares of the Company’s common stock. During 2020, 64,629 shares were repurchased under the plan.

 

The Company’s common stock is traded under the symbol PFBX on the OTCQX Best Market (“OTCQX”).

 

Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

 

ITEM 6 – SELECTED FINANCIAL DATA

 

		2020				2019				2018				2017				2016
Selected Ratios
Return on average assets			(.43{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}	)			0.28	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.10	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.41	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.02	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Return on average equity			(2.90{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}	)			1.84	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.73	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			3.08	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			0.19	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Primary capital to average assets			15.62	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			16.27	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			14.43	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			14.34	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			13.99	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Risk-based capital ratios:
Tier 1			21.19	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			25.08	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			24.05	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			23.87	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			21.69	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Total			23.00	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			26.22	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			25.30	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			25.12	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			22.94	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

 

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. The following presents Management’s discussion and analysis of the consolidated financial condition and results of operations of the Company and its consolidated subsidiaries for the years ended December 31, 2020, 2019 and 2018. These comments highlight the significant events for these years and should be considered in combination with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this annual report.

 

 

FORWARD-LOOKING INFORMATION

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

 

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) issued new accounting standards updates in 2020, which have been disclosed in Note A to the Consolidated Financial Statements. The Company does not expect that these updates discussed in the Notes will have a material impact on its financial position, results of operations or cash flows. The Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) and Accounting Standards Update 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, that Clarifies the Guidance in ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10), effective January 1, 2018, neither of which had a material effect on its financial position, results of operations or cash flows. Further disclosure relating to these efforts is included in Note A.

 

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and assumptions on an on-going basis using historical experience and other factors, including the current economic environment. We adjust such estimates and assumptions when facts and circumstances dictate. Certain critical accounting policies affect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

 

Investments

Investments which are classified as available for sale are stated at fair value. A decline in the market value of an investment below cost that is deemed to be other-than-temporary is charged to earnings for the decline in value deemed to be credit related and a new cost basis in the security is established. The decline in value attributed to non-credit related factors is recognized in other comprehensive income. The determination of the fair value of securities may require Management to develop estimates and assumptions regarding the amount and timing of cash flows.

 

 

Allowance for Loan Losses

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

 

Other Real Estate

Other real estate (“ORE”) includes real estate acquired through foreclosure. Each other real estate property is carried at fair value, less estimated costs to sell. Fair value is principally based on appraisals performed by third-party valuation specialists. If Management determines that the fair value of a property has decreased subsequent to foreclosure, the Company records a write-down which is included in non-interest expense.

 

Employee Benefit Plans

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

 

 

Income Taxes

GAAP requires the asset and liability approach for financial accounting and reporting for deferred income taxes. We use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences. See Note I to the Consolidated Financial Statements for additional details. As part of the process of preparing our consolidated financial statements, the Company is required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as the provision for the allowance for loan losses, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities that are included in our consolidated statement of condition. We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. To the extent the Company establishes a valuation allowance or adjusts this allowance in a period, we must include an expense within the tax provision in the consolidated statement of income.

 

GAAP Reconciliation and Explanation

This report contains non-GAAP financial measures determined by methods other than in accordance with GAAP. Such non-GAAP financial measures include taxable equivalent interest income and taxable equivalent net interest income. Management uses these non-GAAP financial measures because it believes they are useful for evaluating our operations and performance over periods of time, as well as in managing and evaluating our business and in discussions about our operations and performance. Management believes these non-GAAP financial measures provide users of our financial information with a meaningful measure for assessing our financial results, as well as comparison to financial results for prior periods. These non-GAAP financial measures should not be considered as a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled financial measures used by other companies. A reconciliation of these operating performance measures to GAAP performance measures for the years ended December 31, 2020, 2019 and 2018 is included in the table on the following page.

 

 

RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES

(in thousands)

 

Years Ended December 31,		2020				2019				2018
Interest income reconciliation:
Interest income – taxable equivalent		$	19,470			$	21,131			$	19,999
Taxable equivalent adjustment			(162	)			(203	)			(249	)
Interest income (GAAP)		$	19,308			$	20,928			$	19,750
Net interest income reconciliation:
Net interest income – taxable equivalent		$	17,889			$	17,885			$	17,341
Taxable equivalent adjustment			(162	)			(203	)			(249	)
Net interest income (GAAP)		$	17,727			$	17,682			$	17,092

 

OVERVIEW

 

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

 

The World Health Organization declared the coronavirus COVID-19 (“COVID-19”) a pandemic in March 2020. The pandemic has resulted in, among other things, a significant stock and global markets volatility, disruption in business, leisure and tourism activities as nation-wide stay-at-home orders were mandated, significant strain on the health care industry as it addressed the severity of the health crisis and significant impact on the general economy including high unemployment, a 150 basis point decline in Federal funds rates and unprecedented government stimulus programs.

 

The Company has been proactive in ensuring the safety and health of its employees and customers during the pandemic. These steps include limiting access to branch lobbies as appropriate, installing germ shields in branch lobbies, allowing staff to work remotely, limiting in person meetings and endorsing the usage of face coverings by staff and customers. The Company is following guidance from the Centers for Disease Control and state and local orders.

 

Assisting our customers during the pandemic is a priority. The Company has granted modifications by extending payments 90 days to certain customers as a result of the economic challenges of business closures and unemployment resulting from COVID-19. We are also actively participating in the Paycheck Protection Program (“PPP”), a specific stimulus resource designed to provide assistance to small businesses.

 

 

The Company reported a net loss of $2,751,000 for 2020 compared with net income of $1,679,000 and $629,000 for 2019 and 2018, respectively. Results in 2020 included an increase in the provision for loan losses which was partially offset by an increase in non-interest income and a decrease in non-interest expense as compared with 2019. Results in 2019 included an increase in net interest income, a reduction in the provision for loan losses, an increase in non-interest income and a decrease in non-interest expense as compared with 2018.

 

Managing the net interest margin is a key component of the Company’s earnings strategy. The Federal Reserve reduced rates by 75 basis points during the second half of 2019 as a result of global issues and slowing growth. In March 2020, the Federal Reserve reduced rates by 150 basis points in two emergency moves to respond to the unprecedented economic disruptions of the COVID-19 pandemic. As a result of these reductions, in 2020 total interest income decreased $1,620,000 and total interest expense decreased $1,665,000 as compared with 2019. In 2019, interest income increased $1,178,000 and total interest expense increased $588,000 as compared with 2018.

 

Monitoring asset quality, estimating potential losses in our loan portfolio and addressing non-performing loans continue to be a major focus of the Company. The Company is working diligently to address and reduce its non-performing assets. The Company’s nonaccrual loans decreased during 2020 to $3,027,000 at December 31, 2020 from $9,266,000 at December 31, 2019. Despite this positive trend, a provision for the allowance for loan losses of $6,002,000 was recorded in 2020 as compared with no provision in 2019. The increase in 2020, which is non-COVID-19 related, is primarily the result of specific events impacting one credit.

 

Non-interest income increased $716,000 in 2020 as compared with 2019 results. Results for 2020 included non-recurring gains on sales and calls of securities of $539,000, a gain from the redemption of death benefits on bank owned life insurance of $224,000 and a gain from the sale of banking house of $318,000 as well as a decrease in service charges on deposit accounts of $354,000 as compared with 2019. Results for 2019 included an increase in service charges on deposit accounts of $65,000 and a gain from the sale of securities of $147,000 as compared with 2018.

 

Non-interest expense decreased $811,000 in 2020 as compared with 2019 and decreased $110,000 for 2019 as compared with 2018. The decrease in 2020 was primarily the result of the decrease in salaries and employee benefits of $334,000, net occupancy of $322,000 and other expense of $258,000 as compared with 2019. The decrease in 2019 was primarily the result of reduced costs of salaries and employee benefits.

 

Total assets at December 31, 2020 increased $73,324,000 as compared with December 31, 2019.

 

 

Total deposits increased $74,355,000 primarily as governmental entities’ balances increased due to tax collections and some customers maintained their PPP loan proceeds in their deposit accounts. This increase in deposits funded an increase in cash and due from banks of $62,118,000, an increase in available for sale and held to maturity investments of $7,276,000 and the $9,472,000 increase in loans.

 

RESULTS OF OPERATIONS

 

Net Interest Income

Net interest income, the amount by which interest income on loans, investments and other interest-earning assets exceeds interest expense on deposits and other borrowed funds, is the single largest component of the Company’s income. Management’s objective is to provide the largest possible amount of income while balancing interest rate, credit, liquidity and capital risk. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities combined with changes in market rates of interest directly affect net interest income.

 

2020 as compared with 2019

The Company’s average interest-earning assets increased approximately $43,772,000, or 8{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, from approximately $554,394,000 for 2019 to approximately $598,166,000 for 2020. Average balances due from depository institutions increased $40,699,000 as an increase in deposits and proceeds from sales, calls and maturities of securities were held in balances due to depository institutions, primarily at the Federal Reserve Bank, as the Company managed its liquidity position. Average loans increased approximately $13,962,000 due to new loans, primarily as part of the PPP, exceeding principal payments, maturities, charge-offs and foreclosures on existing loans. Average taxable available for sale securities decreased approximately $12,605,000 as maturities, sales and calls of these securities exceeded investment purchases. The average yield on interest-earning assets was 3.81{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 compared with 3.25{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020. The yield on average loans decreased from 5.17{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 to 4.65{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020 as a result of the decrease in prime rate during 2019 and 2020 on the Company’s floating rate loans.

