10-Q - PFBX - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended		September 30, 2024

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


Commission File Number		001-12103


PEOPLES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)


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


Lameuse and Howard Avenues, Biloxi, Mississippi	39533
(Address of principal executive offices)	(Zip Code)


(228) 435-5511
(Registrant’s telephone number, including area code)

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


Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		PFBX		None

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Smaller reporting company ☒
Non-accelerated filer ☒		Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized. At October 31, 2024, there were 15,000,000 shares of $1 par value common stock authorized, with 4,661,686 shares issued and outstanding.

Part 1 – Financial Information

Item 1: Financial Statements

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition (continued)

(in thousands except share data)


	****	September 30, 2024		****	December 31, 2023
		(unaudited)			(audited)
Assets
Cash and due from banks		$	42,253		$	22,794
Available for sale securities, amortized cost of $371,236 at September 30, 2024; $379,195 at December 31, 2023			341,878			339,477
Held to maturity securities, fair value of $123,414 at September 30, 2024; $138,523 at December 31, 2023			133,665			150,941
Less: Allowance for credit losses on held to maturity securities			30			30
Held to maturity securities, net			133,635			150,911
Other investments			350			350
Federal Home Loan Bank Stock, at cost			434			2,334
Loans			239,259			238,339
Less: Allowance for credit losses on loans and leases			3,091			3,224
Loans, net			236,168			235,115
Bank premises and equipment, net of accumulated depreciation			19,139			19,470
Accrued interest receivable			3,608			3,520
Cash surrender value of life insurance			21,850			21,375
Intangible asset			491			538
Other assets			14,346			1,854
Total assets		$	814,152		$	797,738
Liabilities and Shareholders' Equity
Liabilities:	****		****
Deposits:
Demand, non-interest bearing		$	187,866		$	174,933
Savings and demand, interest bearing			439,941			483,662
Time, $250,000 or more			14,922			7,518
Other time deposits			23,357			22,377
Total deposits			666,086			688,490
Advances from Federal Home Loan Bank			—			18,500
Borrowings under Bank Term Funding Program			30,000			—
Employee and director benefit plans liabilities			19,352			19,581
Other liabilities			2,321			1,884
Total liabilities			717,759			728,455
Shareholders' Equity:		****	****
Common stock, $1 par value, 15,000,000 shares authorized, 4,661,686 shares issued and outstanding at September 30, 2024 and December 31, 2023			4,662			4,662
Surplus			65,780			65,780
Undivided profits			56,910			37,574
Accumulated other comprehensive loss			(30,959)			(38,733)
Total shareholders' equity			96,393			69,283
Total liabilities and shareholders' equity		$	814,152		$	797,738

See Notes to Consolidated Financial Statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Income

(in thousands except per share data) (unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,
	****	2024		****	2023		****	2024		****	2023
Interest income:
Interest and fees on loans		$	3,649		$	3,237		$	10,676		$	9,509
Interest and dividends on securities:
U. S. Treasuries			1,753			1,370			5,941			5,236
Mortgage-backed securities			561			927			1,887			2,726
States and political subdivisions			980			1,084			2,984			3,264
Collateralized mortgage obligations			749			887			2,404			2,596
Other investments			40			31			115			88
Interest on balances due from depository institutions			98			303			1,447			1,507
Total interest income			7,830			7,839			25,454			24,926
Interest expense:
Deposits			1,760			1,471			5,953			4,296
Borrowings			791			19			1,626			29
Total interest expense			2,551			1,490			7,579			4,325
Net interest income			5,279			6,349			17,875			20,601
Provision for credit losses			(48)			22			(48)			(275)
Net interest income after provision for credit losses		$	5,327		$	6,327		$	17,923		$	20,876
Non-interest income:
Trust department income and fees		$	628		$	613		$	1,863		$	1,837
Service charges on deposit accounts			780			781			2,360			2,437
Increase in cash surrender value of life insurance			123			120			363			352
Gain (loss) on sale of property, plant and equipment, net			4			30			46			30
Other income			215			201			622			599
Total non-interest income			1,750			1,745			5,254			5,255
Non-interest expense:			****			****
Salaries and employee benefits			2,768			2,889			7,938			8,704
Net occupancy			558			574			1,644			1,532
Equipment rentals, depreciation and maintenance			784			698			2,239			2,042
FDIC and state banking assessments			122			125			320			357
Data processing			311			289			955			937
ATM expense			265			265			668			434
Other real estate expense			1			1			1			37
Legal expense			29			125			349			434
Other expense			905			868			2,583			2,625
Total non-interest expense			5,743			5,834			16,697			17,102
Income before income taxes			1,334			2,238			6,480			9,029
Income tax (benefit) expense			(14,097)			328			(13,695)			1,586
Net income		$	15,431		$	1,910		$	20,175		$	7,443
Basic and diluted earnings per share		$	3.31		$	0.41		$	4.33		$	1.59
Dividends declared per share		$	—		$	—		$	0.18		$	0.12

See Notes to Consolidated Financial Statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands) (unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,
	****	2024		****	2023		****	2024		****	2023
Net income		$	15,431		$	1,910		$	20,175		$	7,443
Other comprehensive income (loss):
Net unrealized gain (loss) on available for sale securities, net of tax			6,762			(7,253)			7,774			(2,812)
Total other comprehensive income (loss)			6,762			(7,253)			7,774			(2,812)
Total comprehensive income (loss)		$	22,193		$	(5,343)		$	27,949		$	4,631

See Notes to Consolidated Financial Statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(in thousands except share data) (unaudited)


								Accumulated
	Number of							Other
	Common	Common				Undivided		Comprehensive
	Shares	Stock		Surplus		Profits		Income (loss)		Total
Balance, January 1, 2023	4,678,186	$	4,678	$	65,780	$	31,154	$	(46,418)	$	55,194
Cumulative effect of accounting change	****						(81)				(81)
Total shareholders' equity at beginning of period, as adjusted	4,678,186		4,678		65,780		31,073		(46,418)		55,113
Net income							2,623				2,623
Other comprehensive income									5,051		5,051
Balance, March 31, 2023	4,678,186	$	4,678	$	65,780	$	33,696	$	(41,367)	$	62,787
Net income							2,910				2,910
Other comprehensive (loss)									(610)		(610)
Dividend declared (0.12 per share)							(561)				(561)
Balance, June 30, 2023	4,678,186	$	4,678	$	65,780	$	36,045	$	(41,977)	$	64,526
Net income							1,910				1,910
Other comprehensive (loss)									(7,253)		(7,253)
Stock repurchase	(5,500)		(5)				(65)				(70)
Balance, September 30, 2023	4,672,686	$	4,673	$	65,780	$	37,890	$	(49,230)	$	59,113
Balance, January 1, 2024	4,661,686	$	4,662	$	65,780	$	37,574	$	(38,733)	$	69,283
Net income							2,415				2,415
Other comprehensive (loss)									(1,035)		(1,035)
Balance, March 31, 2024	4,661,686	$	4,662	$	65,780	$	39,989	$	(39,768)	$	70,663
Net income							2,329				2,329
Other comprehensive income									2,047		2,047
Dividend declared (0.18 per share)							(839)				(839)
Balance, June 30, 2024	4,661,686	$	4,662	$	65,780	$	41,479	$	(37,721)	$	74,200
Net income							15,431				15,431
Other comprehensive income									6,762		6,762
Balance, September 30, 2024	4,661,686	$	4,662	$	65,780	$	56,910	$	(30,959)	$	96,393

All values are in US Dollars.

Note: Balances as of January 1, 2023 and 2024 were audited.

See Notes to Consolidated Financial Statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands) (unaudited)


		Nine Months Ended September 30,
	****	2024		****	2023
Cash flows from operating activities:
Net income		$	20,175		$	7,443
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			1,252			1,128
Provision for credit losses			(48)			(275)
Amortization of intangible asset			47			46
(Accretion) amortization of available for sale securities			(2,231)			(27)
Amortization (accretion) of held to maturity securities			313			(2,141)
Gain on sale of bank premises and equipment			(46)			(30)
Loss (gain) on sales of other real estate			—			62
Increase in cash surrender value of life insurance			(363)			(352)
Change in accrued interest receivable			(88)			(83)
Change in deferred tax			(14,079)			(1,247)
Change in other assets			(996)			1,426
Change in employee and director benefit plan liabilities and other liabilities			156			366
Net cash provided by operating activities		$	4,092		$	6,316
Cash flows from investing activities:
Proceeds from maturities of available for sale securities		$	173,258		$	50,942
Purchases of available for sale securities			(163,069)			(30,161)
Proceeds from maturities of held to maturity securities			16,963			198,977
Purchases of held to maturity securities			—			(162,970)
Purchases of Federal Home Loan Bank stock			1,900			(74)
Loans, net change			(962)			7,382
Proceeds from sales of other real estate			9			197
Acquisition of bank premises and equipment			(942)			(2,106)
Proceeds from sale of bank premises and equipment			65			46
Investment in cash surrender value of life insurance			(112)			(105)
Net cash provided by investing activities			27,110			62,128
Cash flows from financing activities:
Demand and savings deposits, net change			(30,788)			(46,416)
Time deposits, net change			8,384			(9,130)
Stock repurchase			—			(70)
Borrowings from Federal Home Loan Bank			829,150			110,000
Repayments to Federal Home Loan Bank			(847,650)			(110,000)
Borrowings under Bank Term Funding Program			30,000			—
Cash dividends			(839)			(561)
Net cash (used in) financing activities			(11,743)			(56,177)
Net (decrease) increase in cash and cash equivalents			19,459			12,267
Cash and cash equivalents, beginning of period			22,794			32,836
Cash and cash equivalents, end of period		$	42,253		$	45,103
Supplemental disclosures of noncash investing activities
Transfer from loans to other real estate owned		$	9		$	952

See Notes to Consolidated Financial Statements.

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2024 and 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.Basis of Presentation:

Peoples Financial Corporation (the “Company”) is a one-bank holding company headquartered in Biloxi, Mississippi. The Company has two subsidiaries, PFC Service Corp., an inactive company, and The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Bank provides a full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses operating in those portions of Mississippi, Louisiana and Alabama which are within a fifty-mile radius of the Waveland, Wiggins and Gautier branches, the Bank’s three most outlying locations (the “trade area”).

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, except for the recording of a one-time discrete reduction to income tax expense of $15,194,000 in the current quarter, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the consolidated financial position of the Company and its subsidiaries as of September 30, 2024 and December 31, 2023 the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2023 Annual Report and Form 10-K.

CRITICAL ACCOUNTING POLICIES

The results of operations for the quarter and nine months ended September 30, 2024, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for credit losses, the valuation of other real estate acquired in connection with foreclosure or repossession or in satisfaction of loans, and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income. In the third quarter of 2024, the Company reassessed the valuation allowance based upon its projections of future sources of taxable income in accordance with applicable accounting guidance and determined it was appropriate to reverse substantially all the valuation allowance which resulted in a one-time discrete reduction to income tax expense of $15,194,000 in the current quarter.

Summary of Significant Accounting Policies - The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry.

The Company’s loan portfolio segments as of September 30, 2024 and December 31, 2023 were as follows:

Real Estate Loans

Residential-Residential mortgage loans are susceptible to weakening general economic conditions, increases in unemployment rates, and declining real estate values.

Construction-Risk common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements, and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans. Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates. 7

Nonresidential-Risks to this loan category include industry concentration and the inability to monitor the condition of collateral. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt, declines in real estate values, and lack of suitable alternative use for properties. These loans are also susceptible to declines in occupancy rates, business failure, and general economic conditions.

Commercial and Industrial-Risk to this loan category include industry concentration and the practical limitations associated with monitoring the condition of the collateral which often consists of inventory, accounts receivable, and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt.

