Edgar Filing: PEOPLES FINANCIAL CORP /MS/

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☐ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

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, 2016

☐	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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ☒ No ☐

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

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, 2016, there were 15,000,000 shares of $1 par value common stock authorized, with 5,123,186 shares issued and outstanding.

Part 1 – Financial Information

Item 1: Financial Statements

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition

(in thousands except share data)


	September 30, 2016 (unaudited)		December 31, 2015 (audited)

Assets
Cash and due from banks	$	64,509	$	31,396

Available for sale securities		208,920		202,807

Held to maturity securities, fair value of $35,888 at September 30, 2016; $19,220 at December 31, 2015		35,524		19,025

Other investments		2,717		2,744

Federal Home Loan Bank Stock, at cost		536		1,637

Loans		324,107		337,557

Less: Allowance for loan losses		6,947		8,070


Loans, net		317,160		329,487

Bank premises and equipment, net of accumulated depreciation		21,673		22,446

Other real estate		9,437		9,916

Accrued interest receivable		1,677		1,832

Cash surrender value of life insurance		19,115		18,735

Other assets		1,253		979

Total assets	$	682,521	$	641,004

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Condition (continued)

(in thousands except share data)


	September 30, 2016 (unaudited)		December 31, 2015 (audited)
Liabilities and Shareholders’ Equity
Liabilities:

Deposits:

Demand, non-interest bearing	$	141,098	$	122,743

Savings and demand, interest bearing		344,493		315,141

Time, $100,000 or more		39,719		35,389

Other time deposits		38,250		39,434


Total deposits		563,560		512,707

Borrowings from Federal Home Loan Bank		6,339		18,409

Employee and director benefit plans liabilities		16,556		16,283

Other liabilities		1,710		1,766


Total liabilities		588,165		549,165

Shareholders’ Equity:
Common stock, $1 par value, 15,000,000 shares authorized, 5,123,186 shares issued and outstanding at September 30, 2016 and December 31, 2015		5,123		5,123

Surplus		65,780		65,780

Undivided profits		19,694		19,151

Accumulated other comprehensive income, net of tax		3,759		1,785

Total shareholders’ equity		94,356		91,839


Total liabilities and shareholders’ equity	$	682,521	$	641,004

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands except per share data)(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Interest income:
Interest and fees on loans	$	3,568	$	3,665	$	10,833	$	11,031

Interest and dividends on securities:

U.S. Treasuries		283		187		740		461

U.S. Government agencies		161		475		728		1,534

Mortgage-backed securities		137		147		414		454

States and political subdivisions		333		245		954		970

Corporate bonds		7				23

Other investments		9		13		19		20

Interest on balances due from depository institutions		95		15		212		50

Total interest income		4,593		4,747		13,923		14,520


Interest expense:
Deposits		237		179		661		508

Borrowings from Federal Home Loan Bank		30		57		115		152


Total interest expense		267		236		776		660


Net interest income		4,326		4,511		13,147		13,860

Provision for allowance for loan losses				285		137		2,807


Net interest income after provision for allowance for loan losses	$	4,326	$	4,226	$	13,010	$	11,053

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Operations (continued)

(in thousands except per share data)(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Non-interest income:
Trust department income and fees	$	429		$	438		$	1,192		$	1,238

Service charges on deposit accounts		946			943			2,796			3,331

Gain on liquidation, sales and calls of securities		67			8			158			8

Loss from other investments		(14	)		(29	)		(27	)		(100	)

Increase in cash surrender value of life insurance		102			121			295			363

Other income		236			203			523			590


Total non-interest income		1,766			1,684			4,937			5,430

Non-interest expense:
Salaries and employee benefits		2,776			2,943			8,305			8,918

Net occupancy		559			556			1,798			1,871

Equipment rentals, depreciation and maintenance		763			716			2,229			2,135

FDIC and state banking assessments		232			243			661			704

Data processing		334			344			1,006			1,036

ATM expense		147			179			422			1,004

Other real estate expense		26			962			500			1,704

Loss on credit impairment of securities					1,695						1,695

Other expense		849			825			2,405			2,725


Total non-interest expense		5,686			8,463			17,326			21,792


Income (loss) before income taxes		406			(2,553	)		621			(5,309	)
Income tax expense								78