 

Average interest-bearing liabilities increased approximately $9,731,000, or 3{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, from approximately $389,000,000 for 2019 to approximately $398,731,000 for 2020. Average savings and interest-bearing DDA balances increased approximately $33,137,000 primarily as several large public fund customers maintained higher balances with the bank subsidiary in 2020 and some of the PPP loan proceeds were deposited and maintained in customers’ accounts. Average time deposits decreased approximately $14,824,000 as some customers invested their matured time deposit proceeds in savings and interest bearing DDA deposits. The average rate paid on interest-bearing liabilities decreased 43 basis points, from .83{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 to .40{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020. This decrease was the result of decreased rates in 2019 and 2020.

 

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.23{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 as compared with 2.99{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2020.

 

 

2019 as compared with 2018

The Company’s average interest-earning assets decreased approximately $15,550,000, or 3{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, from approximately $569,944,000 for 2018 to approximately $554,394,000 for 2019. Average loans decreased approximately $6,461,000 due to principal payments, maturities, charge-offs and foreclosures on existing loans significantly exceeding new loans. Average taxable available for sale securities decreased approximately $13,845,000 and average nontaxable available for sale securities decreased approximately $4,102,000 as maturities of these securities funded the decrease in average savings and interest bearing DDA deposits. The average yield on interest-earning assets was 3.51{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2018 compared with 3.81{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019. The yield on average loans increased from 4.85{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2018 to 5.17{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 as a result of the increase in prime rate during 2018 on the Company’s floating rate loans as well as the recovery of previously charged-off interest on loans. The yield on taxable available for sale securities increased from 1.98{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2018 to 2.32{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019 as the Company changed its investment strategy to improve yield while not compromising duration and credit risk.

 

Average interest-bearing liabilities decreased approximately $25,778,000, or 6{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, from approximately $414,778,000 for 2018 to approximately $389,000,000 for 2019. Average savings and interest-bearing DDA balances decreased approximately $26,045,000 primarily as several large commercial customers relocated their funds to other institutions. The average rate paid on interest-bearing liabilities increased 19 basis points, from .64{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2018 to .83{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019. This increase was the result of increased rates in 2018 and 2019.

 

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.04{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2018 as compared with 3.23{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} for 2019.

 

 

The tables below analyze the changes in tax-equivalent net interest income for the years ended December 31, 2020, 2019 and 2018.

 

ANALYSIS OF AVERAGE BALANCES, INTEREST EARNED/PAID AND YIELD

(in thousands)

 

		2020												2019												2018
		Average				Interest								Average				Interest								Average				Interest
		Balance				Earned/Paid				Rate				Balance				Earned/Paid				Rate				Balance				Earned/Paid				Rate
Loans (1)(2)		$	281,225			$	13,076				4.65	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	267,263			$	13,812				5.17	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	273,724			$	13,265				4.85	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Balances due from depository institutions			56,103				227				0.40	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			15,404				346				2.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			9,498				205				2.16	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Held to maturity:
Taxable			42,649				1,235				2.90	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			37,987				1,141				3.00	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			33,864				970				2.86	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Non taxable (3)			15,985				525				3.28	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			16,460				551				3.35	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			18,208				580				3.19	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Available for sale:
Taxable			193,626				4,140				2.14	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			206,231				4,788				2.32	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			220,076				4,349				1.98	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Non taxable (3)			6,425				240				3.74	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			8,953				422				4.71	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			13,055				608				4.66	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Other			2,153				27				1.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			2,096				71				3.39	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			1,519				22				1.45	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Total		$	598,166			$	19,470				3.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	554,394			$	21,131				3.81	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	569,944			$	19,999				3.51	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Savings and interest-bearing DDA		$	324,289			$	833				0.26	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	291,152			$	1,662				0.57	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	317,197			$	1,468				0.46	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Time deposits			72,782				716				0.98	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			87,606				1,336				1.53	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			84,168				886				1.05	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Federal funds purchased and securities sold under agreements to repurchase																											369				10				2.71	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Borrowings from FHLB			1,660				32				1.93	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			10,242				248				2.42	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}			13,044				294				2.25	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Total		$	398,731			$	1,581				0.40	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	389,000			$	3,246				0.83	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}		$	414,778			$	2,658				0.64	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Net tax-equivalent spread											2.86	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}											2.98	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}											2.87	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}
Net tax-equivalent margin on earning assets											2.99	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}											3.23	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}											3.04	{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

 

(1) Loan fees of $814, $304 and $310 for 2020, 2019 and 2018, respectively, are included in these figures. Of the loan fees recognized in 2020, $448 were related to PPP loans.

(2) Includes nonaccrual loans.

(3) All interest earned is reported on a taxable equivalent basis using a tax rate of 21{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} in 2020, 2019 and 2018. See disclosure of Non-GAAP financial measures on pages 37 – 38.

 

 

ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

(in thousands)

 

		For the Year Ended
		December 31, 2020 Compared With December 31, 2019
		Volume				Rate				Rate/Volume				Total
Interest earned on:
Loans		$	722			$	(1,385	)		$	(73	)		$	(736	)
Balances due from depository institutions			914				(284	)			(749	)			(119	)
Held to maturity securities:
Taxable			140				(41	)			(5	)			94
Non taxable			(16	)			(10	)							(26	)
Available for sale securities:
Taxable			(293	)			(378	)			23				(648	)
Non taxable			(119	)			(88	)			25				(182	)
Other			2				(45	)			(1	)			(44	)
Total		$	1,350			$	(2,231	)		$	(780	)		$	(1,661	)
Interest paid on:
Savings and interest-bearing DDA		$	189			$	(914	)		$	(104	)		$	(829	)
Time deposits			(226	)			(474	)			80				(620	)
Borrowings from FHLB			(208	)			(51	)			43				(216	)
Total		$	(245	)		$	(1,439	)		$	19			$	(1,665	)

 

 

ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

(in thousands)

 

		For the Year Ended
		December 31, 2019 Compared With December 31, 2018
		Volume				Rate				Rate/Volume				Total
Interest earned on:
Loans		$	(313	)		$	881			$	(21	)		$	547
Balances due from depository institutions			128				8				5				141
Held to maturity securities:
Taxable			118				47				6				171
Non taxable			(56	)			30				(3	)			(29	)
Available for sale securities:
Taxable			(273	)			760				(48	)			439
Non taxable			(191	)			7				(2	)			(186	)
Other			8				30				11				49
Total		$	(579	)		$	1,763			$	(52	)		$	1,132
Interest paid on:
Savings and interest-bearing
DDA		$	(121	)		$	343			$	(28	)		$	194
Time deposits			36				398				16				450
Federal funds purchased			(10	)											(10	)
Borrowings from FHLB			(63	)			22				(5	)			(46	)
Total		$	(158	)		$	763			$	(17	)		$	588

 

Provision for Allowance for Loan Losses

In the normal course of business, the Company assumes risk in extending credit to its customers. This credit risk is managed through compliance with the loan policy, which is approved by the Board of Directors. The policy establishes guidelines relating to underwriting standards, including but not limited to financial analysis, collateral valuation, lending limits, pricing considerations and loan grading. The Company’s Loan Review and Special Assets Departments play key roles in monitoring the loan portfolio and managing problem loans. New loans and, on a periodic basis, existing loans are reviewed to evaluate compliance with the loan policy. Loan customers in concentrated industries such as gaming and hotel/motel, as well as the exposure for out of area; residential and land development; construction and commercial real estate loans, and their direct and indirect impact on the Company’s operations are evaluated on a monthly basis. Loan delinquencies and deposit overdrafts are closely monitored in order to identify developing problems as early as possible. Lenders experienced in workout scenarios consult with loan officers and customers to address non-performing loans. A monthly watch list of credits which pose a potential loss to the Company is prepared based on the loan grading system. This list forms the foundation of the Company’s allowance for loan loss computation.

 

 

Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and to identify and estimate potential losses based on the best available information. The potential effect of declines in real estate values and actual losses incurred by the Company were key factors in our analysis. Much of the Company’s loan portfolio is collateral-dependent, requiring careful consideration of changes in the value of the collateral. Note A to the Consolidated Financial Statements discloses a summary of the accounting principles applicable to impaired and nonaccrual loans as well as the allowance for loan losses. Note C to the Consolidated Financial Statements presents additional analyses of the composition, aging, credit quality and performance of the loan portfolio as well as the transactions in the allowance for loan losses.

 

The Company’s analysis includes evaluating the current value of collateral securing all nonaccrual loans. Nonaccrual loans totaled $3,027,000 and $9,266,000 with specific reserves on these loans of $50,000 and $59,000 as of December 31, 2020 and 2019, respectively. The specific reserves allocated to nonaccrual loans are relatively low as collateral values appear sufficient to cover loan losses or the loan balances have been charged down to their realizable value.

 

Additional consideration was given to the impact of COVID-19 on the loan portfolio. The Company granted modifications by extending payments 90 days or granting interest only payments for 3 – 6 months for certain customers as a result of the economic challenges of business closures and unemployment resulting from COVID-19. These credits were generally current at the time they were modified. In compliance with guidance from the regulatory and accounting authorities, these modifications have not been classified as troubled debt restructurings at December 31, 2020. The Company continues its policy of closely monitoring past due loans and deposit overdrafts which may serve as indicators of performance issues. Proactive outreach to our loan customers has also been emphasized.

 

In addition to the factors considered when assessing risk in the loan portfolio which are identified in the Note A, the Company included the potential negative impact of COVID-19 on its loan portfolio, particularly the gaming and hotel/motel concentrations, in performing this risk assessment as of December 31, 2020. As of December 31, 2020, a general reserve of approximately $320,000 was allocated to non-classified loans as a result of COVID-19. As of December 31, 2020, no specific reserves were allocated to classified loans as a result of COVID-19, as customers in potentially vulnerable industries have resources through business interruption insurance, proceeds from PPP or other loan programs and/or have been able to begin to return to normal operations in recent months.