Other-Risk common to these loans include regulatory risks, unemployment, changes in local economic conditions, and the inability to monitor collateral consisting of personal property.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update –In March 2024, the Financial Accounting Standards Board issued Accounting Standards Update 2024-02 (“ASU 2024-02”), Codification Improvements-Amendments to Remove References to the Concepts Statements. ASU 2024-02 removes various references to the FASB’s Concepts Statements from the FASB’s Accounting Standards Codification (Codification or GAAP). The Concepts Statements are non-authoritative guidance issued by the FASB that provide the objectives, qualitative characteristics and other concepts that govern the development of accounting principles by the FASB. ASU 2024-02 applies to all reporting entities and updates the Codification by eliminating 16 discrete references to the Concepts Statements across a variety of defined terms and Topics within the Codification. Codification users should review the entirety of ASU 2024-02 to assess any effects that the amendments may have on entities that are within the ASU’s scope. The FASB does not expect these updates to have a significant effect on current accounting practice. That is because in most cases the amendments to the Codification remove references to Concept Statements that are extraneous and not required to understand or apply the guidance. However, the FASB has provided transition guidance if applying the updated guidance results in accounting changes for some entities. The amendments in ASU 2024-02 are effective for public business entities for fiscal years beginning after December 15, 2024. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2025. Early application of the amended guidance is permitted for all entities, for any fiscal year or interim period for which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period. An entity can adopt ASU 2024-02 either on a prospective basis to all new transactions recognized on or after the date that the entity first applies the amendments, or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. Management has evaluated the impact of the adoption of this standard and determined there would be no material impact to the Company’s consolidated financial position or results of operations.

Accounting Standards Update –In March 2024, the Financial Accounting Standards Board issued Accounting Standards Update 2024-01 (“ASU 2024-01”), Compensation-Stock Compensation (Topic 718): Scope of Application of Profits Interest and Similar Awards. ASU 2024-01 provides illustrative guidance to clarify the scope application of profits interest and similar awards. It clarifies how an entity determines where a profits interest or similar award is within the scope of ASC 718 or not a share-based payment arrangement and therefore within the scope of other guidance. For certain public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes that interim period. The amendments in this Update should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. If the amendments are applied retrospectively, an entity is required to provide the disclosures in the period of adoption. If the amendments are applied prospectively, an entity is required to disclose the nature of and reason for the change in accounting principle. Management has evaluated the impact of the adoption of this standard and determined there would be no impact to the Company’s consolidated financial position or results of operations. 8

Accounting Standards Update –In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments of ASU 2023-09 relate to the rate reconciliation and income taxes paid disclosures to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. The other amendments in this update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer are considered cost beneficial or relevant. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis. Retrospective application is permitted. Management has evaluated the impact of the adoption of this standard and determined there may be additional information required within the Company’s notes to consolidated financial statements on income taxes.

Accounting Standards Update-In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07 (“ASU 2023-07”), *Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.*The guidance issued in this update requires improvement to the disclosures about a public entity’s reportable segments and more detailed information about a reportable segment’s expenses and other segment items. Even though the Company has a single reportable segment, all the disclosures required by this update are required. Under this guidance, public entities are required to disclose segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment that are currently required annually. The goal of these disclosures is the enable investors to develop more decision-useful financial analyses. This updated is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this update should be applied retrospectively to all previous periods presented. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements.

There was a material change or development during the reporting period with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023. In the third quarter of 2024, the Company reassessed the valuation allowance based upon its projections of future sources of taxable income in accordance with applicable accounting guidance and determined it was appropriate to reverse substantially all the valuation allowance which resulted in a one-time discrete reduction to income tax expense of $15,194,000 in the current quarter.

On January 1, 2023, the Company adopted Accounting Standards Codification (“ASC”) 326, “Financial Instruments – Credit Losses,” more commonly referred to as CECL, on a modified retrospective basis. The provisions of this guidance required a material change to the manner in which the Company estimated and reported losses on financial instruments, including loans and unfunded lending commitments, select securities and other assets carried at amortized cost.

Under CECL, the allowance for credit losses (ACL) is a valuation account, measured as the difference between the Bank’s amortized cost basis and the net amount expected to be collected on the financial assets (i.e., lifetime credit losses). The CECL methodology described in FASB Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), applies to financial assets measured at amortized cost, and off-balance-sheet credit exposures (collectively, financial assets) including: financing receivables such as loans held for investment, held to maturity debt securities, off-balance-sheet credit exposures (unfunded commitments) including off-balance sheet loan commitments; standby letters of credit; and other similar instruments. The ACL is comprised of the Allowance for Loan and Lease Losses (ALLL), a valuation account available to absorb losses on loans and leases held for investment, and the Reserve for Unfunded Lending Commitments, a liability established to absorb credit losses for the expected life of the contractual term of on and off-balance sheet exposures as of the date of the determination.

the cash flows of financial assets. The following represents an overview of key factors regarding CECL: CECL requires the Bank to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risk characteristics exist. The Bank has determined that Call Report categories will be utilized, and Management will maintain the option to further segment the portfolio if we deem it beneficial to the analysis.

As stated above, CECL also applies to held to maturity debt securities since they are carried at amortized cost and are within the scope of the standard. Therefore, it is the responsibility of management to establish any required allowances for credit losses on the Bank’s held to maturity debt securities as of the date the Bank adopts CECL and to maintain such allowances thereafter. Because CECL requires the Bank to measure expected credit losses on a collective or pool basis when similar risk characteristics exist, held to maturity debt securities that share similar risk characteristics are collectively assessed for credit losses.

Estimation Methods for Expected Credit Losses-Accounting Standards Codification (“ASC”) 326, “Financial Instruments-Credit Losses,” does not require the use of a specific loss estimation method for purposes of determining ACLs. Various methods may be used to estimate the expected collectability of financial assets, with those methods generally applied consistently overtime. The same loss estimation method does not need to be applied to all financial assets. Loss-rate methods can involve a variety of approaches, and Management incorporates the methods below:

Open Pool or Snapshot Method

The starting point for the calculation consists of assets that are outstanding at the end of a given time frame and are made up of assets that were originated in various years. Additional assets may be added to pools of loans under an open pool method.

Weighted Average Remaining Maturity (WARM) Method

A loss-rate method that estimates expected credit losses over the remaining life of the financial assets and uses a weighted average of the assets’ contractual terms to estimate the pool’s remaining contractual term. The WARM method uses average annual net charge-off rates and the amortization adjusted remaining life considering prepayments plus qualitative adjustments to estimate the ACLs.

Qualitative Factor Adjustments

The estimation of ACLs is to reflect consideration of all significant factors relevant to the expected collectability of the Bank’s financial assets as of the reporting date. Management begins their expected credit loss estimation process by determining the Bank’s historical loss information.

Management is to consider the need to qualitatively adjust expected credit loss estimates for information not already captured in the loss estimation process. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses.

Historical loss experience generally provides a quantitative starting point for Management’s estimate of expected credit losses. Consistent with FASB ASU Topic 326, Management must consider relevant qualitative factors that may cause the CECL estimate of the financial asset portfolio as of the evaluation date to differ from the historical loss experience.

Management is to consider the qualitative factors that are relevant to the Bank as of the reporting date, which may include but are not limited to the:

1.	Nature and volume of the Bank’s financial assets.
2.	Existence, growth, and effect of any concentrations of credit.
---	---
3.	Volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Adversely classified or graded loans are loans rated “substandard” (or its equivalent) or worse under the institution’s loan classification system.
---	---
4.	Value of the underlying collateral for loans that are not collateral dependent.
---	---

5.	Bank’s lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries.
6.	Quality of the Bank’s credit review function.
---	---
7.	Experience, ability, and depth of the Bank’s lending, investment, collection, and other relevant management and staff.
---	---
8.	Effect of other external factors such as the regulatory, legal, and technological environments, competition, and events such as natural disasters.
---	---
9.	Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets. Changes in economic and business conditions and developments included in qualitative factor adjustments are limited to those that affect the collectability of the Bank’s financial assets and are relevant to the Bank’s financial asset portfolios.
---	---

The analysis and methodology used for estimating the ACL includes two primary elements: a collective approach for pools of loans that have similar risk characteristics and a specific reserve analysis for credits individually evaluated for credit loss. The WARM method uses comparable historical lookback periods as proxies for projecting future trends and employs a qualitative (“Q”) factor component in the projections which represents expected differences in current and forecasted conditions from historical loss information or conditions. The main methodology approach includes comparable risk pools which are segregated by call report loan category, unadjusted loss estimation which is a combination of open pool/snapshot and weighted average remaining maturity, comparable or “look back” periods, which the Bank chooses to best approximate the expected future loss environment for the WARM time period. The WARM time period considers the average amortized remaining life adjusted by prepayment assumptions based on peer data.

For the collective approach, the Bank segments loans into real estate-residential, real estate-nonresidential, real estate-construction and land development, commercial and industrial, and consumer/other, with further segmentation by region and sub-portfolio, as deemed appropriate. Both quantitative and qualitative factors are applied at the portfolio segment levels. The Bank applies the practical expedient that permits the exclusion of the accrued interest receivable balance from amortized cost basis of financing receivables. The Bank reverses interest income on loans that are placed on nonaccrual status, which is generally when the loan becomes 90 days past due, or earlier if management believes the collection of interest is doubtful. Management believes this policy results in the timely reversal of uncollectible interest.

The Bank applies the expected future loss rate for each loan portfolio segment to each of the Bank’s segments to calculate the allowance for credit losses.

CECL also requires capturing estimated credit losses on unfunded commitments that meet certain criteria. Management starts with current gross unfunded commitment levels by category as reported on the call report and then subtracts any unconditionally cancellable amounts, which are not subject to CECL reserve requirements to produce net unfunded commitment levels, as well as consideration of the likelihood of funding. Any allowance for off balance sheet exposures is reported as an other liability on the Consolidated Statement of Condition and is increased or decreased via the provision for credit losses account on the Consolidated Statement of Income.

The Bank maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., the commitment cannot be canceled at any time). The initial default loss rates are then estimated by taking expected future lifetime loss rates of the loan categories that are included in each unfunded commitment segment and dividing the lifetime rate by their respective WARMs to derive an annual loss rate estimate. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical study and empirical data calculated by the Federal Deposits Insurance Corporation, and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance is classified on the Consolidated Statement of Condition within other liabilities.

The Bank establishes specific reserves using an individually evaluated approach for nonaccrual loans, modified loans, and other financial instruments that are deemed to not share risk characteristics with other collectively evaluated financial 11

assets. For loans individually evaluated, a specific allowance is recognized for any shortfall between the loan’s value and its recorded investment. The loan’s value is measured by either the loan’s observable market price, the fair value of the collateral of the loan (less liquidation costs) if it is collateral dependent, or by the present value of expected future cash flows discounted at the loan’s effective interest rate. The Bank applies the practical expedient and defines collateral dependent loans as those where the borrower is experiencing financial difficulty and on which repayment is expected to be provided substantially through the operation or sale of the collateral.

The CECL standard also requires an assessment of the Bank’s held to maturity debt securities for expected credit losses and the available for sale debt securities for credit-related impairment. The Bank applies the practical expedient to exclude the accrued interest receivable balance of $1,222,789 from the amortized cost basis of held to maturity debt securities. The allowance for credit losses on held to maturity debt securities is estimated on a collective or pool basis when similar risk characteristics exist; held to maturity debt securities that share similar risk characteristics are collectively assessed for credit losses. A separate contra valuation account is available to absorb losses on securities. The allowance for credit loss is limited to the amount by which the fair value is less than the amortized cost basis. The Bank evaluates credit impairment on available for sale debt securities at an individual security level. This evaluation is done for securities whose fair value is below amortized cost with a more than inconsequential risk of default and where the Bank has assessed the decline in fair value is significant enough to suggest a credit event occurred. Credit events are generally assessed based on adverse conditions specifically related to the security, an industry, or geographic area, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, changes in the financial condition of the underlying loan obligors. The allowance for credit losses for such securities is measured using a discounted cash flow methodology, through which management compares the present value of expected cash flows with the amortized cost basis of the security. The allowance for credit loss is limited to the amount by which the fair value is less than the amortized cost basis. If the Bank intends to sell the debt security, or more likely than not will be required to sell the security before recovery of its amortized cost basis, the security is charged down to fair value against the allowance for credit losses, with any incremental impairment reported in earnings.

The Bank reassesses the credit losses at each reporting period and records subsequent changes in the allowance for credit losses on loans, unfunded commitments and securities with a corresponding adjustment recorded in the provision for credit loss expense.