Net income (loss)	$	406		$	(2,553	)	$	543		$	(5,309	)


Basic and diluted earnings (loss) per share	$	.08		$	(.50	)	$	.10		$	(1.04	)

Dividends declared per share	$			$			$			$

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Net income (loss)	$	406		$	(2,553	)	$	543		$	(5,309	)

Other comprehensive income (loss):

Net unrealized gain (loss) on available for sale securities		(598	)		1,832			2,132			1,961

Reclassification adjustment for realized gain on available for sale securities called or sold		(67	)		(8	)		(158	)		(8	)


Total other comprehensive income (loss)		(665	)		1,824			1,974			1,953


Total comprehensive income (loss)	$	(259	)	$	(729	)	$	2,517		$	(3,356	)

See notes to consolidated financial statements.

Peoples Financial Corporation and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

(in thousands except share data)


	Number of Common Shares		Common Stock		Surplus		Undivided Profits		Accumulated Other Comprehensive Income		Total

Balance, January 1, 2016		5,123,186	$	5,123	$	65,780	$	19,151	$	1,785	$	91,839

Net income								543				543

Other comprehensive income										1,974		1,974

Balance, September 30, 2016		5,123,186	$	5,123	$	65,780	$	19,694	$	3,759	$	94,356

Note: Balances as of January 1, 2016 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,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	543		$	(5,309	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation		1,356			1,341

Provision for allowance for loan losses		137			2,807

Writedown of other real estate		420			443

(Gains) losses on sales of other real estate		(199	)		796

Loss from other investments		27			100

Amortization of held to maturity securities		111			52

Amortization of available for sale securities		17			175

Gain on sales and calls of securities		(158	)		(8	)

Loss on credit impairment of securities					1,695

Change in accrued interest receivable		155			194

Increase in cash surrender value of life insurance		(295	)		(363	)

Change in other assets		(274	)		357

Change in other liabilities		217			675

Net cash provided by operating activities	$	2,057		$	2,955

Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in thousands) (unaudited)


	Nine Months Ended September 30,
	2016			2015

Cash flows from investing activities:
Proceeds from maturities, sales and calls of available for sale securities	$	141,834		$	48,615

Proceeds from maturities of held to maturity securities		510			210

Purchases of available for sale securities		(145,832	)		(35,049	)

Purchases of held to maturity securities		(17,120	)		(1,534	)

Redemption of Federal Home Loan Bank stock		1,101			1,033

Proceeds from sales of other real estate		2,017			2,819

Loans, net change		10,431			2,794

Acquisition of bank premises and equipment		(583	)		(259	)

Investment in cash surrender value of life insurance		(85	)		(80	)

Net cash provided by (used in) investing activities		(7,727	)		18,549


Cash flows from financing activities:
Demand and savings deposits, net change		47,707			14,477

Time deposits, net change		3,146			(3,818	)

Borrowings from Federal Home Loan Bank		98,920			697,544

Repayments to Federal Home Loan Bank		(110,990	)		(717,768	)

Net cash provided by (used in) financing activities		38,783			(9,565	)

Net increase in cash and cash equivalents		33,113			11,939
Cash and cash equivalents, beginning of period		31,396			23,556

Cash and cash equivalents, end of period	$	64,509		$	35,495

See notes to consolidated financial statements.

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2016 and 2015

1. Basis of Presentation:

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

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company and its subsidiaries as of September 30, 2016 and the results of their operations and their cash flows for the periods presented. The interim financial information should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s 2015 Annual Report and Form 10-K.

The results of operations for the quarter or nine months ended September 30, 2016, are not necessarily indicative of the results to be expected for the full year.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies - The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in our Form 10-K for the year ended December 31, 2015.