 

 

The Company’s on-going, systematic evaluation resulted in the Company not recording a provision for the allowance for loan losses in 2019 and recording a total provision for the allowance for loan losses of $6,002,000 and $122,000 in 2020 and 2018, respectively. The increase in 2020 is the direct result of a charge-off of $5,429,000 of one credit that was on nonaccrual and in bankruptcy. This loss is the result of specific events impacting this specific customer and was not related to COVID-19. The allowance for loan losses as a percentage of loans was 1.59{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}, 1.56{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} and 1.95{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} at December 31, 2020, 2019 and 2018, respectively. The Company believes that its allowance for loan losses is appropriate as of December 31, 2020.

 

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

 

Non-interest Income

 

2020 as compared with 2019

Total non-interest income increased $716,000 in 2020 as compared with 2019. Gains on liquidation, sales and calls of securities increased $392,000 as the Company had opportunities to sell securities which generated gains in 2020. The Company realized a gain of $224,000 from the redemption of death benefits on bank owned life insurance and a gain of $318,000 from the sale of banking premises. This increase was partially offset by the decrease in service charges on deposit accounts of $354,000 due to the impact of COVID-19 on the local economy and consumer spending in 2020.

 

2019 as compared with 2018

Total non-interest income increased $158,000 in 2019 as compared with 2018. Trust Department Income and Fees decreased $94,000 due to the decrease in account relationships in the current year. Gains on liquidation, sales and calls of securities increased $147,000 as the Company had opportunities to sell securities which generated gains in 2019. Other income increased $72,000 as rental income increased $83,000 as previously vacant properties were leased in the current year.

 

Non-interest Expense

 

2020 as compared with 2019

Total non-interest expense decreased $811,000 in 2020 as compared with 2019. Salaries and employee benefits decreased $334,000 primarily due to attrition and a reduction in costs associated with the retiree health plan. Net occupancy costs decreased $322,000 as the Company was able to eliminate some redundant telecommunications costs and resources were reconfigured for reduced costs and increased functionality. Equipment rentals, depreciation and maintenance increased $103,000 due to costs associated with contracts related to technology services. Other expense decreased $258,000 primarily as advertising, courier, consulting, conferences and classes and stationery and supplies were reduced as a part of the Company’s strategies to reduce overhead costs as well as the impact of COVID-19. In addition, legal fees were reduced by $182,000, primarily as the Company incurred costs of $201,000 to settle a lawsuit in 2019. Other real estate expense increased $491,000 as a result of increased write-downs and other expenses of holding and selling ORE in 2020 as compared with 2019.

 

 

2019 as compared with 2018

Total non-interest expense decreased $216,000 in 2019 as compared with 2018. Salaries and employee benefits decreased $190,000 primarily as a result of decreased costs for the retiree health plan. Net occupancy costs increased $183,000 as telecommunications costs increased $205,000 as the Company incurred redundant costs in the process of reconfiguring its resources for reduced costs and increased functionality in subsequent years. Equipment rentals, depreciation and maintenance decreased $50,000 primarily as a result of depreciable assets, primarily technology-related, purchased in prior years completing their depreciable life in the current year. Other expense decreased $159,000 in 2019 as compared with 2018. Included in this fluctuation is the decrease in other real estate expenses of $701,000, largely due to write-downs of ORE to new appraised values in 2018, which did not occur in 2019. Also impacting other expense were the increase in FDIC and state banking assessments of $126,000 as a result of the reduced assessment rate in 2018, an increase in non-recurring legal fees of $201,000 from the settlement of a lawsuit, an increase in ATM expense of $112,000 as a result of processing conversion costs and an increase in consulting fees of $135,000 primarily due to non-recurring services relating to strategic planning, operational assessments and revenue enhancement projects during 2019.

 

Income Taxes

The Company recognized an income tax benefit of $36,000 in 2018. During 2014, Management established a valuation allowance against its net deferred tax asset of approximately $8,140,000. As of December 31, 2020 and 2019, the valuation allowance is still in place. The 2018 benefit was the result of the impact of the elimination of the alternative minimum tax credit carryforwards from new tax legislation and the correction of refunds for prior years. Note I to the Consolidated Financial Statements presents a reconciliation of income taxes for these three years and further analysis of the valuation allowance.

 

 

FINANCIAL CONDITION

 

Cash and due from banks increased $62,118,000 at December 31, 2020 compared with December 31, 2019 due to the bank subsidiary’s liquidity position.

 

Available for sale securities decreased $16,181,000 at December 31, 2020 compared with December 31, 2019 as the maturities, sales and calls exceeded investment purchases.

 

Held to maturity securities increased $23,457,000 at December 31, 2020 compared with December 31, 2019 as the investment purchases exceeded maturities.

 

 

Loans increased $9,472,000 at December 31, 2020 compared with December 31, 2019, as new loans, particularly relating to the PPP program, outpaced principal payments, maturities, charge-offs and foreclosures on existing loans.

 

Total deposits increased $74,355,000 at December 31, 2020, as compared with December 31, 2019. Typically, significant increases or decreases in total deposits and/or significant fluctuations among the different types of deposits from year to year are anticipated by Management as customers in the casino industry and county and municipal entities reallocate their resources periodically. In addition, some of the PPP loan proceeds were deposited into customers’ accounts.

 

Borrowings from the FHLB decreased $2,557,000 at December 31, 2020 as compared with December 31, 2019 based on the liquidity needs of the bank subsidiary.

 

 

SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY

 

Strength, security and stability have been the hallmark of the Company since its founding in 1985 and of its bank subsidiary since its founding in 1896. A strong capital foundation is fundamental to the continuing prosperity of the Company and the security of its customers and shareholders. The primary and risk-based capital ratios are important indicators of the strength of a Company’s capital. These figures are presented in the Five-Year Comparative Summary of Selected Financial Information. The Company has established the goal of being classified as “well-capitalized” by the banking regulatory authorities.

 

Significant transactions affecting shareholders’ equity during 2020 are described in Note J to the Consolidated Financial Statements. The Statement of Changes in Shareholders’ Equity also presents all activity in the Company’s equity accounts.

 

 

LIQUIDITY

 

Liquidity represents the Company’s ability to adequately provide funds to satisfy demands from depositors, borrowers and other commitments by either converting assets to cash or accessing new or existing sources of funds. Note L to the Consolidated Financial Statements discloses information relating to financial instruments with off-balance-sheet risk, including letters of credit and outstanding unused loan commitments. The Company closely monitors the potential effects of funding these commitments on its liquidity position. Management monitors these funding requirements in such a manner as to satisfy these demands and to provide the maximum return on its earning assets.

 

The Company monitors and manages its liquidity position diligently through a number of methods, including through the computation of liquidity risk targets and the preparation of various analyses of its funding sources and utilization of those sources on a monthly basis. The Company also uses proforma liquidity projections which are updated on a continuous basis in the management of its liquidity needs and also conducts contingency testing on its liquidity plan. The Company has also been approved to participate in the Federal Reserve’s Discount Window Primary Credit Program, which it intends to use only as a contingency. Management carefully monitors its liquidity needs, particularly relating to potentially volatile deposits, and the Company has encountered no problems with meeting its liquidity needs.

 

 

Deposits, payments of principal and interest on loans, proceeds from maturities of investment securities and earnings on investment securities are the principal sources of funds for the Company.

 

The Company also uses other sources of funds, including borrowings from the FHLB. The Company generally anticipates relying on deposits, purchases of federal funds and borrowings from the FHLB for its liquidity needs in 2021.

 

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

 

REGULATORY MATTERS

 

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

 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company is a party to off-balance-sheet arrangements in the normal course of business to meet the financing needs of its customers. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet arrangements. Since some of the commitments and irrevocable letters of credit may expire without being drawn upon, the total amount does not necessarily represent future cash requirements. As discussed previously, the Company carefully monitors its liquidity needs and considers its cash requirements, especially for loan commitments, in making decisions on investments and obtaining funds from its other sources. Further information relating to off-balance-sheet instruments can be found in Note L to the Consolidated Financial Statements.

 

 

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

As a smaller reporting company, the Company is not required to provide this information.

 

 

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition

(in thousands except share data)

 

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition (continued)

(in thousands except share data)

 

 

See Notes to Consolidated Financial Statements.

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands except per share data)

 

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Operations (continued)

(in thousands except per share data)

 

 

See Notes to Consolidated Financial Statements.

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

See Notes to Consolidated Financial Statements.

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(in thousands except share and per share data)

 

 

See Notes to Consolidated Financial Statements.

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands)

 

 

See Notes to Consolidated Financial Statements.

 

 

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

235 Peachtree Street, NE Suite 1800 Atlanta, GA 30303

404 588 4200 wipfli.com

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To The Shareholders and Board of Directors

Peoples Financial Corporation

Biloxi, Mississippi

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of condition of Peoples Financial Corporation and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

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

 

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

 

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

 

 

 

Critical Audit Matter

 

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

 

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

 

As described in Notes A and C to the financial statements, the Company’s allowance for loan losses (“ALL”) totaled $4,166,000 relating to loans collectively evaluated for impairment (general reserve). The Company estimated the general reserve using the historical loss method which utilizes historical loss rates of pools of loans with similar risk characteristics applied to the respective loan pool balances. These amounts are then adjusted for certain qualitative factors related to current economic and general conditions currently observed by management.

 

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

 

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

 

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

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

• We analyzed the qualitative factors in comparison to historical periods to evaluate the directional consistency in relation to the Bank’s loan portfolio and local economy.