2.	Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 4,661,686 and 4,678,065 for the nine months ended September 30, 2024 and 2023, respectively.

3.	Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $7,571,786 and $4,316,512 for the nine months ended September 30, 2024 and 2023, respectively, for interest on deposits and borrowings. The Company paid $835,000 and $415,000 in estimated income tax payments during the nine months ended September 30, 2024 and 2023, respectively. Two loans were transferred to other real estate and the collateral sold during the nine months ended September 30, 2024. One loan in the amount of $952,000 was transferred to other real estate during the nine months ended September 30, 2023.

4.	Investments:

Effective January 1, 2023, in conjunction with the adoption of CECL, and again at December 31, 2023 and September 30, 2024, the Company evaluated credit impairment for individual securities available for sale whose fair value was below amortized cost with a more than inconsequential risk of default and where the Company had assessed the decline in fair value significant enough to suggest a credit event occurred. There were no securities that met the criteria of a credit loss event and therefore, no allowance for credit loss was recorded for either period. The Company also evaluated impairment for individual securities held to maturity and determined an allowance for credit loss of $41,000 should be established as of January 1, 2023. A reversal of a portion of the impairment of $(11,346) was recorded as of December 31, 2023. No additional impairment was recorded as of September 30, 2024. 12

The amortized cost, fair value and allowance for credit losses related to securities at September 30, 2024 and December 31, 2023, are as follows (in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
September 30, 2024	Cost		Gains		Losses		Fair Value
Available for sale securities:
U.S. Treasuries	$	139,174		464	$	(5,846)	$	133,792
Mortgage-backed securities		47,970		46		(3,389)		44,627
Collateralized mortgage obligations		83,142		62		(4,429)		78,775
States and political subdivisions		100,950		—		(16,266)		84,684
Total available for sale securities	$	371,236	$	572	$	(29,930)	$	341,878


	****			****	Gross		****	Gross		****
		Amortized			Unrealized			Unrealized			Estimated
December 31, 2023	****	Cost		****	Gains		****	Losses		****	Fair Value
Available for sale securities:
U.S. Treasuries		$	123,945		$	55		$	(8,542)		$	115,458
Mortgage-backed securities			52,374			14			(4,603)			47,785
Collateralized mortgage obligations			101,316			17			(6,327)			95,006
States and political subdivisions			101,560			—			(20,332)			81,228
Total available for sale securities		$	379,195		$	86		$	(39,804)		$	339,477

There was no allowance for credit losses on available-for-sale securities as of September 30, 2024 or December 31, 2023.


			Gross		Gross				Allowance		Net
	Amortized		Unrealized		Unrealized		Estimated		for Credit		Carrying
September 30, 2024	Cost		Gains		Losses		Fair Value		Losses		Amount
Held to maturity securities:
U.S. Treasuries	$	44,971	$	74	$	(315)	$	44,730	$	—	$	44,971
States and political subdivisions		88,694		16		(10,026)		78,684		(30)		88,664
Total held to maturity securities	$	133,665	$	90	$	(10,341)	$	123,414	$	(30)	$	133,635


	****				Gross		****	Gross						Allowance			Net
		Amortized			Unrealized			Unrealized			Estimated			for Credit			Carrying
December 31, 2023	****	Cost		****	Gains		****	Losses		****	Fair Value		****	Losses		****	Amount
Held to maturity securities:
U.S. Treasuries		$	59,901		$	41		$	(907)		$	59,035		$	—		$	59,901
States and political subdivisions			91,040			23			(11,575)			79,488			(30)			91,010
Total held to maturity securities		$	150,941		$	64		$	(12,482)		$	138,523		$	(30)		$	150,911

Management analyzed financial data on the state and political subdivision held-to-maturity securities. For the securities that do not have ratings, management assigned a rating based on ratings for similar municipalities. This evaluation is done for securities whose fair value is below amortized cost with a more than inconsequential risk of default and where the Company has assessed the decline in fair value is significant enough to suggest a credit event occurred. Credit events are generally assessed based on adverse conditions specifically related to the security, an industry, geographic area, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, changes in the financial condition of the underlying loan obligors. Management utilized a model provided by a third-party vendor to calculate the potential reserve required on the specific securities. The approach utilizes many inputs including enhanced and underlying ratings, maturity, issuer type/subtype, NAICS code, origination date, refunding status as well as state and region. At adoption of CECL, management determined there was a reserve required for the allowance for credit losses on held-to-maturity securities. At the end of the year an updated analysis was performed, and management determined a reduction of the provision for credit losses on held to maturity securities was appropriate as of December 31, 2023. No additional provision or reduction was required as of September 30, 2024. 13

The following table shows a rollforward of the allowance for credit losses on held-to-maturity securities for the nine months ended September 30, 2024 and the year ended December 31, 2023 (in thousands):


	State and political
	subdivisions
Balance, December 31, 2023	$	30
Provision for credit losses		—
Charge-offs of securities		—
Recoveries		—
Balance, September 30, 2024	$	30


		State and political
	****	subdivisions
Balance, December 31, 2022		$	—
Adjustment for adoption of ASU 2016-13			41
Provision for credit losses			(11)
Charge-offs of securities			—
Recoveries			—
Balance, December 31, 2023		$	30

The Company monitors the credit quality of the debt securities held-to-maturity through the use of credit ratings. The Company monitors the credit ratings on a quarterly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at September 30, 2024 and December 31, 2023, aggregated by credit quality indicators (in thousands):


	September 30, 2024
Aaa	$	44,971
Aa1/Aa2/Aa3		38,183
A1/A2		3,171
Baa1/Baa2		1,000
Not rated		46,340
Total	$	133,665


		December 31, 2023
Aaa	****	$	59,901
Aa1/Aa2/Aa3			38,496
A1/A2			3,195
Baa1/Baa2			1,003
Not rated			48,346
Total		$	150,941

At September 30, 2024 and December 31, 2023, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as nonaccrual for the nine months ended September 30, 2024 and the year ended December 31, 2023. 14

The amortized cost and fair value of debt securities at September 30, 2024, (in thousands) by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
Available for sale securities:
Due in one year or less	$	39,954	$	39,892
Due after one year through five years		106,869		100,991
Due after five years through ten years		49,508		42,658
Due after ten years		43,793		34,935
Mortgage-backed securities		47,970		44,627
Collaterized mortgage obligations		83,142		78,775
Total	$	371,236	$	341,878
Held to maturity securities:
Due in one year or less	$	34,561	$	34,401
Due after one year through five years		39,631		38,256
Due after five years through ten years		37,618		33,876
Due after ten years		21,855		16,881
Total	$	133,665	$	123,414

Available for sale securities with gross unrealized losses at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):


	****	Less Than Twelve Months				****	Over Twelve Months				****	Total
				Gross					Gross					Gross
				Unrealized					Unrealized					Unrealized
Available for Sale	****	Fair Value		Losses		****	Fair Value		Losses		****	Fair Value		Losses
September 30, 2024:
U.S. Treasuries		$	14,972	$	9		$	83,519		5,837			98,491	$	5,846
Mortgage-backed securities			672		—			38,214		3,389			38,886		3,389
Collateralized mortgage obligations			6,468		18			63,497		4,411			69,965		4,429
States and political subdivisions			—		—			84,544		16,266			84,544		16,266
Total		$	22,112	$	27		$	269,774	$	29,903		$	291,886	$	29,930


	****	Less Than Twelve Months					****	Over Twelve Months					****	Total
					Gross						Gross						Gross
					Unrealized						Unrealized						Unrealized
Available for Sale	****	Fair Value		****	Losses		****	Fair Value		****	Losses		****	Fair Value		****	Losses
December 31, 2023:
U.S. Treasuries		$	24,750		$	22		$	85,660		$	8,520			110,410		$	8,542
Mortgage-backed securities			2,811			20			38,521			4,583			41,332			4,603
Collateralized mortgage obligations			—			—			90,290			6,327			90,290			6,327
States and political subdivisions			—			—			81,088			20,332			81,088			20,332
Total		$	27,561		$	42		$	295,559		$	39,762		$	323,120		$	39,804

At September 30, 2024, 12 of the 19 Treasuries, 39 of the 46 mortgage-backed securities, 30 of the 33 collateralized mortgage obligations and 74 of the 75 securities issued by states and political subdivisions contained unrealized losses.

There were no sales of available for sale debt securities for the nine months ended September 30, 2024 and September 30, 2023.

Securities with a fair value of $328,161,363 and $296,945,649 at September 30, 2024 and December 31, 2023, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law. 15

5.	Loans:

The composition of the loan portfolio at September 30, 2024 and December 31, 2023 is as follows (in thousands):


	****	September 30, 2024		****	December 31, 2023
Real estate, residential		$	81,447		$	74,296
Real estate, construction			23,239			27,353
Real estate, nonresidential			111,989			115,014
Commercial and industrial			12,136			12,496
Other			10,448			9,180
Total		$	239,259		$	238,339

The age analysis of the loan portfolio, segregated by class of loans, as of September 30, 2024, and December 31, 2023 is as follows (in thousands):


																				Loans Past
																				Due Greater
		Number of Days Past Due																		Than 90
								Greater			Total						Total			Days and
	****	30 - 59		****	60 - 89		****	Than 90		****	Past Due		****	Current		****	Loans		****	Still Accruing
September 30, 2024:
Real estate, residential		$	841		$	137		$	219		$	1,197		$	80,250		$	81,447		$	—
Real estate, construction			63			—			—			63			23,176			23,239			—
Real estate, nonresidential			423			—			—			423			111,566			111,989			—
Commercial and industrial			47			11			—			58			12,078			12,136			—
Other			120			7			—			127			10,321			10,448			—
Total		$	1,494		$	155		$	219		$	1,868		$	237,391		$	239,259		$	—
December 31, 2023:
Real estate, residential		$	207		$	540		$	—		$	747		$	73,549		$	74,296		$	—
Real estate, construction			131			—			—			131			27,222			27,353			—
Real estate, nonresidential			58			—			—			58			114,956			115,014			—
Commercial and industrial			21			—			—			21			12,475			12,496			—
Other			75			30			—			105			9,075			9,180			—
Total		$	492		$	570		$	—		$	1,062		$	237,277		$	238,339		$	—

The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 – 5 is assigned to the loan based on factors including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of A, B, C, S, D, E or F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. A grade of S will generally be applied to loans for customers who meet the criteria for a grade of C but also warrant additional monitoring by placement on the watch list. A grade of D will generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will generally be applied to loans for customers with weaknesses inherent in the D classification and in which collection or liquidation in full is questionable. In addition, on a monthly basis the Company determines which loans are 90 days or more past due and assigns a grade of E to them. 16

A grade of F is applied to loans which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even though partial or full recovery may be possible in the future.

The following tables further disaggregates credit quality disclosures by amortized cost by class and vintage for term loans and by revolving and revolving converted to amortizing as of September 30, 2024 and December 31, 2023 (in thousands). The Company defines vintage as the later of origination, or restructure date.