New Accounting Pronouncements – In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 82). ASU 2016-02 provides certain targeted improvements to align lessor accounting with the lessee accounting model. This update will be effective for fiscal years, and interim periods

within those fiscal years, beginning after January 1, 2019. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In March 2016, FASB issued ASU 2016-03, Intangibles – Goodwill and Other (Topic 350); Business Combinations (Topic 805); Consolidation (Topic 810); Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance. ASU 2016-03 amends the guidance in ASUs 2014-02, 2014-03, 2014-07 and 2014-18 to remove their effective dates and render them effective immediately. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In March 2016, FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations and retained earnings retroactively on a step by step basis. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2016. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require financial institutions and other organizations to use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available for sale debt securities and purchased financial assets with credit deterioration. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is in the process of determining the effect of ASU 2016-13 on its financial position, results of operations and cash flows.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force). ASU 2016-15 provides classification guidance in order to reduce diversity in practice for certain transactions. Such transactions include debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions received from equity method investments, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after January 1, 2017. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

2. Earnings Per Share:

Per share data is based on the weighted average shares of common stock outstanding of 5,123,186 for the quarters and nine months ended September 30, 2016 and 2015.

3. Statements of Cash Flows:

The Company has defined cash and cash equivalents as cash and due from banks. The Company paid $761,440 and $655,764 for the nine months ended September 30, 2016 and 2015, respectively, for interest on deposits and borrowings. Income tax payments of $78,435 were made during the nine months ended September 30, 2016. Loans transferred to other real estate amounted to $1,758,764 and $7,278,605 during the nine months ended September 30, 2016 and 2015, respectively.

4. Investments:

The amortized cost and fair value of securities at September 30, 2016 and December 31, 2015, are as follows (in thousands):


September 30, 2016:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries	$	124,691	$	782	$	(12	)	$	125,461
U.S. Government agencies		29,971		336		(5	)		30,302
Mortgage-backed securities		32,232		686		(16	)		32,902
States and political subdivisions		19,073		724					19,797

Total debt securities		205,967		2,528		(33	)		208,462
Equity securities		458							458

Total available for sale securities	$	206,425	$	2,528	$	(33	)	$	208,920

Held to maturity securities:
U.S. Government agencies	$	5,000	$		$	(21	)	$	4,979
States and political subdivisions		29,046		429		(41	)		29,434
Corporate bond		1,478				(3	)		1,475

Total held to maturity securities	$	35,524	$	429	$	(65	)	$	35,888


December 31, 2015:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for sale securities:
Debt securities:
U.S. Treasuries	$	63,845	$	20	$	(111	)	$	63,754
U.S. Government agencies		84,849		176		(479	)		84,546
Mortgage-backed securities		30,106		155		(131	)		30,130
States and political subdivisions		22,833		894					23,727

Total debt securities		201,633		1,245		(721	)		202,157
Equity securities		650							650

Total available for sale securities	$	202,283	$	1,245	$	(721	)	$	202,807

Held to maturity securities:
States and political subdivisions	$	17,507	$	222	$	(16	)	$	17,713
Corporate bond		1,518				(11	)		1,507

Total held to maturity securities	$	19,025	$	222	$	(27	)	$	19,220

The amortized cost and fair value of debt securities at September 30, 2016 (in thousands), by contractual maturity, are shown on the following page. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
Available for sale securities:
Due in one year or less	$	29,119	$	29,190
Due after one year through five years		119,697		120,935
Due after five years through ten years		24,586		25,073
Due after ten years		333		362
Mortgage-backed securities		32,232		32,902

Totals	$	205,967	$	208,462


Held to maturity securities:
Due in one year or less	$	2,762	$	2,757
Due after one year through five years		7,354		7,454
Due after five years through ten years		15,433		15,600
Due after ten years		9,975		10,077

Totals	$	35,524	$	35,888

Available for sale and held to maturity securities with gross unrealized losses at September 30, 2016 and December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):


	Less Than Twelve Months				Over Twelve Months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2016:
U.S. Treasuries	$	9,973	$	12	$		$		$	9,973	$	12

U.S. Government agencies		9,972		26						9,972		26

Mortgage-backed securities		4,078		16						4,078		16

States and political subdivisions		6,882		39		591		2		7,473		41

Corporate bond						1,475		3		1,475		3


TOTAL	$	30,905	$	93	$	2,066	$	5	$	32,971	$	98


December 31, 2015:
U.S. Treasuries	$	39,889	$	111	$		$		$	39,889	$	111

U.S. Government agencies		14,894		87		12,581		392		27,475		479

Mortgage-backed securities		16,557		131						16,557		131

States and political subdivisions		2,225		8		1,362		8		3,587		16

Corporate bond		1,507		11						1,507		11

TOTAL	$	75,072	$	348	$	13,943	$	400	$	89,015	$	748

At September 30, 2016, 2 of the 26 U.S. Treasuries, 2 of the 7 U.S. Government Agencies, 2 of the 13 mortgage-backed securities, 24 of the 145 securities issued by states and political subdivisions and the corporate bond contained unrealized losses.