 

/s/ Wipfli LLP

 

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

 

Atlanta, Georgia

March 29, 2021

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors

Peoples Financial Corporation

Biloxi, Mississippi

 

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of operations, comprehensive income (loss), and cash flows for the year ended December 31, 2018 and the related notes to the financial statements (collectively, the financial statements) of Peoples Financial Corporation and subsidiaries (the Company). In our opinion, the financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

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

 

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

 

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

 

/s/ Porter Keadle Moore, LLC

 

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

 

Atlanta, Georgia

March 13, 2019

 

 

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Porter Keadle Moore, LLC, (“PKM”) of Atlanta, Georgia, served as the independent registered public accounting firm for the Company from 2006 until October 1, 2019, at which time the firm combined its practice (“the Practice Combination”) with Wipfli LLP (“Wipfli”). As a result of the Practice Combination, PKM effectively resigned as the Company’s independent registered public accounting firm and Wipfli, as the successor to PKM following the Practice Combination, was engaged as the Company’s independent registered public accounting firm. The Company’s Board of Directors was notified of the Practice Combination and the effective resignation of PKM and approved the retention of Wipfli. The effective resignation of PKM was the result of the Practice Combination and not the result of any disagreements with PKM. The Board of Directors has appointed Wipfli LLP as auditors for the fiscal year ending December 31, 2021.

 

The Company has been advised that neither Wipfli nor any of its partners has any direct or any material indirect financial interest in the securities of the Company or any of its subsidiaries, except as auditors and consultants on accounting procedures.

 

 

ITEM 9A – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

As of December 31, 2020, an evaluation was performed under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-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 SEC’s rules and forms.

 

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the period ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13(a) – 15(f) and 15(d) – 15(f) of the Securities Exchange Act of 1934. In meeting its responsibility, management relies on its accounting and other related control systems. The internal control systems are designed to ensure that transactions are properly authorized and recorded in the Company’s financial records and to safeguard the Company’s assets from material loss or misappropriation.

 

 

Management of the Company, including its Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of internal control over financial reporting as of December 31, 2020, using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our assessment included a review of the documentation of controls, evaluations of the design of the internal control system and tests of operating effectiveness of the internal controls. Based on the assessment, management has concluded that the Company had effective internal control over financial reporting as of December 31, 2020.

 

Chevis C. Swetman	Lauri A. Wood
Chairman, President and Chief Executive Officer	Chief Financial Officer
March 29, 2021	March 29, 2021

 

 

ITEM 9B – OTHER INFORMATION

 

None.

 

 

PART III

 

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Except as provided below, the information required by this item will be contained in Sections II, III, VIII and IX of our definitive proxy statement to be filed on April 14, 2021, relating to our 2021 Annual Meeting of stockholders to be held May 19, 2021, and is incorporated herein by reference.

 

The Company’s Board of Directors has adopted a Code of Conduct that applies to not only the Chief Executive Officer and the Chief Financial Officer, but also all of the officers, directors and employees of the Company and its subsidiaries. A copy of this Code of Conduct can be found at the Company’s internet website at www.thepeoples.com. The Company intends to disclose any amendments to its Code of Conduct, and any waiver from a provision of the Code of Conduct granted to the Company’s Chief Executive Officer or Chief Financial Officer on the Company’s internet website within four business days following such amendment or waiver. The information contained on or connected to the Company’s internet website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report that the Company may file with or furnish to the SEC.

 

 

ITEM 11 – EXECUTIVE COMPENSATION

 

The information in Section VI contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held May 19, 2021 which will be filed by the Company in definitive form with the Commission on April 14, 2021, is incorporated herein by reference.

 

 

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information in Sections IV and V contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held May 19, 2021, which was filed by the Company in definitive form with the Commission on April 14, 2021, is incorporated herein by reference.

 

 

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

The information in Sections III and VII contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held May 19, 2021, which will be filed by the Company in definitive form with the Commission on April 14, 2021, is incorporated herein by reference.

 

 

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information in Section XI contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held May 19, 2021, which will be filed by the Company in definitive form with the Commission on April 14, 2021, is incorporated herein by reference.

 

 

PART IV

 

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) 1. Index of Financial Statements:

See Item 8.

 

(a) 2. Index of Financial Statement Schedules:

All other schedules have been omitted as not applicable or not required or because the information has been included in the financial statements or applicable notes.

 

 

(a) 3. Index of Exhibits:

 

(101)	The following materials from the Company’s 2020 Annual Report to Shareholders, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Condition at December 31, 2020 and 2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 and (vi) Notes to the Consolidated Financial Statements for the year ended December 31, 2020, 2019 and 2018 *
	* Filed Herewith.
	(P) Paper filing.

 

 

ITEM 16 – FORM 10-K SUMMARY

 

None.

 

 

SIGNATURES

Pursuant to the requirements 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:

March 29, 2021

 

	BY:	/s/ Chevis C. Swetman
	Chevis C. Swetman, Chairman of the Board
	(principal executive officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.            

      

BY:

/s/ Chevis C. Swetman

Date:

March 29, 2021

Chevis C. Swetman, Chairman, President and CEO

(principal executive officer)

 

	By:	/s/ Ronald G. Barnes		By:	/s/ Padrick D. Dennis
	Date:	March 29, 2021		Date:	March 29, 2021
		Ronald G. Barnes, Director			Padrick D. Dennis, Director
	By:	/s/ Jeffrey H. O’Keefe		By:	/s/ George J. Sliman, III
	Date:	March 29, 2021		Date:	March 29, 2021
		Jeffrey H. O’Keefe, Director			George J. Sliman, III, Director
				By:	/s/ Lauri A. Wood
				Date:	March 29, 2021
				Lauri A. Wood, Chief Financial Officer
				(principal financial and accounting officer)

 

Exhibit 3.1

 

RESTATED

ARTICLES OF INCORPORATION

OF

PEOPLES FINANCIAL CORPORATION

 

The Articles of Incorporation of Peoples Financial Corporation (“Corporation”) are hereby restated pursuant to § 79-4-10.07 to read in their entirety as follows:

 

FIRST:

The name of the Corporation is Peoples Financial Corporation.

 

SECOND:

The period of its duration is ninety-nine (99) years.

 

THIRD:

The specific purpose or purposes for which the Corporation is organized, stated in general terms, are:

 

Primarily, to purchase, own, and hold the stock of other corporations, and to do every act and thing covered generally by the denomination “holding corporation” or “holding company,” and especially to direct the operations of other corporations through the ownership of stock therein; to purchase, subscribe for, acquire, own, hold, sell, exchange, assign, transfer, create security interests in, pledge, or otherwise dispose of shares of the capital stock, or any bonds, notes, securities, or evidences of indebtedness created by any other corporation or corporations organized under the laws of this state or any other state or district or country, nation, or government and also bonds or evidences of indebtedness of the United States or of any other state, district, territory, dependency or country or subdivision or municipality thereof; to issue in exchange therefor shares of the capital stock, bonds, notes, or other obligations of the Corporation and while the owner thereof to exercise all the rights, powers, and privileges of ownership including the right to vote on any shares of stock; to promote, lend money to, and guarantee the bonds, notes, evidences of indebtedness, contracts or other obligations of, and otherwise aid in any manner which shall be lawful, any corporation or association of which any bonds, stocks, or other securities or evidence of indebtedness shall be held by or for this Corporation, or in which, or in the welfare of which, this Corporation shall have any interest, and to do any acts and things permitted by law and designed to protect, preserve, improve, or enhance the value of any such bonds, stocks, or other securities or evidence of indebtedness or the property of this Corporation.

 

And to engage in such activities or businesses as may from time to time be permitted by State or Federal statutes, regulations or authorities, including, but not limited to, the business of acting as agent or broker for insurance companies in soliciting and receiving application for any and all types of insurance, collecting premiums and doing such other business as may be delegated to agents or brokers by such insurance companies and to conduct an insurance agency and insurance brokerage business.

 

 

To do any and all things and exercise any and all powers, rights and privileges which the Corporation may now or hereafter be authorized to do under the Mississippi Business Corporations Act.

 

FOURTH:

The total number of shares of stock which the Corporation shall have authority to issue is Fifteen Million (15,000,000) shares of common stock of the par value of One Dollar ($1.00) a share.

 

FIFTH:

Peoples Financial Corporation shall have the right to purchase its own shares to the extent of its unreserved and unrestricted earned surplus and capital surplus available therefor.

 

SIXTH:

The Corporation will not commence business until consideration of the value of at least $1,000 has been received for the issuance of shares.

 

SEVENTH:

The post office address of its registered office is Post Office Box 5239, Lameuse and Howard Avenue, Biloxi, Mississippi 39533, and the name of its initial registered agent at such address is Andy Carpenter.

 

EIGHTH:          If any person, firm, or corporation, (herein referred to as the Tender Offeror) or any person, firm or corporation controlling the Tender Offeror, controlled by the Tender Offeror, or under common control with the Tender Offeror, or any group of which the Tender Offeror or any of the foregoing persons, firms, or corporations are members, or any other group controlling the Tender Offeror, controlled by the Tender Offeror, or under common control with the Tender Offeror owns of record, or owns beneficially, directly or indirectly, more than 10{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of any class of equity voting security of this Corporation with the Tender Offeror, then any merger or consolidation of this corporation with the Tender Offeror, or any sale, lease, or exchange of substantially all of the assets of this Corporation or of the Tender Offeror to the other may not be effected under the laws of Mississippi, unless a meeting of the shareholders of this Corporation is held to vote thereon and the votes of the holders of voting securities of this Company representing not less than 80{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the votes entitled to vote thereon, vote in favor thereof. As used herein, the term group includes persons, firms, and corporations acting in concert, whether or not as a formal group, and the term equity security means any share or similar security; or any security convertible, with or without consideration, into such a security, or carrying any warrant to subscribe to or purchase such a security; or any such warrant or right. The foregoing provision is to require a greater vote of shareholders than is required by Mississippi Code of 1972 Section 79-3-145 (dealing with mergers and consolidations) and Section 79-3-157 (dealing with sales, mortgages, etc. of assets outside the ordinary course of business) and the provisions of this Article EIGHTH shall not be amended, changed or repealed without a similar 80{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} vote of the voting securities in this Corporation, which is a greater vote than required by Mississippi Code of 1972 Section 79-3-117 (dealing with amendments to these Articles of Incorporation).