	****	Term Loans																	****	****		****	Revolving		****	****
		Amortized Cost Basis by Origination Year																					Loans
																				Revolving			Converted to
	****	2024		****	2023		****	2022		****	2021		****	2020		****	Prior		****	Loans		****	Term Loans		****	Total
September 30, 2024:
Real Estate, Residential Loans:
A, B, or C		$	9,479		$	13,034		$	16,291		$	11,212		$	4,429		$	20,033		$	4,374		$	1,072		$	79,924
S			—			—			—			—			—			460			—			—			460
D			—			—			—			—			104			514			—			—			618
E			—			—			—			298			—			147			—			—			445
F			—			—			—			—			—			—			—			—			—
Total Real Estate Residential Loans		$	9,479		$	13,034		$	16,291		$	11,510		$	4,533		$	21,154		$	4,374		$	1,072		$	81,447

Real Estate, Construction Loans:
A, B, or C		$	2,301		$	435		$	2,003		$	1,941		$	1,135		$	3,149		$	8,047		$	—		$	19,011
S			—			—			—			—			—			67			3,958			—			4,025
D			—			122			—			—			81			—			—			—			203
E			—			—			—			—			—			—						—			—
F			—			—			—			—			—			—			—			—			—
Total Real Estate, Construction Loans		$	2,301		$	557		$	2,003		$	1,941		$	1,216		$	3,216		$	12,005		$	—		$	23,239

Real Estate,Nonresidential Loans:
A, B, or C		$	2,495		$	12,116		$	20,007		$	10,464		$	13,743		$	35,344		$	17,356		$	—		$	111,525
S			—			—			—			—			—			—			—			—			—
D			—			—			—			—			—			464			—			—			464
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Real Estate, Nonresidential Loans		$	2,495		$	12,116		$	20,007		$	10,464		$	13,743		$	35,808		$	17,356		$	—		$	111,989

Commercial and industrial
A, B, or C		$	1,008		$	605		$	663		$	655		$	187		$	2,596		$	6,399		$	—		$	12,113
S			—			—			—			—			—			—			—			—			—
D			—			23			—			—			—			—			—			—			23
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Commercial and Industrial Loans		$	1,008		$	628		$	663		$	655		$	187		$	2,596		$	6,399		$	—		$	12,136

Consumer/Other Loans
A, B, or C		$	4,291		$	3,791		$	892		$	522		$	378		$	294		$	244		$	—		$	10,412
S			—			—			—			—			—			—			—			—			—
D			—			30			2			—			—			—			4			—			36
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Consumer/Other Loans		$	4,291		$	3,821		$	894		$	522		$	378		$	294		$	248		$	—		$	10,448


		Term Loans																					Revolving
		Amortized Cost Basis by Origination Year																					Loans
																				Revolving			Converted to
	****	2023		****	2022		****	2021		****	2020		****	2019		****	Prior		****	Loans		****	Term Loans		****	Total
December 31, 2023:
Real Estate, Residential Loans:
A, B, or C		$	11,865		$	17,053		$	12,158		$	4,695		$	5,451		$	17,502		$	4,147		$	401		$	73,272
S			—			—			—			—			—			66			—			—			66
D			—			—			122			—			—			623			—			—			745
E			—			—			—			45			27			141			—			—			213
F			—			—			—			—			—			—			—			—			—
Total Real Estate Residential Loans		$	11,865		$	17,053		$	12,280		$	4,740		$	5,478		$	18,332		$	4,147		$	401		$	74,296

Real Estate, Construction Loans:
A, B, or C		$	1,069		$	2,119		$	2,133		$	1,379		$	38		$	3,966		$	12,827		$	—		$	23,531
S			—			—			—			—			—			—			3,735			—			3,735
D			—			—			—			87			—			—			—			—			87
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Real Estate, Construction Loans		$	1,069		$	2,119		$	2,133		$	1,466		$	38		$	3,966		$	16,562		$	—		$	27,353

Real Estate,Nonresidential Loans:
A, B, or C		$	12,387		$	20,951		$	11,056		$	15,008		$	5,497		$	34,330		$	14,959		$	728		$	114,916
S			—			—			—			—			—			—			—			—			—
D			—			—			—			—			—			98			—			—			98
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Real Estate, Nonresidential Loans		$	12,387		$	20,951		$	11,056		$	15,008		$	5,497		$	34,428		$	14,959		$	728		$	115,014

Commercial and industrial
A, B, or C		$	850		$	1,008		$	831		$	263		$	2,742		$	39		$	6,763		$	—		$	12,496
S			—			—			—			—			—			—			—			—			—
D			—			—			—			—			—			—			—			—			—
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Commercial and Industrial Loans		$	850		$	1,008		$	831		$	263		$	2,742		$	39		$	6,763		$	—		$	12,496

Consumer/Other Loans
A, B, or C		$	5,346		$	1,417		$	841		$	439		$	234		$	304		$	508		$	52		$	9,141
S			—			—			—			—			—			—			—			—			—
D			7			6			—			—			18			3			5			—			39
E			—			—			—			—			—			—			—			—			—
F			—			—			—			—			—			—			—			—			—
Total Consumer/Other Loans		$	5,353		$	1,423		$	841		$	439		$	252		$	307		$	513		$	52		$	9,180

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated (in thousands):


		September 30, 2024
		Nonaccrual Loans with		****	Nonaccrual Loans		****	Total Nonaccrual
	****	No Allowance		****	with an Allowance		****	Loans
Real estate, residential		$	427		$	—		$	427
Total		$	427		$	—		$	427


		December 31, 2023
	****	Nonaccrual Loans with		****	Nonaccrual Loans		****	Total Nonaccrual
	****	No Allowance		****	with an Allowance		****	Loans
Real estate, residential		$	168		$	45		$	213
Total		$	168		$	45		$	213

The Company recognized no interest income on nonaccrual loans during the nine months ended September 30, 2024 or the year ended December 31, 2023.

The following table represents the accrued interest receivables written off by reversing interest income during the nine months ended September 30, 2024 and the year ended December 31, 2023 (in thousands):


	** **	September 30, 2024		** **	December 31, 2023
Real estate, residential		$	3		$	1
Total loans		$	3		$	1

The Company designates individually evaluated loans on nonaccrual status as collateral-dependent loans, as well as other loans that management of the Company designates as having higher risk. Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The following table presents an analysis of collateral-dependent loans of the Company as of September 30, 2024 and December 31, 2023 (in thousands):


	****	September 30, 2024		December 31, 2023
		Residential		Residential
		Properties		Properties
Real estate, residential		$	434	$	222
Total loans		$	434	$	222

The following tables further disaggregates nonaccrual disclosures by amortized cost by class and vintage for term loans and by revolving and revolving converted to amortizing as of September 30, 2024 and December 31, 2023 (in thousands). The Company defines vintage as the later of origination or restructure date:


	****	Term Loans														****	****		****	****		****	Revolving		****	****
		Amortized Cost Basis by Origination Year																					Loans
																				Revolving			Converted to
	****	2024		****	2023		****	2022		****	2021		****	2020		****	Prior		****	Loans		****	Term Loans		****	Total
September 30, 2024:
Real estate, residential		$	—		$	—		$	—		$	298		$	—		$	129		$	—		$	—		$	427

Total Loans on Nonaccrual		$	—		$	—		$	—		$	298		$	—		$	129		$	—		$	—		$	427


		Term Loans																					Revolving
		Amortized Cost Basis by Origination Year																					Loans
																				Revolving			Converted to
	****	2023		****	2022		****	2021		****	2020		****	2019		****	Prior		****	Loans		****	Term Loans		****	Total
December 31, 2023:
Real estate, residential		$	—		$	—		$	—		$	—		$	—		$	213		$	—		$	—		$	213
Real estate, construction			—			—			—			—			—			—			—			—			—
Real estate, nonresidential			—			—			—			—			—			—			—			—			—
Commercial and industrial			—			—			—			—			—			—			—			—			—
Consumer/Other			—			—			—			—			—			—			—			—			—
Total Loans on Nonaccrual		$	—		$	—		$	—		$	—		$	—		$	213		$	—		$	—		$	213

The Company had one loan modification made to borrowers experiencing financial difficulty as of September 30, 2024 and no loan modifications as of December 31, 2023.

The following table shows the amortized cost basis as of September 30, 2024 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty (in thousands):


		Term Extension

		September 30, 2024
		Amortized Cost			% of Total Loan
	****	Basis		****	Type	****	Financial Effect
Real estate, residential		$	18		0.02	%	Added a weighted average 3 years to the life of loan, which reduced monthly payment amounts for the borrowers. Provided 3 month payment deferrals to borrowers through our standard deferral program. The 3 monthly payments were added to the end of the original loan terms of these.
Total		$	18

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months (in thousands):


		Payment Status (Amortized Cost Basis)
		September 30, 2024
					30-89 Days Past			90+ Days Past
	****	Current		****	Due		****	Due
Real estate, residential		$	18		$	—		$	—
Total		$	18		$	—		$	—

6.	Allowance for Credit Losses:

The following tables show activity in the allowance for credit losses by portfolio class for the nine months ended September 30, 2024 and 2023 as well as the corresponding recorded investment in loans at the end of each period. Effective January 1, 2023, the Company adopted the provisions of ASC 326 (CECL) using a modified retrospective basis. The difference between the December 31, 2022 incurred allowance and the CECL allowance is reflected as a cumulative effect of change in accounting principle in the table below.

The calculation of the allowance for credit losses under CECL is performed using two primary approaches: a collective approach for pools of loans that have similar risk characteristics using a loss rate analysis, and a specific reserve analysis for credits individually evaluated. 20

Transactions in the allowance for credit losses on loans and leases for the three and nine months ended September 30, 2024 and 2023, and the balances of loans, individually and collectively evaluated for impairment, as of September 30, 2024 and 2023, are as follows (in thousands):


	Real Estate,		****	Real Estate,		****	Real Estate,		****	Commercial		****			****
	Residential			Construction			Nonresidential			and Industrial			Other			Total
Nine months ended September 30, 2024
Allowance for credit losses on loans and leases
Beginning balance	$	971		$	173		$	1,807		$	54		$	219		$	3,224
Charge-offs		(57)			—			—			—			(165)			(222)
Recoveries		55			29			3			—			102			189
Net provision for credit losses		(272)			(17)			37			26			126			(100)
Ending Balance	$	697		$	185		$	1,847		$	80		$	282		$	3,091
Reserve for unfunded lending commitments
Beginning balance	$	2		$	34		$	5		$	10		$	4		$	55
Provision for losses on unfunded commitments		1			5			6			2			38			52
Ending balance-reserve for unfunded commitments	$	3		$	39		$	11		$	12		$	42		$	107
Total allowance for credit losses on loans and unfunded commitments	$	700		$	224		$	1,858		$	92		$	324		$	3,198
Quarter ended September 30, 2024
Allowance for credit losses on loans and leases
Beginning balance	$	781		$	203		$	1,857		$	74		$	235		$	3,150
Charge-offs		(11)			—			—			—			(33)			(44)
Recoveries		—			9			1			—			15			25
Net provision for credit losses		(73)			(27)			(11)			6			65			(40)
Ending Balance	$	697		$	185		$	1,847		$	80		$	282		$	3,091
Reserve for unfunded lending commitments
Beginning balance	$	2		$	44		$	12		$	11		$	46		$	115
Provision for losses on unfunded commitments		1			(5)			(1)			1			(4)			(8)
Ending balance-reserve for unfunded commitments	$	3		$	39		$	11		$	12		$	42		$	107
Total allowance for credit losses on loans and unfunded commitments	$	700		$	224		$	1,858		$	92		$	324		$	3,198
Allowance for credit losses on loans and leases
Individually evaluated	$	—		$	—		$	—		$	—		$	11		$	11
Collectively evaluated		697			185			1,847			80			271			3,080
Total allowance for credit losses on loans:	$	697		$	185		$	1,847		$	80		$	282		$	3,091
Reserve for unfunded lending commitments
Individually evaluated	$	—		$	—		$	—		$	—		$	—		$	—
Collectively evaluated		3			39			11			12			42			107
Reserve for unfunded lending commitments:		3			39			11			12			42			107
Total allowance for credit losses, September 30, 2024	$	700		$	224		$	1,858		$	92		$	324		$	3,198
Loans, Quarter ended September 30, 2024
Individually evaluated	$	1,064		$	203		$	464		$	23		$	36		$	1,790
Collectively evaluated		80,383			23,036			111,525			12,113			10,412			237,469
Total loans, September 30, 2024	$	81,447		$	23,239		$	111,989		$	12,136		$	10,448		$	239,259