Management evaluates securities for other-than-temporary impairment on a monthly basis. In performing this evaluation, the length of time and the extent to which the fair value has been less than cost, the fact that the Company’s securities are primarily issued by U.S. Treasury and U.S. Government Agencies and the cause of the decline in value are considered. In addition, the Company does not intend to sell and it is not more likely than not that it will be required to sell these securities before maturity. While some available for sale securities have been sold for liquidity purposes or for gains, the Company has traditionally held its securities, including those classified as available for sale, until maturity. As a result of the evaluation of these securities, the Company has determined that the unrealized losses summarized in the tables above are not deemed to be other-than-temporary.

As part of its routine evaluation of securities for other-than-temporary impairment, the Company identified a potential credit loss on bonds issued by a municipality with a carrying value of $1,875,000 at September 30, 2015. The Company’s evaluation considered the failure of the issuer to make scheduled interest payments and expectations of future performance. Principal and interest payments due under the current terms of the bonds are funded by sales and property tax collections by the related municipality. During the third quarter of 2015, the assessed value of the related real estate parcels was significantly reduced, which will reduce the level of future cash flows supporting the principal and interest payments on the bonds. The present value of the expected future cash flows was calculated by the Company. Based on its evaluation, it was determined that the investment in the bonds is impaired and that a credit loss should be recognized in earnings. During the third quarter of 2015, the Company recorded a loss of $1,695,000 from the credit impairment of these bonds. Accrued interest of $92,564 relating to these securities was also charged off during the third quarter of 2015.

Proceeds from sales and calls of available for sale securities were $29,250,806 and $5,600,000 during the nine months ended September 30, 2016 and 2015, respectively. Available for sale debt securities were sold or called for a realized gain of $157,918 and $7,993 for the nine months ended September 30, 2016 and 2015, respectively.

Securities with a fair value of $182,864,903 and $168,724,920 at September 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, federal funds purchased and other balances required by law.

5. Loans:

The composition of the loan portfolio at September 30, 2016 and December 31, 2015, is as follows (in thousands):


	September 30, 2016		December 31, 2015
Gaming	$	33,442	$	31,655
Residential and land development		910		933
Real estate, construction		40,347		35,414
Real estate, mortgage		202,608		219,925
Commercial and industrial		39,092		42,480
Other		7,708		7,150

Total	$	324,107	$	337,557

The age analysis of the loan portfolio, segregated by class of loans, as of September 30, 2016 and December 31, 2015, is as follows (in thousands):


	Number of Days Past Due												Loans Past Due Greater Than 90
	30 - 59		60 - 89		Greater Than 90		Total Past Due		Current		Total Loans		Days & Still Accruing
September 30, 2016:
Gaming	$		$		$		$		$	33,442	$	33,442	$
Residential and land development						300		300		610		910
Real estate, construction		259		349		1,104		1,712		38,635		40,347		14
Real estate, mortgage		1,842		2,245		4,843		8,930		193,678		202,608		161
Commercial and industrial		345		32		13		390		38,702		39,092
Other		41				81		122		7,586		7,708		5


Total	$	2,487	$	2,626	$	6,341	$	11,454	$	312,653	$	324,107	$	180

December 31, 2015:
Gaming	$		$		$		$		$	31,655	$	31,655	$
Residential and land development						323		323		610		933
Real estate, construction		851		448		1,346		2,645		32,769		35,414
Real estate, mortgage		7,094		3,673		1,352		12,119		207,806		219,925		146
Commercial and industrial		1,206		31		237		1,474		41,006		42,480
Other		67						67		7,083		7,150