 

 

NINTH:           The Board of Directors of this Corporation shall consist of not fewer than five (5) nor more than fifteen (15) persons. The number of Directors may be fixed or changed from time to time, within the minimum and maximum, be resolution of the Board of Directors. Until further action by the Board of Directors, the Board of Directors shall consist of five (5) persons.

 

TENTH:

The name and post office address of each incorporator is:

 

	NAME	STREET AND POST OFFICE ADDRESS
	Chevis C. Swetman	1516 W. Beach
		Biloxi, Mississippi 39530
	Andy Carpenter	11107 LeMarin Ct.
		Ocean Springs, Mississippi 39564

 

ELEVENTH:

The right to cumulate votes in the election of directors shall not exist with respect to shares of stock of the Corporation.

 

 

(a) A director shall not be liable to the Corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for: (i) the amount of financial benefit received by a director to which he is not entitled; (ii) an intentional infliction of harm on the Corporation or its shareholders; (iii) a violation of Section 79 4-8.33 of Mississippi Code of 1972, as amended; or (iv) an intentional violation of criminal law.

 

(b) Subject to the provisions of this ARTICLE TWELFTH, the Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals (including any action by or in the right of the Corporation) (“Proceeding”), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such a Proceeding: (A) to the fullest extent permitted by the Mississippi Business Corporation Act in effect from time to time (the “Act”) and (B) despite the fact that such person has failed to meet the standard of conduct set forth in Miss. Code Ann. § 81-5-105 (1972, as amended), or would be adjudged liable to the Corporation in connection with a Proceeding by or in the right of the Corporation. Any indemnification under this ARTICLE TWELFTH shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Sections (a) and (b) of this ARTICLE TWELFTH, such determination to be made (i) by the Board of Directors by majority vote of a quorum consisting of directors not at the time parties to the Proceeding, (ii) if a quorum cannot be obtained under (i), by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting of two or more directors not at the time parties to the Proceeding, (iii) by special legal counsel (a) selected by the Board of Directors or its committee in the manner prescribed in (i) or (ii) or (b) if a quorum of the Board of Directors cannot be obtained under (i) and a committee cannot be designated under (ii), selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate), (iv) by the shareholders (but shares owned by or voted under the control of directors who are at the time parties to the Proceeding may not be voted on the determination) or (v) by a court.

 

 

(c) The Corporation upon request shall pay or reimburse any person who was or is a party, or is threatened to be made a party, to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for his or her reasonable expenses (including legal fees) in advance of final disposition of the Proceeding as long as (1) such person furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined by a judgment or other final adjudication that his or her acts or omissions did violate the applicable standard of conduct set forth in Section (a) or (b) of this ARTICLE TWELFTH, which undertaking must be an unlimited general obligation of such person, and which shall be accepted by the Corporation without reference to final ability to make repayment or to collateral and (2) a determination is made by any of the persons described in (i) through (iv) of Section (b) of this ARTICLE TWELFTH that the facts then known to those making the determination would not preclude indemnification under this ARTICLE TWELFTH. Such request need not be accompanied by the affirmation otherwise required by the Act.

 

(d) The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such persons may be entitled as a matter of law.

 

(e) The Board of Directors or shareholders of the Corporation may adopt a policy for the indemnification of directors, officers, employees and agents of the Corporation, as they from time to time see necessary or prudent in the best interest of the Corporation.

 

(f) The Corporation may, upon the affirmative vote of a majority of its Board of Directors, purchase insurance for the purpose of indemnifying individuals to the extent that such indemnification is allowed in the preceding paragraphs. Such insurance may, but need not be, for the benefit of all directors, officers, or employees.

 

 

(g) The invalidity or unenforceability of any provision of this ARTICLE TWELFTH shall not in any way affect the remaining provisions hereof, which shall continue in full force and effect. Neither the amendment nor repeal of this ARTICLE TWELFTH, nor the adoption or amendment of any other provision of the Corporation’s Bylaws or the Articles of Incorporation inconsistent with this ARTICLE TWELFTH, shall apply to or affect in any respect the applicability of this ARTICLE TWELFTH with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

 

IN WITNESS WHEREOF, Peoples Financial Corporation has caused these Restated Articles of Incorporation to be signed by Evelyn R. Herrington its Secretary, this 24^th day of March, 2021.

 

	PEOPLES FINANCIAL CORPORATION
	By:
		Name: Evelyn R. Herrington
		Title: Secretary

 

Exhibit 3.2

 

BYLAWS

OF

PEOPLES FINANCIAL CORPORATION

BILOXI, MISSISSIPPI

 

 

 

 

 

 

 

 

Adopted March 21, 1985

As Amended January 27, 2021

 

 

PEOPLES FINANCIAL CORPORATION

BILOXI, MISSISSIPPI

 

 

BYLAWS

 

ARTICLE I
OFFICES

 

Section 1.01    Principal Office. The principal office of PFC (`the Corporation”) shall be at Biloxi, Harrison County, Mississippi. The Corporation may have such other offices as are allowable by the laws of the State of Mississippi and as the Board of Directors may designate or the business of the Corporation may require from time to time.

 

Section 1.02    Registered Office. The registered office of the Corporation required by the Mississippi Business Corporation Act to be maintained in the State of Mississippi may be, but need not be identical with the principal office in the State of Mississippi, and the address of the registered office may be changed from time to time by the board of Directors as provided by law.

 

ARTICLE II
STOCKHOLDERS

 

Section 2.01    Annual Meeting. The annual meeting of the stockholders for the purpose of fixing the number of Directors to be elected and electing such number of Directors and for the transaction of such other business as may come before the meeting shall be held on such date and at such time as the Board of Directors shall each year fix, which date shall be no later than thirteen months subsequent to the last annual meeting of stockholders. The date fixed for the annual meeting shall not be a legal holiday in the State of Mississippi. The annual meeting of stockholders may be held conjointly with the annual meeting of the Board of Directors.

 

Section 2.02    Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President or by a majority of the Board of Directors, and shall be called by the President at the request of the holders of not less than one-tenth of all the outstanding shares of the corporation entitled to vote at the meeting. On failure of the President so to issue such call, same may be made, and notice given as hereinafter prescribed, by those demanding such meeting. Such request shall state the purposes of the proposed meeting. Business transacted at all special meetings shall be confined to the objects stated in the call.

 

Section 2.03    Place of Meeting. The Board of Directors may designate any place, either within or without the State of Mississippi, as the place of meeting for any annual meeting or for any special meeting of the stockholders. If no designation is made, the place of meeting shall be at the principal office of the Corporation in Biloxi, Harrison County, Mississippi.

 

Section 2.04    Notice of Meeting. Written or printed notice stating the place, day and hour of the meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by first-class mail, by or at the direction of the President or the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If notice is mailed at least 30 days before the date of the meeting, it may be done by a class of United States mail other than first class. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid.

 

 

Section 2.05    Closing of Transfer Books or Fixing of Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date to be not more than sixty days and in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action, requiring such determination of stockholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders.

 

When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

 

Section 2.06    Presiding Officer and the Secretary. The President, or, in his absence, an officer designated by the Board of Directors shall preside at all stockholder meetings, and the Secretary shall serve as secretary. Otherwise, a Chairman or Secretary shall be elected by the stockholders present to act in the absence of those officers.

 

Section 2.07    Voting Lists. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders.

 

Section 2.08    Quorum. A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, as long as not less than one-third of the shares entitled to vote at the meeting are represented. If a quorum is present, or the above conditions are fulfilled so that business may be transacted, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the vote of a greater number is required by law or the articles of incorporation or elsewhere in these bylaws by specific provision.

 

 

Section 2.09    Proxies. At all meetings of stockholders, a stockholder may vote by proxy-executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

 

Section 2.10    Voting of Shares. Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote of a meeting of stockholders.

 

Section 2.11    Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine.

 

Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name.

 

Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.

 

A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledge, and thereafter the pledge shall be entitled to vote the shares so transferred.

 

The Corporation may repurchase shares of its own stock as provided by Mississippi law. If the Corporation owns shares of its own stock at any time, those shares shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time.

 

Section 2.12    [RESERVED]

 

Section 2.13    Action by Stockholders Without a Meeting. Any action required to be taken at a meeting of the stockholders of the Corporation, or any action which may be taken at a meeting of the stockholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the stockholders entitled to vote with respect to the subject matter thereof.

 

 

Section 2.14    Procedures for Bringing Business before Stockholder Meeting. At an annual or special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before an annual or special meeting of stockholders. To be properly brought before an annual or special meeting of stockholders, business must be (i) conducted during a special meeting called in accordance with Section 2 of this Article II, (ii) conducted during an annual meeting and properly brought before the meeting by or at the direction of the Board of Directors in accordance with Section 1 of this Article II or (iii) otherwise properly brought before the annual or special meeting by a stockholder. For business to be properly brought before such a meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the date of the meeting; provided, however, that if fewer than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholders to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of such meeting was mailed or (ii) the day on which such public disclosure was made. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before a meeting of stockholders (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder’s notice, and (iv) any material interest of the stockholder in such proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.14. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by these Bylaws, and if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

 

Section 2.15    Stockholder Approval of Tender Offer. If any person, firm, or corporation, (herein referred to as the Tender Offeror) or any person, firm, or corporation controlling the Tender Offeror, controlled by the Tender Offeror, or under common control with the Tender Offeror, or any group of which the Tender Offeror or any of the foregoing persons, first, or corporations are members, or any other group controlling the Tender Offeror, controlled by the Tender Offeror, or under common control with the Tender Offeror owns of record, or owns beneficially, directly or indirectly, more than 10{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of any class of equity voting security of this Corporation with the Tender Offeror, then any merger or consolidation of this Corporation with the Tender Offeror, or any sale, lease, or exchange of substantially all of the assets of this Corporation or of the Tender Offeror to the other may not be effected under the laws of Mississippi unless a meeting of the stockholders of this Corporation is held to vote thereon and the votes of the holders of voting securities of this Company representing not less than 80{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of the votes entitled to vote thereon, vote in favor thereof. As used herein, the term group includes persons, firms, and corporations acting in concert, whether or not as a formal group, and the term equity security means any share or similar security; or any security convertible, with or without consideration, into such a security, or carrying any warrant to subscribe to or purchase such a security; or any such warrant or right. The foregoing provision is to require a greater vote of stockholders than is required by Mississippi Code of 1972 Section 79-3-145 (dealing with mergers and consolidations) and Section 79-3-157 (dealing with sales, mortgages, etc. of assets outside the ordinary course of business) and the provisions of this Section shall not be amended, changed or repealed without a similar 80{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} vote of the voting securities in this Corporation, which is a greater vote that required by Mississippi Code of 1972 Section 79-3-117 (dealing with amendments to these Articles of Incorporation).