	Real Estate,		****	Real Estate,		****	Real Estate,		****	Commercial		****			****
	Residential			Construction			Nonresidential			and Industrial			Other			Total
Nine months ended September 30, 2023
Allowance for credit losses on loans and leases
Beginning balance	$	913		$	392		$	1,639		$	143		$	251		$	3,338
Cumulative effect of change in accounting principle		396			(58)			(215)			(84)			(49)			(10)
Charge-offs		—			—			(270)			—			(157)			(427)
Recoveries		—			—			487			—			93			580
Net provision for credit losses		(299)			(150)			169			(8)			8			(280)
Ending Balance	$	1,010		$	184		$	1,810		$	51		$	146		$	3,201
Reserve for unfunded lending commitments
Beginning balance	$	—		$	—		$	—		$	—		$	—		$	—
Cumulative effect of change in accounting principle		4			30			5			15			18			72
Provision for losses on unfunded commitments		1			18			(1)			(2)			(11)			5
Ending balance-reserve for unfunded commitments	$	5		$	48		$	4		$	13		$	7		$	77
Total allowance for credit losses on loans and unfunded commitments	$	1,015		$	232		$	1,814		$	64		$	153		$	3,278
Quarter ended September 30, 2023
Allowance for credit losses on loans and leases
Beginning balance	$	649		$	217		$	2,144		$	67		$	147		$	3,224
Charge-offs		—			—			—			—			(40)			(40)
Recoveries		—			—			—			—			17			17
Net provision for credit losses		361			(33)			(334)			(16)			22			—
Ending Balance	$	1,010		$	184		$	1,810		$	51		$	146		$	3,201
Reserve for unfunded lending commitments
Beginning balance	$	6		$	38		$	4		$	—		$	7		$	55
Provision for losses on unfunded commitments		(1)			10			—			13			—			22
Ending balance-reserve for unfunded commitments	$	5		$	48		$	4		$	13		$	7		$	77
Total allowance for credit losses on loans and unfunded commitments	$	1,015		$	232		$	1,814		$	64		$	153		$	3,278
Allowance for credit losses on loans and leases
Individually evaluated	$	44		$	—		$	—		$	—		$	7		$	51
Collectively evaluated		966			184			1,810			51			139			3,150
Total allowance for credit losses on loans:	$	1,010		$	184		$	1,810		$	51		$	146		$	3,201
Reserve for unfunded lending commitments
Individually evaluated	$	—		$	—		$	—		$	—		$	—		$	—
Collectively evaluated		5			48			4			13			7			77
Reserve for unfunded lending commitments:		5			48			4			13			7			77
Total allowance for credit losses, September 30, 2023	$	1,015		$	232		$	1,814		$	64		$	153		$	3,278
Loans, Quarter ended September 30, 2023
Individually evaluated	$	726		$	92		$	103		$	—		$	12		$	933
Collectively evaluated		72,299			26,815			110,468			10,831			8,336			228,749
Total loans, September 30, 2023	$	73,025		$	26,907		$	110,571		$	10,831		$	8,348		$	229,682

The following table further disaggregates gross charge-off disclosures by amortized cost by credit quality indicator, class, and year of origination for the nine month periods ended September 30, 2024 and September 30, 2023 (in thousands). The Company defines vintage as the later of origination or restructure date.


	Term Loans														Revolving
	Amortized Cost Basis by Origination Year														Loans
													Revolving		Converted to
	2024		2023		2022		2021		2020		Prior		Loans		Term Loans		Total
September 30, 2024:
Real estate, residential	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
A,B, or C		—		—		—		—		—		—		—		—		—
S		—		—		—		—		—		—		—		—		—
D		—		—		—		—		—		—		—		—		—
E		—		—		—		—		—		57		—		—		57
F		—		—		—		—		—		—		—		—		—
Total Real estate, nonresidential loans	$	—	$	—	$	—	$	—	$	—	$	57	$	—	$	—	$	57
Consumer/Other
A,B, or C	$	121	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	122
S		—		—		—		—		—		—		—		—		—
D		—		6		—		—		—		7		—		—		13
E		—		7		20		—		—		3		—		—		30
F		—		—		—		—		—		—		—		—		—
Total Consumer/Other Loans	$	121	$	14	$	20	$	—	$	—	$	10	$	—	$	—	$	165
Total Gross Loan Chargeoffs:	$	121	$	14	$	20	$	—	$	—	$	67	$	—	$	—	$	222


	Term Loans														Revolving
	Amortized Cost Basis by Origination Year														Loans
													Revolving		Converted to
	2023		2022		2021		2020		2019		Prior		Loans		Term Loans		Total
September 30, 2023:
Real estate, nonresidential	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
A,B, or C		—		—		—		—		—		—		—		—		—
S		—		—		—		—		—		—		—		—		—
D		—		—		—		—		—		—		—		—		—
E		—		—		—		—		—		270		—		—		270
F		—		—		—		—		—		—		—		—		—
Total Real estate, nonresidential loans	$	—	$	—	$	—	$	—	$	—	$	270	$	—	$	—	$	270
Consumer/Other
A,B, or C	$	152	$	2	$	—	$	—	$	—	$	—	$	—	$	—	$	154
S		—		—		—		—		—		—		—		—		—
D		—		—		—		—		—		—		—		—		—
E		—		—		—		3		—		—		—		—		3
F		—		—		—		—		—		—		—		—		—
Total Consumer/Other Loans	$	152	$	2	$	—	$	3	$	—	$	—	$	—	$	—	$	157
Total Gross Loan Chargeoffs:	$	152	$	2	$	—	$	3	$	—	$	270	$	—	$	—	$	427

7.	Shareholders’ Equity:

On May 22, 2024, the Board declared a dividend of $0.18 per share payable June 10, 2024, to shareholders of record on June 05, 2024. On April 20, 2023, the Board declared a dividend of $0.12 per share payable May 05, 2023, to shareholders of record on May 02, 2023.

8.	Fair Value Measurements and Disclosures:

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

Fair Value Hierarchy

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

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

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

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

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

Cash and Due from Banks

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

Investments

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

Other Investments

The carrying amount shown as other investments approximates fair value. 24

Federal Home Loan Bank Stock

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

Loans

The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings for the remaining maturities. The cash flows considered in computing the fair value of such loans are segmented into categories relating to the nature of the contract and collateral based on contractual principal maturities. Appropriate adjustments are made to reflect probable credit losses. Cash flows have not been adjusted for such factors as prepayment risk or the effect of the maturity of balloon notes. The fair value of floating rate loans is estimated to be its carrying value. At each reporting period, the Company determines which loans are collateral dependent. Accordingly, the Company’s collateral dependent loans are reported at their estimated fair value on a non-recurring basis. An allowance for each loan, which is generally collateral-dependent, is calculated based on the fair value of its collateral. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the recorded investment in the collateral dependent loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for credit losses. Collateral dependent loans are non-recurring Level 3 assets.

Other Real Estate

In the course of lending operations, Management may determine that it is necessary to foreclose on the related collateral. Other real estate acquired through foreclosure or repossession is carried at fair value, less estimated costs to sell. The fair value of the collateral is based on appraisals performed by third-party valuation specialists or internally prepared valuations. Other real estate is a non-recurring Level 3 asset.

Deposits

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

Borrowings from Federal Home Loan Bank

The fair value of Federal Home Loan Bank (“FHLB”) fixed rate borrowings is estimated using discounted cash flows based on current incremental borrowing rates for similar types of borrowing arrangements. The fair value of FHLB variable rate borrowings is estimated to be its carrying value. 25

The balances of available for sale securities, which are the only assets measured at fair value on a recurring basis, by level within the fair value hierarchy and by investment type, as of September 30, 2024 and December 31, 2023, were as follows (in thousands):


				Fair Value Measurements Using
	Total		****	Level 1		****	Level 2		****	Level 3
September 30, 2024:
U.S. Treasuries	$	133,792		$	—		$	133,792		$	—
Mortgage-backed securities		44,627			—			44,627			—
Collateralized mortgage obligations		78,775			—			78,775			—
States and political subdivisions		84,684			—			84,684			—
Total	$	341,878		$	—		$	341,878		$	—

December 31, 2023:
U.S. Treasuries	$	115,458		$	—		$	115,458		$	—
Mortgage-backed securities		47,785			—			47,785			—
Collateralized mortgage obligations		95,006			—			95,006			—
States and political subdivisions		81,228			—			81,228			—
Total	$	339,477		$	—		$	339,477		$	—

Collateral dependent loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of September 30, 2024 and December 31, 2023 were as follows (in thousands):


			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
September 30, 2024	$	—	$	—	$	—	$	—
December 31, 2023	$	6	$	—	$	—	$	6

Other real estate, which is measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of September 30, 2024 and December 31, 2023 were zero, respectively.

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


	September 30, 2024		December 31, 2023
Balance, beginning of year	$	—	$	259
Loans transferred to ORE		9		952
Sales		(9)		(1,114)
Write-downs		—		(97)
Balance, end of year	$	—	$	—

The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at September 30, 2024 and December 31, 2023 are as follows (in thousands):


	Carrying			Fair Value Measurements Using
	Amount		****	Level 1		****	Level 2		****	Level 3		****	Total
September 30, 2024:
Financial Assets:
Cash and due from banks	$	42,253		$	42,253		$	—		$	—		$	42,253
Available for sale securities		341,878			—			341,878			—			341,878
Held to maturity securities, net		133,635			—			123,415			—			123,415
Other investments		350			350			—			—			350
Federal Home Loan Bank stock		434			—			434			—			434
Loans, net		236,168			—			—			229,498			229,498
Financial Liabilities:
Deposits:
Non-interest bearing		187,866			187,866			—			—			187,866
Interest bearing		439,941			—			—			401,749			401,749
Time deposits		38,279			—			—			37,715			37,715
Borrowings Federal Home Loan Bank		—			—			—			—			—
Borrowings under Bank Term Funding Program		30,000			—			30,000			—			30,000


	Carrying		Fair Value Measurements Using
	Amount		Level 1		Level 2		Level 3		Total
December 31, 2023:
Financial Assets:
Cash and due from banks	$	22,794	$	22,794	$	—	$	—	$	22,794
Available for sale securities		339,477		—		339,477		—		339,477
Held to maturity securities, net		150,911		—		138,523		—		138,523
Other investments		350		350		—		—		350
Federal Home Loan Bank stock		2,334		—		2,334		—		2,334
Loans, net		235,115		—		—		221,896		221,896
Financial Liabilities:
Deposits:
Non-interest bearing		174,933		174,933		—		—		174,933
Interest bearing		483,662		—		—		424,398		424,398
Time deposits		29,895		—		—		28,939		28,939
Borrowings from Federal Home Loan Bank		18,500		—		18,500		—		18,500

9.	Income Taxes:

Deferred taxes (or deferred charges) as of September 30, 2024 and December 31, 2023, included in other assets, were as follows (in thousands):


	9/30/2024		12/31/2023		****	12/31/2023
				As originally			As adjusted
Deferred tax assets:				reported
Allowance for credit losses	$	813	$	695		$	833
Employee benefit plans' liabilities		4,022		3,434			4,079
Unrealized loss on available for sale securities, charged from equity		7,325		8,341			9,909
Loss on credit impairment of securities		423		356			423
Earned retiree health benefits plan liability		1,276		1,074			1,276
General business and AMT credits		159		210			1,033
State income tax net operating loss carryforward		930		—			1,111
Other		306		344			279
Valuation allowance		(423)		(11,534)			(15,617)
Deferred tax assets		14,831		2,920			3,326
Deferred tax liabilities:
Unearned retiree health benefits plan asset		469		395			469
Bank premises and equipment		2,112		1,759			2,088
Other		—		10			13
Deferred tax liabilities		2,581		2,164			2,570
Net deferred taxes	$	12,250	$	756		$	756

During the preparation of its third quarter 2024 consolidated financial statements the Company determined that the disclosures of deferred income tax assets and liabilities in the footnotes to its December 31, 2023, consolidated financial statements improperly excluded deferred state income taxes. The above amounts as of December 31, 2023 have been restated to include deferred federal and state income taxes. The correction of this disclosure error had no impact on the recorded amount of net deferred taxes in the Company’s December 31, 2023 consolidated statement of condition.

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


		Three Months Ended September 30,						Nine Months Ended September 30,
	****	2024		****	2023		****	2024		****	2023
	****
Current		$	52		$	(374)		$	384		$	318

Deferred			1,045			—			1,115			—
Change in valuation allowance			(15,194)			702			(15,194)			1,268
Total deferred			(14,149)			702			(14,079)			1,268

Totals		$	(14,097)		$	328		$	(13,695)		$	1,586

A valuation allowance is recognized against deferred tax assets when, based on the consideration of all available positive and negative evidence using a more likely than not criteria, it is determined that all or a portion of these tax benefits may not be realized. This assessment requires consideration of all sources of taxable income available to realize the deferred tax asset including taxable income in prior carry-back years, future reversals of existing temporary differences, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards.