 

ARTICLE III
BOARD OF DIRECTORS

 

Section 3.01    General Powers. The business and affairs of the Corporation shall be managed and administered by its Board of Directors. Except as limited by law, all corporate powers shall be vested in and exercised by the Board of Directors.

 

 

Section 3.02    Procedures for Director Nominations and Elections. The directors of the Corporation shall be elected annually by the stockholders at the annual meeting of the stockholders. If the election of directors shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Except as provided in Section 11 of this Article with respect to vacancies on the Board of Directors, only persons nominated in accordance with the procedures set forth in this Section 2 of this Article shall be eligible for election as directors. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders (i) by or at the direction of the Board of Directors pursuant to the report it receives from the Nominating Committee, or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 2 of this Article. Such nominations, other than those made by or at the direction of the Board of Directors pursuant to the report it receives from the Nominating Committee, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the date of a meeting; provided, however, that if fewer than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 10th day following the earlier of (i) the day on which such notice of the date of such meeting was mailed or (ii) the day on which such public disclosure was made. A stockholder’s notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are directly and beneficially owned by such person on the date of such stockholder’s notice and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors or, is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation’s books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominees and (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder’s notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder’s notice. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2 of this Article. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if the Chairman should so determine, the Chairman shall so declare to the meeting and the defective nomination shall be disregarded.

 

This Section 3.02 was amended to its present form on January 27, 2021.

 

Section 3.03    Number, Tenure and Qualifications. The Board of Directors of the Corporation shall consist of not fewer than five (5) nor more than fifteen (15) persons. The number of directors may be fixed or changed from time to time within the minimum and maximum, by resolution of the Board of Directors, with or without a recommendation from the Nominating Committee. Until further action by the Board of Directors, the Board of Directors shall consist of five (5) persons. The term of the office of the directors elected at the regular annual meeting of the stockholders shall be until the next annual meeting or when their successors shall have been duly elected and qualified, as provided in these Bylaws and the Corporation’s articles of incorporation, as amended. Each director shall: (a) own in his or her own right unencumbered stock in the Corporation in the amount of at least Two Hundred Dollars ($200.00) par value at the time of his or her or her election to the Board of Directors and continue to own such par value amount throughout his or her term; (b) not be or been subject to a cease and desist order, consent, or other formal order by a state or federal regulatory agency which has been publicly disclosed within the past ten (10) years; (c) not been convicted of a crime involving dishonesty or breach of trust; (d) not be currently charged with the commission of a crime; (e) maintain a principal residence within fifty (50) miles of the main office or a branch office of the Corporation or its bank subsidiary; (f) not be a director, officer or 10{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} stockholder of a financial institution that has a main office or branch offices within fifty (50) miles of the main office or a branch office of the Corporation; (g) comply with all of the Corporation’s policies and procedures applicable to directors, including a requirement to maintain confidentiality of all matters discussed by the Board of Directors at its meeting; (h) not be a party to any agreement that materially limits his or her voting discretion as a director or his or her ability to discharge fiduciary duties to all directors; and (i) take and subscribe an annual oath that he or she will faithfully and diligently perform the duties of his or her office and will not knowingly violate or permit to be violated any provision of law or any requirements or qualifications of directors listed herein.

 

 

This Section 3.03. was amended to its present form on January 27, 2021.

 

Section 3.04    Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw, immediately after or conjointly with, and at the same place as, the annual meeting of stockholders. The Board of Directors shall provide, by resolution, the time and place, either within or without the State of Mississippi, for the holding of additional meetings without other notice than such resolution.

 

Section 3.05    Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President, Chairman of the Board of Directors or by a majority of the Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Mississippi, as the place for holding any special meeting of the Board of Directors called by them.

 

Section 3.06    Action by Directors Without a Meeting. Any action required to be taken at a meeting of the Board of Directors of the Corporation or any committee thereof, or any action which may be taken at a meeting of the Board of Directors or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, entitled to vote with respect to the subject matter thereof consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.

 

This Section 3.06 was amended to its present form on January 27, 2021.

 

Section 3.07    Notice. Notice of any special meeting shall be given by oral or written notice delivered personally or mailed to each director at his business address, or by telephone or telegram, or by electronic transmission. If notice is by personal delivery, the delivery shall be at least two days prior to the special meeting. If notice is given by mail, such notice shall be deposited in the United States mail and addressed to each director at his business address with postage thereon prepaid at least five days prior to any special meeting. If notice is given by telegram, such notice shall be delivered to the telegram company at least five days prior to any special meeting. If notice is given by telephone, such notice shall be made at least two days prior to any special meeting. If notice is sent by electronic transmission, it shall be delivered or sent at least twenty-four hours before the time of the holding of the special meeting. Any director may waive notice of any meeting in writing or by electronic transmission by the person entitled to notice. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

 

 

This Section 3.07 was amended to its present form on January 27, 2021.

 

Section 3.08    Quorum. A majority of the number of directors elected and serving within the-limits fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, -a majority of the directors present may adjourn the meeting from time to time without further notice.

 

Section 3.09    Organization. The Board of Directors shall elect one of its members Chairman, who shall preside at all meetings of the Board. By resolution the Directors may designate from among its members an Executive Committee and may designate from its members an Executive Committee and may designate from its members other committees, each of which shall have all the authority of the Board of Directors except as limited in such resolution or bylaw, and except as provided by law. All such committees shall keep regular minutes of their meetings and shall report their actions to the Board of Directors at its next meeting.

 

Section 3.10    Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

 

Section 3.11    Vacancies. Any vacancy occurring on the Board of Directors by death, resignation or otherwise, and any newly created directorship resulting from any increase in the authorized number of directors, may be filled by the affirmative vote of a majority of the directors then in office, although less than a quorum, and any director so elected to fill any such vacancy or newly created directorship shall hold office until the next annual meeting of the stockholders and until his successor is elected and qualified, or until his earlier resignation or removal.

 

This Section 3.11 was amended to its present for on April 24, 1989.

 

Section 3.12    Compensation. By resolution of the Board of Directors, the Directors may be paid for the expense, if any, of attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. However, no such payment shall preclude any director from serving the Corporation as an officer or in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending meetings.

 

Section 3.13    Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the corporation within twenty-four (24) hours after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

 

Section 3.14    Definition of Electronic Transmission. For the purposes of these Bylaws, “electronic transmission” means any form or process of communication, not directly involving the physical transfer of paper or another tangible medium, which (i) is suitable for the retention, retrieval and reproduction of information by the recipient, and (ii) is retrievable in paper form by the recipient through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with the Mississippi Code of 1972, as amended.

 

This Section 3.14 was added on January 27, 2021.

 

 

Section 3.15    Committees of the Board of Directors. At the first meeting of the Board of Directors following the annual shareholders meeting, or as soon thereafter as practicable, upon receipt of recommendations from the Nominating Committee, the Board of Directors shall appoint members of the following standing committees:

 

(a)    Audit Committee: The Audit Committee is responsible for oversight of: (i) the external auditor’s qualifications and independence; (ii) the performance of the Corporation’s internal audit function and external auditor; (iii) the Chief Executive Officer’s and senior management’s responsibilities to assure that there is in place an effective systems of controls reasonably designed to safeguard the assets of the Corporation, assure the integrity of the Corporation’s financial statements, and maintain compliance with the Corporation’s ethical standards, policies, plans and procedures and with laws and regulations; and (iv) any other responsibility assigned to it by the Board of Directors from time to time. The Audit Committee shall be governed by a charter approved by the Board of Directors and consistent with law, these Bylaws and the articles of incorporation.

 

(b)    Nominating Committee: The Nominating Committee is charged with the responsibility of nominating qualified candidates to stand for election to the Board of Directors in accordance with the provisions of these Bylaws, as well as any other responsibility assigned to it by the Board of Directors from time to time. This committee shall also provide assistance to the Board of Directors in the areas of committee selection, and evaluation of the overall effectiveness of the Board of Directors. The Nominating Committee shall carry out its purposes in accordance with a charter approved by the Board of Directors and consistent with law, these Bylaws and the articles of incorporation.

 

(c)    Compensation Committee: The Compensation Committee shall aid the Board of Directors in discharging its duties relating to the compensation of the Company’s Chief Executive Officer and other officers of the Corporation and its bank subsidiary that have the title of Senior Vice President or higher, as well as any other responsibility assigned to it by the Board of Directors from time to time. The Compensation Committee shall carry out its purposes in accordance with a charter approved by the Board of Directors and consistent with law, these Bylaws, and the articles of incorporation.

 

Recommendations for each of the Audit, Compensation, and Nominating Committee members shall be made by the Nominating Committee in accordance with its charter.  Each of the Audit, Compensation, and Nominating Committees shall be made up entirely of independent directors in accordance with pertinent Securities and Exchange Commission regulations, OTCQX Best Market listing standards then in effect, and any other standards required by law or established by their respective charters. The Board of Directors may authorize, approve, and, to the extent necessary, amend charters for each of the Audit, Compensation, and Nominating Committees.

 

This Section 3.15 was added on January 27, 2021.

 

ARTICLE IV
OFFICERS

 

Section 4.01    Generally. The officers of the corporation shall consist of a Chairman of the Board, a Vice Chairman to the Board, a President, an Executive Vice President, a First Vice President, a Second Vice President, and a Secretary/Treasurer. Officers shall be elected by the Board of Directors, which shall consider that subject as its first meeting after every annual meeting of stockholders. Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal. Any one or more offices may be held by the same person, except the offices of President and Secretary. Officers do not have to be stockholders.

 

 

Section 4.02    Chairman of the Board. The Board of Directors shall appoint, from one of its members, a Chairman of the Board to serve in said capacity at the pleasure of the Board. He shall preside at all meetings of the Board and shall supervise the carrying out of the policies adopted or approved by the Board of Directors. He shall have general executive powers as well as the specific powers conferred by these Bylaws. He shall He shall have, and may exercise, any other powers and duties as may, from time to time, be conferred upon him by the Board of Directors. An officer shall be designated by the Board of directors, in the absence of the Chairman of the Board, to perform all the duties of the Chairman of the Board.

 

Section 4.03    Vice Chairman to the Board. The Board of Directors may appoint a Vice Chairman to the Board to help transact the business of the corporation. The Vice Chairman shall have such powers and duties as may be assigned to him by the Board of Directors.

 

Section 4.04    President. The Board of Directors shall appoint a President of the corporation to serve at the pleasure of the Board. The President shall supervise the carrying out of the policies adopted or approved by the Board and shall be the Chief Executive Officer of the corporation. He shall have general executive powers, as well as the specific powers conferred by these Bylaws. He shall also have and may exercise such further powers and duties as from time to be designated by the Board of Directors, in the absence of the President, to perform all the duties of the President.

 

Section 4.05    Vice Presidents. The Board of Directors may appoint one or more Vice Presidents and shall have the authority to designate different classes of Vice Presidents, including Executive Vice Presidents, First Vice Presidents, Second Vice Presidents, and such other classes as from time to time may appear to the Board of Directors to be required or desirable to transact the business of the corporation. Each Vice President shall have such powers and duties as may be assigned to him by the Board of Directors.

 

Section 4.06    Secretary. The Board of Directors shall appoint a Secretary, who shall: (a) keep the minutes of the stockholders and of the Board of Directors meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws and as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by each stockholder; (e) sign with the President or other designated officer stock certificates of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and such other duties as may from time to time be assigned to him by the President or by the Board of Directors.

 

Section 4.07    Treasurer. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Article VII of these bylaws; and (b) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

 

 

Section 4.08    Other Officers. The Board of Directors may appoint one or more such other officers as from time to time may appear to the Board of Directors to be required or desirable to transact the business of the association. Such officers shall respectively exercise such powers and perform such duties as pertain to their several offices, or as may be conferred upon, or assigned to them by the Board of Directors or the President.

 

Section 4.09    Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but without prejudice to the contract rights, if any, of the person so removed, and the election of another person to an office shall automatically remove the incumbent form such office.

 

Section 4.10    Vacancies. The Board of Directors shall have authority to fill any vacancy occurring in the offices of the corporation or any office to be created by election as any regular meeting of the Board of Directors or at a special meeting of the Board of Directors called for that purpose. An officer elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office.

 

Section 4.11    Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary merely by reason of the fact that he is also a director or employee of the corporation. The President and Secretary may fix the salaries of the employees who are not officers, subject to the approval of the Board of Directors.

 

ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER

 

Section 5.01    Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary and shall be attested by the corporate seal. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, and the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled, and no new certificates shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefore upon such terms and indemnity to the corporation as the Board of Directors may prescribe.

 

Section 5.02    Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, save as may be expressly provided by the laws of Mississippi.

 

 

ARTICLE VI
INDEMNIFICATION

 

Section 6.01    General Provision. Subject to the provisions of Section 4 of this Article, the Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals (including any action by or in the right of the Corporation) (“Proceeding”), by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such a Proceeding: (A) to the fullest extent permitted by the Mississippi Business Corporation Act in effect from time to time (the “Act”) and (B) despite the fact that such person has failed to meet the standard of conduct set forth in Miss. Code Ann. § 81-5-105 (1972, as amended), or would be adjudged liable to the Corporation in connection with a Proceeding by or in the right of the Corporation.

 

This Section 6.01 was amended to its present form on January 27, 2021.

 

Section 6.02    Director Liability. A director shall not be liable to the Corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for: (i) the amount of financial benefit received by a director to which he is not entitled; (ii) an intentional infliction of harm on the Corporation or its shareholders; (iii) a violation of Section 79‑4-8.33 of Mississippi Code of 1972, as amended; or (iv) an intentional violation of criminal law.

 

This Section 6.02 was amended to its present form on January 27, 2021.

 

Section 6.03    Successful Defense. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith, not withstanding, that he has not been successful on any other claim, issue or matter in any such action, suit or proceeding.

 

Section 6.04    Authorization of Indemnification.” Any indemnification under Section 1 of this Article shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Sections 1 and 2, such determination to be made (i) by the Board of Directors by majority vote of a quorum consisting of directors not at the time parties to the Proceeding, (ii) if a quorum cannot be obtained under (i), by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting of two or more directors not at the time parties to the Proceeding, (iii) by special legal counsel (a) selected by the Board of Directors or its committee in the manner prescribed in (i) or (ii) or (b) if a quorum of the Board of Directors cannot be obtained under (i) and a committee cannot be designated under (ii), selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate), (iv) by the shareholders (but shares owned by or voted under the control of directors who are at the time parties to the Proceeding may not be voted on the determination) or (v) by a court.

 

This Section 6.04 was amended to its present form on January 27, 2021.

 

 

Section 6.05    Advance Payments. The Corporation upon request shall pay or reimburse any person who was or is a party, or is threatened to be made a party, to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for his or her reasonable expenses (including legal fees) in advance of final disposition of the Proceeding as long as (1) such person furnishes the Corporation a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined by a judgment or other final adjudication that his or her acts or omissions did violate the applicable standard of conduct set forth in Sections 1 and 2 of this Article, which undertaking must be an unlimited general obligation of such person, and which shall be accepted by the Corporation without reference to final ability to make repayment or to collateral and (2) a determination is made by any of the persons described in (i) through (iv) of Section 4 of this Article that the facts then known to those making the determination would not preclude indemnification under this Article. Such request need not be accompanied by the affirmation otherwise required by the Act.

 

This Section 6.05 was amended to its present form on January 27, 2021.

 

Section 6.06    Exclusivity. The indemnification provided by this section shall not be deemed exclusive of, and shall be in addition to, any other rights to which those indemnified may be entitled under any statute, rule of law, provision in the corporation’s certificate of incorporation, bylaw, agreement, vote of members or disinterested directors or otherwise both as to action in his official capacity and as to action in another capacity while holding such office, shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

Section 6.07    Insurance. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity or arising out of his statute as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section.

 

Section 6.08    Enforcement. The invalidity or unenforceability of any provision hereof shall not in any way affect the remaining provisions hereof, which shall continue in full force and effect. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Corporation’s Bylaws or the articles of incorporation inconsistent with this Article, shall apply to or affect in any respect the applicability of this Article with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

 

This Section 6.08 was amended to its present form on January 27, 2021.

 

Section 6.09    Forum for Adjudication of Disputes. Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought in the right of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s shareholders, (iii) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation arising pursuant to any provision of the Act, Section 81-5-105 of the Mississippi Code of 1972, as amended, or the articles of incorporation or these Bylaws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim against the Corporation or any director or officer or other employee of the Corporation governed by the internal affairs doctrine shall be a state or federal court located within the Second Judicial District of Harrison County in the State of Mississippi.

 

This Section 6.09 was added on January 27, 2021.

 

 

ARTICLE VII
CONTRACTS, LOANS,
CHECKS, DEPOSITS AND INVESTMENTS

 

Section 7.01    Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

 

Section 7.02    Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Loans may be made by the corporation to its officers or directors subject to the guidelines imposed by law.

 

Section 7.03    Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time-to-time be determined by resolution of the Board of Directors.

 

Section 7.04    Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select.

 

ARTICLE VIII
CONFIRMATION AND RATIFICATION OF CONTRACTS

 

Section 8.01    Conflicts of Interest. In the absence of fraud, no contract or other transaction of corporation shall be affected or invalidated in any way by the fact that any of the directors of the corporation are in any way interested in or connected with any other party to such contract or transaction or are themselves parties to such contract or transaction, provided that such interest shall be fully disclosed or otherwise known to the Board of Directors at its meeting at which such contract or transaction is authorized or confirmed, and provided further that at the meeting of the Board of Directors authorizing or confirming such contract or transaction, there shall be present a quorum of directors not so interested or connected and such contract or transaction shall be approved by a majority of such quorum, which majority shall consist of directors not so interested or connected. Any such contract, transaction or act of the corporation or of the Board of Directors or of any committee thereof which shall be ratified by a majority of the stockholders of the corporation, voting either in person or by proxy, at any annual meeting, or at any special meeting called for such purpose, shall be as valid and as binding as though ratified by every stockholder of the corporation. Any director of the corporation may vote upon any contract or other transaction between the corporation and any subsidiary or affiliated corporation without regard to the fat that he is also a director of such subsidiary or affiliated corporation.