The Company had a valuation allowance on federal and state deferred tax assets totaling $15,617,000 as of December 31, 2023. In the third quarter of 2024, the Company reassessed the valuation allowance based upon its projections of future sources of taxable income in accordance with applicable accounting guidance and determined it was appropriate to reverse substantially all the valuation allowance which resulted in a one-time discrete reduction to income tax expense of $15,194,000 in the current quarter. Excluding the discrete item, income tax expense for the nine months ended September 30, 2024, totaled $1,500,000 based upon the expected annual tax rate for 2024 of 23.1% compared to income tax expense of $1,586,000 for the nine months ended September 30, 2023, at an effective rate of 17.6%.

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

GENERAL

The Company is a one-bank holding company headquartered in Biloxi, Mississippi. The Company has two subsidiaries, PFC Service Corp., an inactive company, and The Peoples Bank, Biloxi, Mississippi (the “Bank”). The Bank provides a full range of banking, financial and trust services to state, county and local government entities and individuals and small and commercial businesses operating in those portions of Mississippi, Louisiana and Alabama which are within a fifty mile radius of the Waveland, Wiggins and Gautier branches, the Bank’s three most outlying locations (the “trade area”).

The following presents Management’s discussion and analysis of the consolidated financial condition and results of operations of Peoples Financial Corporation and Subsidiaries. These comments should be considered in combination with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report on Form 10-Q and the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management’s Discussion and Analysis included in the Company’s Form 10-K for the year ended December 31, 2023.

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, changes in the availability of funds resulting from reduced liquidity, changes in statutes, government regulations or regulatory policies or practices in general and specifically as a result of the COVID-19 pandemic and acts of terrorism, weather or other events beyond the Company’s control.

New Accounting Pronouncements

The Financial Accounting Standards Board issued several accounting standards updates during the first nine months of 2024. Further disclosure is included in Note 1.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and assumptions on 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. The determination of the fair value of securities may require Management to develop estimates and assumptions regarding the amount and timing of cash flows. On January 1, 2023 the Company adopted the Accounting Standards Codification (“ASC”) 326, “Financial Instruments-Credit Losses”, more commonly referred to as CECL which requires an assessment of the Company’s available for sale and held to maturity debt securities for expected credit losses. 30

Allowance for credit losses on loans and leases and unfunded lending commitments

On January 1, 2023 the Company adopted Accounting Standards Codification (“ASC”) 326, “Financial Instruments-Credit Losses”, more commonly referred to as CECL. Under CECL, the allowance for credit losses (ACL) is a valuation account, measured as the difference between the Company’s amortized cost basis and the net amount expected to be collected on the financial assets (i.e., lifetime credit losses).

The CECL methodology described in FASB Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), applies to financial assets measured at amortized cost, and off-balance-sheet credit exposures (collectively, financial assets).

In general, the Company uses a broad range of data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of financial assets.

CECL requires the Bank to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risk characteristics exist. The Bank has determined that Call Report categories will be utilized, and Management will maintain the option to further segment the portfolio if we deem it beneficial to the analysis.

Estimating an appropriate ACL involves a high degree of Management judgment. As such, it is Management’s responsibility to record the Bank’s best estimate of expected credit losses and provide it to the Board of Directors.

The analysis is prepared and reported to the Board of Directors on a quarterly basis. The option and decision to prepare the analysis more frequently will remain with Management.

The Company’s most critical accounting policy relates to its allowance for credit losses on loans and leases and unfunded lending commitments, which reflects the estimated losses resulting from the inability of its borrowers to make loan payments. The allowance for credit losses on loans and leases and unfunded lending commitments is established and maintained at an amount sufficient to absorb losses on loans and leases held for investment. 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 allowance for credit losses on loans and leases and unfunded commitments.

Management believes that the allowance for credit losses on loans and unfunded lending commitments is adequate and appropriate for all periods presented in these financial statements. 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 credit losses.

Other Real Estate

Other real estate (“ORE”) includes real estate acquired through foreclosure or repossession. Each other real estate property is carried at fair value, less estimated costs to sell. Fair value is principally based on appraisals or other valuations 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. 31

Income Taxes

The Company uses the asset and liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. As part of the process of preparing the consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as the provision for credit losses, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities that are included in the consolidated statement of condition. The Company must also assess the likelihood that the deferred tax assets will be recovered from future taxable income, and, to the extent Management believes that recovery is not likely, the Company must establish a valuation allowance. Significant Management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets. To the extent the Company establishes a valuation allowance or adjusts this allowance in a period, the Company must include an expense or a benefit within the tax provisions in the consolidated statement of income.

GAAP Reconciliation and Explanation

This Form 10-Q 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 three and nine months ended September 30, 2024 and 2023 is included in the table below (in thousands).

RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES


		Three Months Ended September 30,						Nine Months Ended September 30,
	****	2024		****	2023		****	2024		****	2023		****
Interest income reconciliation:			****										****
Interest income - taxable equivalent		$	7,900		$	7,914		$	25,666		$	25,158
Taxable equivalent adjustment			(70)			(75)			(212)			(232)
Interest income (GAAP)		$	7,830		$	7,839		$	25,454		$	24,926

Net interest income reconciliation:		****	****
Net interest income - taxable equivalent		$	5,349		$	6,424		$	18,085		$	20,833
Taxable equivalent adjustment			(70)			(75)			(210)			(232)
Net interest income (GAAP)		$	5,279		$	6,349		$	17,875		$	20,601

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. 32

The Company reported net income of $15,431,000 for the third quarter of 2024 compared with net income of $1,910,000 for the third quarter of 2023. The Company reported net income of $20,175,000 for the first nine months of 2024 compared with net income of $7,443,000 for the first nine months of 2023. Results in the third quarter and first nine months of 2024 included a discrete item of $15,194,000 recorded as a tax benefit for the reversal of the Company’s valuation allowance on federal and state deferred tax assets. Pre-tax income for the third quarter of 2024 decreased $904,000 to $1,334,000 as compared with $2,238,000 for the third quarter of 2023. Total interest income decreased by $9,000 to $7,830,000 for the third quarter of 2024 as compared with $7,839,000 for the third quarter of 2023 due to lower interest income on securities and overnight fed funds caused by a decrease in balances and yields. Total interest expense increased by $1,061,000 to $2,551,000 for the third quarter of 2024 as compared with $1,490,000 for the third quarter of 2023 due to higher interest rates paid on deposit accounts and borrowings. Pre-tax income for the first nine months of 2024 decreased $2,549,000 to $6,480,000 as compared with $9,029,000 for the first nine months of 2023. Total interest income increased by $528,000 to $25,454,000 for the first nine months of 2024 as compared with $24,926,000 for the first nine months of 2023 due to higher interest and fees on loans. Total interest expense increased by $3,254,000 to $7,579,000 for the first nine months of 2024 as compared with $4,325,000 for the first nine months of 2023 due to higher interest rates paid on deposit accounts and borrowings.

Managing the net interest margin is a key component of the Company’s earnings strategy. During 2022, the Federal Reserve increased rates by 425 basis points and again in 2023 increased rates by 100 basis points in an effort to slow inflation. The Federal Reserve decreased rates by 50 basis points so far in 2024.

Monitoring asset quality, estimating potential losses in our loan portfolio, unfunded lending commitments and held to maturity debt securities and addressing non-performing loans continue to be a major focus of the Company. A reduction of the provision for the allowance for credit losses of $(48,000) was recorded in the three and nine months ended September 30, 2024 as compared with a provision of $22,000 and $(275,000) for the three and nine months ended September 30, 2023. On January 1, 2023, the Company adopted Accounting Standards Codification (“ASC”) 326, “Financial Instruments – Credit Losses,” more commonly referred to as CECL, on a modified retrospective basis. Upon adoption, the Company recognized an after-tax cumulative effect reduction to retained earnings totaling $81,000, this adjustment included adjustments to the allowance for credit losses on loans, unfunded lending commitments and held to maturity debt securities. The Company has worked diligently to address and reduce its non-performing assets. The Company’s nonaccrual loans totaled $427,000 and $213,000 at September 30, 2024 and December 31, 2023, respectively. Most of these loans are collateral-dependent, and the Company has rigorously evaluated the value of its collateral to determine potential losses.

Non-interest income increased $5,000 for the third quarter of 2024 as compared with 2023 results. Results for the third quarter of 2024 included higher miscellaneous or other income of $14,000 along with higher trust department income and fees of $15,000. Non-interest income decreased $1,000 for the first three quarters of 2024 as compared with 2023 results. Results for the first three quarters of 2024 included lower service charge income of $77,000 which was mostly offset by higher miscellaneous or other income of $27,000, trust income of $26,000 along with a gain on the sale of bank property of $46,000.

Non-interest expenses decreased $91,000 for the quarter ended September 30, 2024, as compared with 2023 results. This net decrease for the third quarter of 2024 was primarily the result of a decrease in salary and employee benefits of $121,000 which was the result of an increase in the discount rate which decreased the liability on deferred compensation expense. Non-interest expenses decreased $405,000 for the three quarters ended September 30, 2024, as compared with 2023 results. This net decrease for the three quarters ended September 30, 2024, was primarily the result of lower salary expenses of $766,000 due to an increase in the discount rate which decreased deferred compensation expense somewhat offset by higher ATM expenses of $234,000 and net occupancy expense of $112,000 and maintenance expense of $197,000.

Total assets at September 30, 2024 increased $16,414,000 as compared with December 31, 2023. Total deposits decreased $22,404,000. This decrease was mostly caused by the loss of several large public fund deposits in 2024 following competitive bid processes held in 2023 whereby the public fund deposit accounts were awarded to other local banks. The Company did not experience any additional losses of large public fund deposit accounts for the nine months ended September 30, 2024. The decrease in deposits was offset by maturing securities along with borrowings from the Bank Term Funding Program. Borrowings increased $11,500,000 as compared with December 31, 2023. 33

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.

Quarter Ended September 30, 2024 as Compared with Quarter Ended September 30, 2023

The Company’s average interest-earning assets decreased approximately $18,616,000, or 2.41%, from approximately $771,177,000 for the third quarter of 2023 to approximately $752,561,000 for the third quarter of 2024. The Company’s average balance sheet decreased primarily as average investments decreased approximately $7,897,000 along with a decrease in average balances due from financial institutions of approximately $18,825,000, offset slightly with an increase in average loans of approximately $7,267,000 for the third quarter of 2024 as compared with the third quarter of 2023. Average loans increased as new loans exceeded principal payments, maturities, and charge-offs on existing loans. Decreases in average deposits resulted in the decrease in balances due from financial institutions and investments in securities which resulted in an increase in average borrowings.

The average yield on interest-earning assets increased from 4.10% for the third quarter of 2023 to 4.19% for the third quarter of 2024. This increase is due to an increase in interest rates on overnight fed funds, and loans in 2024.

Average interest-bearing liabilities decreased approximately $8,692,000 or 1.56%, from approximately $556,243,000 for the third quarter of 2023 to approximately $547,551,000 for the third quarter of 2024. Average savings and interest bearing DDA deposits decreased approximately $53,818,000 while time deposits decreased approximately $5,858,000. This decrease was mostly caused by the loss of several large public fund deposits in 2024 following competitive bid processes held in 2023 whereby the public fund deposit accounts were awarded to other local banks along with the allocation of public fund tax deposits that increase as taxes are collected and slowly allocate out of the deposit accounts through the end of each year. Although average deposits decreased the Company evaluates on an ongoing and continuous basis various moderate to severe economic scenarios and does not anticipate a liquidity issue.

The average rate paid on interest-bearing liabilities for the third quarter of 2023 was 1.07% as compared with 1.86% for the third quarter of 2024. The Federal Reserve has increased rates significantly throughout 2022 and 2023 which has caused the bank in 2023 and 2024 to experience a rising cost of funds to stay competitive with other local banks the rising costs should ease some as rates start to decrease.

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.32% for the third quarter of 2023 as compared with 2.84% for the third quarter of 2024.

Nine Months Ended September 30, 2024 as Compared with Nine Months Ended September 30, 2023

The Company’s average interest-earning assets decreased approximately $36,168,000, or 4.31%, from approximately $839,238,000 for the first three quarters of 2023 to approximately $803,070,000 for the first three quarters of 2024. The Company’s average balance sheet decreased primarily as average investments decreased approximately $32,541,000 along with a decrease in average balances due from financial institutions of approximately $6,822,000, slightly offset with an increase in average loans of approximately $2,753,000 for the first three quarters of 2024 as compared with the first three quarters of 2023. Average loans increased as new loans exceeded principal payments, maturities, and charge-offs on existing loans. Decreases in average deposits resulted in the decrease in balances due from financial institutions and investments in securities which resulted in an increase in average borrowings.

The average yield on earning assets increased from 3.99% for the first three quarters of 2023 to 4.25% for the first three quarters of 2024. This increase is due to an increase in interest rates on overnight fed funds, and loans in 2024. 34

Average interest-bearing liabilities decreased approximately $27,323,000, or 4.31%, from approximately $632,091,000 for the first three quarters of 2023 to approximately $604,768,000 for the first three quarters of 2024. Average savings and interest bearing DDA balances decreased approximately $60,720,000 while average time deposits decreased approximately $8,750,000. This decrease was mostly caused by the loss of several large public fund deposits in 2024 following competitive bid processes held in 2023 whereby the public fund deposit accounts were awarded to other local banks along with the allocation of public fund tax deposits that increase as taxes are collected and slowly allocate out of the deposit accounts through the end of each year. Although average deposits decreased the Company evaluates on an ongoing and continuous basis various moderate to severe economic scenarios and does not anticipate a liquidity issue.

The average rate paid on interest-bearing liabilities for the first three quarters of 2023 was 0.91% compared with 1.67% for the first three quarters of 2024. The Federal Reserve has increased rates significantly throughout 2022 and 2023 which has caused the bank in 2023 and 2024 to experience a rising cost of funds to stay competitive with other local banks the rising costs should ease some as rates start to decrease.

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.30% for the first three quarters of 2023 as compared with 3.00% for the first three quarters of 2024.

The tables on the following pages analyze the changes in tax-equivalent net interest income for the quarter and nine months ended September 30, 2024 and 2023.

Analysis of Average Balances, Interest Earned/Paid and Yield

(In Thousands)


		Quarter Ended September 30, 2024					****	Quarter Ended September 30, 2023
		Average Balance		Interest Earned/Paid		Rate		Average Balance		Interest Earned/Paid		Rate
Loans (2)(3)		$	238,634	$	3,649	6.12	%	$	231,367	$	3,237	5.60	%
Balances due from financial institutions			7,782		98	5.04	%		26,607		303	4.56	%
HTM:
Taxable			101,174		704	2.78	%		152,324		1,282	3.37	%
Non taxable (1)			32,742		252	3.08	%		36,037		272	3.03	%
AFS:
Taxable			365,483		3,129	3.42	%		318,780		2,759	3.46	%
Non taxable (1)			3,685		28	2.92	%		3,840		30	3.09	%
Other			3,061		40	5.23	%		2,222		31	5.58	%
Total		$	752,561	$	7,900	4.19	%	$	771,177	$	7,914	4.10	%

Savings & interest-bearing DDA		$	465,913	$	1,620	1.39	%	$	519,731	$	1,404	1.08	%
Time deposits			29,347		141	1.92	%		35,205		67	0.76	%
Borrowings under Term Funding Program			30,004		438	5.84	%		—		—	—	%
Borrowings from FHLB			22,287		352	6.32	%		1,307		19	5.81	%
Total		$	547,551	$	2,551	1.86	%	$	556,243	$	1,490	1.07	%

Net tax-equivalent spread						2.33	%					3.03	%
Net tax-equivalent margin on earning assets						2.84	%					3.32	%
(1)	All interest earned is reported on a taxable equivalent basis using a tax rate of 24.95% in 2024 and 2023. See disclosure of Non-GAAP financial measures on page 32.
---	---
(2)	Loan fees of $121 and $92 for 2024 and 2023, respectively, are included in these figures.
---	---
(3)	Includes nonaccrual loans.
---	---

Analysis of Average Balances, Interest Earned/Paid and Yield

(In Thousands)


		Nine Months Ended September 30, 2024								Nine Months Ended September 30, 2023
		Average Balance		****	Interest Earned/Paid		****	Rate	****	Average Balance		****	Interest Earned/Paid		****	Rate
Loans (2)(3)		$	237,272		$	10,676		6.00	%	$	234,519		$	9,509		5.41	%
Balances due from depository institutions			36,077			1,447		5.35	%		42,899			1,507		4.68	%
HTM:
Taxable			107,815			2,333		2.88	%		185,753			4,890		3.51	%
Non taxable (1)			33,282			762		3.05	%		36,726			830		3.01	%
AFS:
Taxable			382,278			10,251		3.58	%		333,150			8,238		3.30	%
Non taxable (1)			3,706			82		2.91	%		3,993			96		3.22	%
Other			2,640			115		5.81	%		2,198			88		5.34	%
Total		$	803,070		$	25,666		4.25	%	$	839,238		$	25,158		3.99	%

Savings & interest- bearing DDA		$	533,208		$	5,628		1.41	%	$	593,928		$	4,138		0.93	%
Time deposits			28,686			325		1.51	%		37,436			158		0.56	%
Borrowings under Term Funding Program			28,906			1,023		4.72	%		—			—		—	%
Borrowings from FHLB			13,968			603		5.76	%		727			29		5.32	%
Total		$	604,768		$	7,579		1.67	%	$	632,091		$	4,325		0.91	%

Net tax-equivalent spread								2.58	%							3.08	%
Net tax-equivalent margin on earning assets								3.00	%							3.30	%
(1)	All interest earned is reported on a taxable equivalent basis using a tax rate of 24.95% in 2024 and 2023. See disclosure of Non-GAAP financial measures on page 32.
---	---
(2)	Loan fees of $388 and $251 for 2024 and 2023, respectively, are included in these figures.
---	---
(3)	Includes nonaccrual loans.
---	---

Analysis of Changes in Interest Income and Interest Expense

(In Thousands)


	For the Quarter Ended
	September 30, 2024 compared with September 30, 2023
	Volume		****	Rate		****	Rate/Volume		****	Total
Interest earned on:
Loans	$	102		$	301		$	9		$	412
Balances due from financial institutions		(214)			32			(23)			(205)
Held to maturity securities:
Taxable		(430)			(222)			74			(578)
Non taxable		(25)			5			—			(20)
Available for sale securities:
Taxable		404			(30)			(4)			370
Non taxable		(1)			(1)			—			(2)
Other		12			(2)			(1)			9
Total	$	(152)		$	83		$	55		$	(14)
Interest paid on:
Savings & interest-bearing DDA	$	(145)		$	403		$	(42)		$	216
Time deposits		(11)			102			(17)			74
Borrowings under Term Fund		—			—			438			438
Borrowings from FHLB		304			2			27			333
Total	$	148		$	507		$	406		$	1,061

Analysis of Changes in Interest Income and Interest Expense

(In Thousands)


	For the Nine Months Ended
	September 30, 2024 compared with September 30, 2023
	Volume		****	Rate		****	Rate/Volume		****	Total
Interest earned on:
Loans	$	112		$	1,043		$	12		$	1,167
Balances due from
financial institutions		(240)			214			(34)			(60)
Held to maturity securities:
Taxable		(2,052)			(871)			366			(2,557)
Non taxable		(78)			12			(2)			(68)
Available for sale securities:
Taxable		1,215			696			102			2,013
Non taxable		(7)			(7)			—			(14)
Other		18			8			1			27
Total	$	(1,032)		$	1,095		$	445		$	508
Interest paid on:
Savings & interest-bearing DDA	$	(423)		$	2,131		$	(218)		$	1,490
Time deposits		(37)			266			(62)			167
Borrowings under Term Fund		—			—			1,023			1,023
Borrowings from FHLB		528			3			43			574
Total	$	68		$	2,400		$	786		$	3,254

Provision for Credit 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 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 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 credit loss on loans computation.

Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and identify and estimate potential losses based on the best available information. The potential effect of 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 secured by real estate requiring careful consideration of real estate changes in value to properly monitor risk.

The Company has adopted the CECL (Current Expected Credit Losses) methodology for estimating allowances for credit losses effective January 1, 2023. Under CECL, the allowance for credit losses (ACL) is a valuation account, measured as the difference between the Bank’s amortized cost basis and the net amount expected to be collected on the financial assets (i.e., lifetime credit losses). The CECL methodology described in FASB Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326), applies to financial assets measured at amortized cost, and off-balance-sheet credit exposures (collectively, financial assets) including: financing receivables such as loans held for investment, held to maturity debt securities, off-balance-sheet credit exposures (unfunded commitments) including off-balance sheet loan commitments; standby letters of credit; and other similar instruments.

In general, the Bank uses a broad range of data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of financial assets. The following represents an overview of key factors regarding CECL: CECL requires the Bank to measure expected credit losses on financial assets carried at amortized cost on a collective or pool basis when similar risk characteristics exist. The Bank has determined that Call Report categories will be utilized, and Management will maintain the option to further segment the portfolio if we deem it beneficial to the analysis.

Estimating an appropriate ACL involves a high degree of management judgment. As such, it is Management’s responsibility to record the Bank’s best estimate of expected credit losses and provide it to the Board of Directors. The analysis is prepared and reported to the Board of Directors on a quarterly basis. The option and decision to prepare the analysis more frequently will remain with management.

Open Pool or Snapshot Method

Weighted Average Remaining Maturity (WARM) Method

Qualitative Factor Adjustments

Management is to consider the qualitative factors that are relevant to the Bank as of the reporting date, which may include but are not limited to the:

1.	Nature and volume of the Bank’s financial assets.
2.	Existence, growth, and effect of any concentrations of credit.
---	---
3.	Volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets. Adversely classified or graded loans are loans rated “substandard” (or its equivalent) or worse under the institution’s loan classification system.
---	---
4.	Value of the underlying collateral for loans that are not collateral dependent.
---	---
5.	Bank’s lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries.
---	---
6.	Quality of the Bank’s credit review function.
---	---
7.	Experience, ability, and depth of the Bank’s lending, investment, collection, and other relevant management and staff.
---	---
8.	Effect of other external factors such as the regulatory, legal, and technological environments, competition, and events such as natural disasters.
---	---
9.	Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets. Changes in economic and business conditions and developments included in qualitative factor adjustments are limited to those that affect the collectability of the Bank’s financial assets and are relevant to the Bank’s financial asset portfolios.
---	---

The Bank’s on-going, systematic evaluation resulted in the Bank recording a negative provision of $(40,000) along with a negative provision on unfunded commitments of $(8,000) and a provision for the allowance for credit losses on unfunded commitments of $22,000 for the third quarter of 2024 and 2023, respectively. The Bank recorded a negative provision for the allowance for credit losses on loans and leases of $(100,000) and a provision on unfunded commitments of $52,000 for the nine months ended September 30, 2024. No provision was needed for the allowance for credit losses on held to 39

maturity securities for the first nine months ended September 30, 2024. The Bank recorded a negative provision of $(280,000) on loans and leases and a provision of $5,000 on unfunded commitments for the first nine months ended September 30, 2023.

The Bank’s analysis includes evaluating the current values of collateral securing all nonaccrual loans. Nonaccrual loans totaled $427,000 and $213,000 with $0 and $39,500 in specific reserves on these loans as of September 30, 2024 and December 31, 2023, respectively. The specific reserves allocated to nonaccrual loans are relatively low as collateral values appear sufficient to cover credit losses, or the loan balances have been charged down to their realizable value.

The allowance for credit losses on loans and leases as a percentage of loans was 1.29% and 1.35% at September 30, 2024 and December 31, 2023, respectively. The Company believes that its allowance for credit losses on loans and leases is appropriate as of September 30, 2024.

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

Non-interest income

Quarter Ended September 30, 2024 as Compared with Quarter Ended September 30, 2023

Non-interest income increased $5,000 for the third quarter of 2024 as compared with the third quarter of 2023. Results for the third quarter of 2024 included higher miscellaneous or other income of $14,000 along with higher trust department income and fees of $15,000 mostly offset by lower service charge income of $1,000 which can fluctuate in the normal course of business.