 

Section 8.02    Ratification by Stockholders. Any contract, transaction, or act of the corporation or of the Board of Directors or any committee thereof which shall be ratified by a majority of the stockholders of the corporation, voting either in person or by proxy at any annual meeting, or at any special meeting called for such purpose, shall be as valid and binding as though ratified by every stockholder of the corporation; provided, however, that any failure of the stockholders to approve or ratify such contract, transaction, or act, when and if submitted, shall not be deemed in any way to invalidate the same or to deprive the corporation, its officers or directors of their right to proceed with such contract, transaction, or act, when and if submitted, shall not be deemed in any way to invalidate the same or to deprive the corporation, its officers or directors of their right to proceed with such contract, transaction or action.

 

 

ARTICLE IX

YEAR

 

The corporation tax and accounting year shall be a fiscal year ending December 31 of each year.

 

ARTICLE X
DIVIDENDS

 

The Board of Directors may from time to time declare, and the corporation may pay dividends on its outstanding shares, payable in cash, other assets or by the way of stock dividends.

 

ARTICLE XI
SEAL

 

The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, state of incorporation and the words “Corporate Seal.”

 

ARTICLE XII
WAIVER OF NOTICE

 

Whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these Bylaws or under the provisions of the articles of incorporation or under the provisions of the laws of the State of Mississippi, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

 

ARTICLE XIII
BYLAWS

 

Section 13.01    Inspection. A copy of the Bylaws, with all amendments thereto, shall at all times be kept in a convenient place at the principal office of the corporation and shall be open for inspection to all stockholders during regular business hours.

 

Section 13.02    Amendments. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by a two-thirds (2/3) vote of the Directors then holding office at any regular or special meeting of the Board of Directors.

 

 

	SECRETARY
	(SEAL)

 

Exhibit 4.1

 

DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

 

The following summary of the terms of our capital stock is not meant to be complete and is qualified by reference to the relevant provisions of the Mississippi Business Corporation Act and our amended and restated articles of incorporation, as amended (our “articles of incorporation”), and our amended and restated by-laws (our “by-laws”).

 

Authorized Capital Stock

 

Our articles of incorporation authorizes us to issue up to 15,000,000 shares of common stock, $1.00 par value per share.

 

Description of Common Stock

 

Voting rights. Each share of common stock is entitled to one vote on all matters voted upon by our stockholders, including the election of directors, and do not have cumulative voting rights. Unless otherwise required by law, our articles of incorporation or by-laws, any matter brought before any meeting of stockholders, other than the election of directors, is decided by the affirmative vote of a majority of the shares represented at the meeting and entitled to vote thereon, a quorum being present.

 

Dividends. Holders of our common stock are entitled to receive dividends when, as and if declared by the board of directors in its discretion out of funds legally available for that purpose.

 

Other rights and preferences. The issued and outstanding shares of our common stock are, and the shares of our common stock that we may issue in the future will be, validly issued, fully paid and nonassessable. Shares of our common stock are not redeemable and have no subscription, conversion or preemptive rights.

 

Transfer agent. The transfer agent and registrar for our common stock is the Asset Management and Trust Department of The Peoples Bank, Biloxi, Mississippi.

 

OTCQX. Our common stock is listed on The OTCQX Best Market under the symbol “PFBX.”

 

Certain Provisions of Our Articles of Incorporation and By-laws

 

Advance Notice of Intention to Nominate a Director. Our by-laws permit a stockholder to nominate a person for election as a director only if written notice of such stockholder’s intent to make a nomination has been delivered to our Secretary within the time periods and in the manner specified in the by-laws. Any nomination that fails to comply with these requirements may be disqualified.

 

Advance Notice of Stockholder Proposals. Our by-laws permit a stockholder proposal to be presented at a stockholders’ meeting only if prior written notice of the proposal has been delivered to our Secretary within the time periods and in the manner specified in the by-laws.

 

Ability of Stockholders to Call Special Meetings. Our by-laws provide that the president or a majority of the board of directors may call a special meeting and that the president shall call a special meeting at the request of the holders of not less than one-tenth of all the outstanding shares of the corporation entitled to vote at the meeting.

 

Stockholders May Act by Written Consent. Our by-laws allow our stockholders the right to take any action required or permitted to be taken at any annual or special meeting of stockholders by unanimous written consent setting forth the action so taken.

 

Removal of Directors; Filling Vacancies on Board of Directors. Our by-laws provide that any newly created directorships resulting from any increase in the authorized number of directors and any vacancies on the board of directors resulting from the death or resignation of a director, or otherwise, may be filled by the affirmative vote of a majority of the directors then in office, although less than a quorum. Any director so elected will hold office until the next annual meeting of the stockholders and until his successor is elected and qualified, or until his earlier resignation or removal.

 

 

Supermajority Voting Requirement. The affirmative vote of at least 80 percent of our outstanding capital stock is required to approve any merger or consolidation, or any sale, lease, or exchange of substantially all the assets of the company with any person, firm, or corporation, (herein referred to as the Tender Offeror) or any person, firm or corporation controlling the Tender Offeror, controlled by the Tender Offeror, or under common control with the Tender Offeror, or any group of which the Tender Offeror or any of the foregoing persons, firms, or corporations are members, or any other group controlling the Tender Offeror, controlled by the Tender Offeror, or under common control with the Tender Offeror owns of record, or owns beneficially, directly or indirectly, more than 10{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of any class of our equity voting security.

 

Amendment of By-laws. Our by-laws provide that the by-laws may be altered, amended or repealed and new bylaws may be adopted by a two-thirds (2/3) vote of the directors then holding office at any regular or special meeting of the board of directors.

 

Limitation of Liability of Directors and Officers. Our articles of incorporation and by-laws include a provision that states that a director shall not be liable to the company or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for: (i) the amount of financial benefit received by a director to which he is not entitled; (ii) an intentional infliction of harm on the company or its shareholders; (iii) a violation of Section 79 4-8.33 of Mississippi Code of 1972, as amended; or (iv) an intentional violation of criminal law. In addition, our articles of incorporation and by-laws provide for mandatory indemnification rights to the fullest extent permitted by law to any director or executive officer who (because of the fact that he or she is our director or officer) is involved in a legal proceeding. These indemnification rights include reimbursement for expenses incurred by the director or officer in advance of the final disposition of a proceeding in accordance with the by-laws.

 

Forum for Adjudication of Disputes

 

Our by-laws provide that unless we consent in writing to the selection of an alternative forum, a state or federal court located within the Second Judicial District of Harrison County in the State of Mississippi shall be the sole and exclusive forum for (1) any derivative action or proceeding brought in the right of the company, (2) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the company to the company or the company’s stockholders, (3) any action asserting a claim against the company or any director or officer or other employee of the company arising pursuant to any provision of the Act, Section 81-5-105 of the Mississippi Code of 1972, as amended, or the articles of incorporation or by-laws (in each case, as they may be amended from time to time), or (4) any action asserting a claim against the company or any director or officer or other employee of the company governed by the internal affairs doctrine.

 

Exhibit 23.1: Consent of Independent Registered Public Accounting Firm

 

We consent to the incorporation by reference in Registration Statement No. 333-144181 on Form S-8 of Peoples Financial Corporation of our report dated March 29, 2021 relating to our audit of the consolidated financial statements which appears in the Annual Report on Form 10-K of Peoples Financial Corporation for the year ended December 31, 2020.

 

/s/ WIPFLI LLP

 

Atlanta, Georgia

March 29, 2021

 

Exhibit 23.2: Consent of Independent Registered Public Accounting Firm

 

We consent to the incorporation by reference in Registration Statement No. 333-144181 on Form S-8 of Peoples Financial Corporation of our report dated March 13, 2019 relating to our audit of the consolidated financial statements which appears in the Annual Report on Form 10-K of Peoples Financial Corporation for the year ended December 31, 2020.

 

/s/ PORTER KEADLE MOORE, LLC

 

Atlanta, Georgia

March 29, 2021

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PEOPLES FINANCIAL CORPORATION

PURSUANT TO SECTION 302 OF THE

SARBANES – OXLEY ACT OF 2002

 

 

I, Chevis C. Swetman, certify that:

 

1. I have reviewed this annual report on Form 10-K of Peoples Financial Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

 

 

 

Dated: March 29, 2021

 

/s/ Chevis C. Swetman

Chevis C. Swetman,

Chairman, President and Chief Executive Officer

(principal executive officer)

 

Exhibit 31.2

 

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PEOPLES FINANCIAL CORPORATION

PURSUANT TO SECTION 302 OF THE

SARBANES – OXLEY ACT OF 2002

 

 

I, Lauri A. Wood, certify that:

 

1. I have reviewed this annual report on Form 10-K of Peoples Financial Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and

presented in this report our conclusion about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weakness in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

 

 

 

Dated: March 29, 2021

 

/s/ Lauri A.Wood

Lauri A. Wood,

Chief Financial Officer and Controller

(principal financial and accounting officer)

 

Exhibit 32.1

 

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PEOPLES FINANCIAL CORPORATION

PURSUANT TO 18 U.S.C. ss. 1350

 

I, Chevis C. Swetman, Chairman, President and Chief Executive Officer of Peoples Financial Corporation (the “Company”), hereby certify that the accompanying report on Form 10-K for the period ending December 31, 2020 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the “Report”) by the Company fully complies with the requirements of that section.

 

I further certify that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

                                                                         

	By:	/s/ Chevis C. Swetman
		Chevis C. Swetman,
		Chairman, President and Chief Executive Officer
		(principal executive officer)
	Date:	March 29, 2021

 

Exhibit 32.2

 

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PEOPLES FINANCIAL CORPORATION

PURSUANT TO 18 U.S.C. ss. 1350

 

I, Lauri A. Wood, Chief Financial Officer and Controller of Peoples Financial Corporation (the “Company”), hereby certify that the accompanying report on Form 10-K for the period ending December 31, 2020 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the “Report”) by the Company fully complies with the requirements of that section.

 

I further certify that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.                                     

 

	By:	/s/ Lauri A. Wood
		Lauri A. Wood
		Chief Financial Officer and Controller
		(principal financial and accounting officer)
	Date:	March 29, 2021