Nine Months Ended September 30, 2024 as Compared with Nine Months Ended September 30, 2023

Non-interest income decreased $1,000 for the first three quarters of 2024 as compared with the first three quarters of 2023. Results for the first three quarters of 2024 included lower service charge income of $77,000 which was mostly offset by higher miscellaneous or other income of $27,000, trust income of $26,000 along with a gain on the sale of bank property of $46,000, both service charge income and trust income can fluctuate in the normal course of business.

Non-interest expense

Quarter Ended September 30, 2024 as Compared with Quarter Ended September 30, 2023

Total non-interest expense decreased $91,000 for the third quarter of 2024 as compared with the third quarter of 2023. In 2024, salary and employee benefits decreased by $121,000 due to the increase in the discount rate which decreased the liabilities associated with deferred compensation expense.

Nine Months Ended September 30, 2024 as Compared with Nine Months Ended September 30, 2023

Total non-interest expense decreased $405,000 for the first three quarters of 2024 as compared with the first three quarters of 2023. In 2024, salary and employee benefits decreased by $766,000 due to a decrease in the liabilities associated with deferred compensation expense. This decrease was somewhat offset by an increase in ATM expense of $234,000 and net occupancy expense which increased $112,000 along with an increase in maintenance expense of $197,000.

Income Taxes

During the third quarter of 2024, the Company determined that there was sufficient evidence to support (at the more likely than not threshold) that the Company will have sufficient future sources of taxable income to remove substantially all of 40

the valuation allowance established as of the beginning of the year and as of September 30, 2024. This change in circumstances resulted in a discrete item of $15,194,000 recognized as a reduction of income tax expense for the nine months ended September 30, 2024.

Quarter Ended September 30, 2024 as Compared with Quarter Ended September 30, 2023

The Company has recorded deferred and current income tax expenses in the first, second and third quarters of 2024 and 2023, respectively. Income tax expense decreased $14,425,000 due to a tax (benefit) of $14,097,000 for the third quarter of 2024 as compared with tax expense of $328,000 for the third quarter of 2023. This decrease was due to the release of the Company’s tax valuation allowance on federal and state deferred tax assets. Additionally, third quarter 2024 pretax income was $904,000 less than the same period in 2023.

Nine Months Ended September 30, 2024 as Compared with Nine Months Ended September 30, 2023

The Company had a valuation allowance on federal and state deferred tax assets totaling $15,617,000 as of December 31, 2023. In the third quarter of 2024, the Company reassessed the valuation allowance in accordance with applicable accounting guidance and determined it was appropriate to reverse substantially all the valuation allowance which resulted in a one-time discrete reduction to income tax expense of $15,194,000 in the current quarter.

Excluding the discrete item, income tax expense for the nine months ended September 30, 2024, totaled $1,500,000 based upon the expected annual tax rate for 2024 of 23.1% compared to income tax expense of $1,586,000 for the nine months ended September 30, 2023, at an effective rate of 17.6%. The net deferred tax asset recognized on the Company consolidated balance sheet totaled $12,250,000 at September 30, 2024 and $756,000 at December 31, 2023.

FINANCIAL CONDITION

Cash and due from banks increased $19,459,000 at September 30, 2024, compared with December 31, 2023. This increase was due to a decrease in total securities and an increase in borrowings.

Available for sale securities increased $2,401,000 and held to maturity securities decreased $17,276,000, respectively at September 30, 2024 compared with December 31, 2023 as the Company decreased its held to maturity securities and increased its available for sale investment purchases. As securities mature the proceeds are used to pay down borrowings.

Gross loans increased $920,000 at September 30, 2024 compared with December 31, 2023, as new loans outpaced principal payments, maturities, and charge-offs on existing loans.

Total deposits decreased $22,404,000 at September 30, 2024, compared with December 31, 2023. Typically, significant increases or decreases in total deposits and/or significant fluctuations among the different types of deposits from quarter to quarter are anticipated by Management as customers in the casino industry and county and municipal entities reallocate their resources periodically. Deposits from county and municipal entities increase significantly during the first quarter of each year based on property tax collections and are slowly allocated out of the tax collection accounts over the course of the year.

As interest rates have increased and the cost of attracting new deposits and replacing deposit run-off has increased, the Bank experienced a decrease in deposit balances during the nine months ended September 30, 2024. This decrease was mostly caused by the loss of several large public fund deposits during 2023 that ran off in 2024 following competitive bid processes whereby the public fund deposit accounts were awarded to other local banks. The Company did not experience any additional losses of large public fund deposit accounts for the nine months ended September 30, 2024.

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. 41

As of December 31, 2023, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

During the third quarter of 2023, the community bank leverage ratio (CBLR) framework was elected. The CBLR framework is an optional framework that is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The framework provides a simple measure of capital adequacy for qualifying community banking organizations, consistent with section 201 of the Economic Growth, Regulatory Relief and Consumer Protection Act.

Qualifying community banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9.00% are considered to have satisfied the risk-based and leverage capital requirements in the generally applicable capital rule. In addition, these institutions are considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act.

The main components and requirements of the CBLR framework are as follows:

As of September 30, 2024 and December 31, 2023, the Bank’s community bank leverage ratio was 13.48% and 12.59%, respectively, both of which exceed the CBLR minimum of 9.00%.

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

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. Management monitors these funds requirements in such a manner as to satisfy these demands and provide the maximum earnings on its earning assets. The Company manages and monitors its liquidity position through a number of methods, including through the computation of liquidity risk targets and the preparation of various analyses of its funding sources and utilization of those sources on a monthly basis. The Company also uses proforma liquidity projections which are updated on a monthly basis in the management of its liquidity needs and also conducts periodic contingency testing on its liquidity plan.

Deposits, payments of principal and interest on loans, proceeds from maturities of investment securities and earnings on investment securities are the principal sources of funds for the Company. Borrowings from the FHLB, federal funds sold and federal funds purchased are utilized by the Company to manage its daily liquidity position. The Company has also been approved to participate in the Federal Reserve Bank’s Discount Window Primary Credit Program, as well as its Bank Term Funding Program. The Company was able to borrow under the Bank Term Funding Program $30,000,000 at a rate of 4.87% which matures in January 2025. As of September 30, 2024, the Company was able to borrow up to $6,053,000 from the Federal Reserve Bank Discount Window Primary Credit Program. The borrowing limit is based on the amount of collateral pledged, with certain loans from the Bank’s portfolio serving as collateral. The Company has $115,402,320 available under a line of credit with the Federal Home Loan Bank of Dallas with $115,402,320 available. The Company has additional contingency funding capacity with various other financial institutions in the amount of $30,500,000.

The Company maintains a well-capitalized balance sheet which includes strong capital and liquidity. The Bank provides a full range of banking, financial and trust services in our local markets. The majority of the Bank’s deposits are fully FDIC insured and the Company evaluates on an ongoing and continuous basis it’s financial health by preparing for various moderate to severe economic scenarios.

Determining liquidity adequacy requires an ongoing analysis of the Company’s current and expected liquidity position, including historical funding obligations and anticipated funding needs, as well as an understanding of retention prospects for all bank deposits. In particular, consideration is given to public funds and other large depositors for potential runoffs due to expected uses or other withdrawals from bank accounts. 42

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 Federal Reserve Bank of Atlanta and FHLB for its liquidity needs in 2024.

The Board of Directors requires management to implement and administer appropriate internal controls commensurate with Company’s risk profile. Management carefully monitors the Company’s liquidity risk, particularly with respect to volatile and large deposits. The Company has not encountered, and does not anticipate problems with meeting its liquidity needs.

Item 4: Controls and Procedures

As of September 30, 2024, 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 nine month period ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1: Legal Proceedings

The Bank is involved in various legal matters and claims which are being defended and handled in the ordinary course of business. None of these matters are expected, in the opinion of Management, to have a material adverse effect upon the financial position or results of operations of the Company. However, on June 30, 2023, Stilwell Activist Investments, L.P., issued a letter to the Company and each of the directors of the Company demanding that they immediately commence litigation on behalf of the Company for an alleged breach by the Company’s Board of Directors of its fiduciary duties in allegedly failing to properly oversee and supervise Chevis and Tanner Swetman’s management of the Company. At its July 2023 meeting, the Board of Directors of the Company established a Special Litigation Committee made up of the independent directors to investigate the allegations made in the letter. Rather than wait for the Special Litigation Committee to conclude its inquiry, Stilwell Activist Investments, L.P., filed on September 29, 2023, a Complaint against the Company and Directors Chevis Swetman, Padrick D. Dennis, Jeffrey H. O’Keefe, Paige Reed Riley, Ronald Barnes, and George Sliman, III, making the same allegations that appear in the demand letter. The Court stayed the lawsuit pending the Special Litigation Committee’s inquiry. The Special Litigation Committee concluded that pursuing the claims is not in the Company’s best interest, and on March 22, 2024, the Company filed a motion to dismiss. The motion to dismiss was heard by the Court on October 17, 2024, and denied, allowing limited discovery as to the reasonableness of the Special Litigation Committee’s inquiry. A final order from the Court on that motion is currently pending.

The plaintiff, Stilwell Activist Investments, L.P., is a shareholder of record of the Company and is controlled by Joseph Stilwell, an individual who beneficially owns 13.7% of the issued and outstanding common stock of the Company according to an Amended Schedule 13D filed by Mr. Stilwell and his related entities with the SEC on September 26, 2024, disclosing Company stock beneficially owned by Mr. Stilwell’s group. Mr. Stilwell and his related entities, including Stilwell Activist Investments, L.P., have nominated an individual for election to the Board of Directors of the Company at its last four annual meetings, but each individual nominated was not elected to the Board of Directors of the Company.

Item 5: Other Information

None.

Item 6 - Exhibits


Exhibit 31.1:		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 31.2:		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
Exhibit 32.1:		Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350
Exhibit 32.2:		Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350
Exhibit 101		The following materials from the Company’s quarterly report on Form 10-Q for the three and nine months ended September 30, 2024, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Condition at September 30, 2024 and December 31, 2023, (ii) Consolidated Statements of Income for the three and nine ended September 30, 2024 and 2023, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023, (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2024 and 2023, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 and (vi) Notes to the Unaudited Consolidated Financial Statements for three and nine months ended September 30, 2024 and 2023.
Exhibit 104		Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

SIGNATURES

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


	PEOPLES FINANCIAL CORPORATION
	(Registrant)


	Date:	November 12, 2024


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

	Date:	November 12, 2024


	By:	/s/ Leslie B. Fulton
		Leslie B. Fulton
		Chief Financial Officer and Controller
		(principal financial and accounting officer)

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PEOPLES FINANCIAL CORPORATION

PURSUANT TO SECTION 302 OF THE

SARBANES - OXLEY ACT OF 2002

I, Chevis C. Swetman, certify that:

I have reviewed this quarterly report on Form 10-Q of Peoples Financial Corporation.
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;
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;
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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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: November 12, 2024


	/s/ Chevis C. Swetman
	Chevis C. Swetman,
	President and Chief Executive Officer
	(principal executive officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PEOPLES FINANCIAL CORPORATION

PURSUANT TO SECTION 302 OF THE

SARBANES - OXLEY ACT OF 2002

I, Leslie B. Fulton, certify that:

I have reviewed this quarterly report on Form 10-Q of Peoples Financial Corporation.
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;
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;
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:

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

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):

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: November 12, 2024


	/s/ Leslie B. Fulton
	Leslie B. Fulton,
	Chief Financial Officer and Controller
	(principal financial and accounting officer)

Exhibit 32.1

CERTIFICATION OF CHIEF 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-Q for the period ending September 30, 2024 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:	November 12, 2024

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PEOPLES FINANCIAL CORPORATION

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

I, Leslie B. Fulton, Chief Financial Officer and Controller of Peoples Financial Corporation (the “Company”), hereby certify that the accompanying report on Form 10-Q for the period ending September 30, 2024 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/ Leslie B. Fulton

		Leslie B. Fulton
		Chief Financial Officer and Controller
		(principal financial and accounting officer)

	Date:	November 12, 2024