Total	$	9,218	$	4,152	$	3,258	$	16,628	$	320,929	$	337,557	$	146

The Company monitors the credit quality of its loan portfolio through the use of a loan grading system. A score of 1 – 5 is assigned to the loan on factors including repayment ability, trends in net worth and/or financial condition of the borrower and guarantors, employment stability, management ability, loan to value fluctuations, the type and structure of the loan, conformity of the loan to bank policy and payment performance. Based on the total score, a loan grade of A, B, C, S, D, E or F is applied. A grade of A will generally be applied to loans for customers that are well known to the Company and that have excellent sources of repayment. A grade of B will generally be applied to loans for customers that have excellent sources of repayment which have no identifiable risk of collection. A grade of C will generally be applied to loans for customers that have adequate sources of repayment which have little identifiable risk of collection. A grade of S will generally be applied to loans for customers who meet the criteria for a grade of C but also warrant additional monitoring by placement on the watch list. A grade of D will generally be applied to loans for customers that are inadequately protected by current sound net worth, paying capacity of the borrower, or pledged collateral. Loans with a grade of D have unsatisfactory characteristics such as cash flow deficiencies, bankruptcy filing by the borrower or dependence on the sale of collateral for the primary source of repayment, causing more than acceptable levels of risk. Loans 60 to 89 days past due receive a grade of D. A grade of E will generally be applied to loans for customers with weaknesses inherent in the “D” classification and in which collection or liquidation in full is questionable. In addition, on a monthly basis the Company determines which loans are 90 days or more past due and assigns a grade of E to them. A grade of F is applied to loans which are considered uncollectible and of such little value that their continuance in an active bank is not warranted. Loans with this grade are charged off, even though partial or full recovery may be possible in the future.

An analysis of the loan portfolio by loan grade, segregated by class of loans, as of September 30, 2016 and December 31, 2015, is as follows (in thousands):


	Loans With A Grade Of:
	A, B or C		S		D		E		F	Total
September 30, 2016:
Gaming	$	33,442	$		$		$		$	$	33,442

Residential and land development		610						300			910

Real estate, construction		37,613		449		549		1,736			40,347

Real estate, mortgage		148,116		19,232		23,364		11,896			202,608

Commercial and industrial		13,179		24,180		1,151		582			39,092

Other		7,674		1		33					7,708


Total	$	240,634	$	43,862	$	25,097	$	14,514	$	$	324,107


December 31, 2015:
Gaming	$	31,655	$		$		$		$	$	31,655

Residential and land development		610						323			933

Real estate, construction		31,935				883		2,596			35,414

Real estate, mortgage		167,286		16,678		23,686		12,275			219,925

Commercial and industrial		24,466		15,007		2,368		639			42,480

Other		7,114		1		35					7,150


Total	$	263,066	$	31,686	$	26,972	$	15,833	$	$	337,557

A loan may be impaired but not on nonaccrual status when the loan is well secured and in the process of collection. Total loans on nonaccrual as of September 30, 2016 and December 31, 2015, are as follows (in thousands):


	September 30, 2016		December 31, 2015
Residential and land development	$	300	$	323
Real estate, construction		1,736		2,523
Real estate, mortgage		10,920		11,759
Commercial and industrial		535		581

Total	$	13,491	$	15,186

The Company has modified certain loans by granting interest rate concessions to these customers. These loans are in compliance with their modified terms, are currently accruing and the Company has classified them as troubled debt restructurings. Troubled debt restructurings as of September 30, 2016 and December 31, 2015 were as follows (in thousands except for number of contracts):


	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Related Allowance
September 30, 2016:
Real estate, mortgage		3	$	1,197	$	1,197	$	107

Total		3	$	1,197	$	1,197	$	107


December 31, 2015:
Real estate, mortgage		3	$	1,232	$	1,232	$	107

Total		3	$	1,232	$	1,232	$	107

Impaired loans, which include loans classified as nonaccrual and troubled debt restructurings, segregated by class of loans, as of September 30, 2016 and December 31, 2015, are as follows (in thousands):


	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2016:
With no related allowance recorded:
Real estate, construction	$	2,065	$	1,460	$		$	1,395	$
Real estate, mortgage		9,579		8,848				8,715		17
Commercial and industrial		326		326				333


Total		11,970		10,634				10,443		17


With a related allowance recorded:
Residential and land development		300		300		109		308
Real estate, construction		276		276		165		287
Real estate, mortgage		3,269		3,269		1,089		2,967		23
Commercial and industrial		247		209		2		210


Total		4,092		4,054		1,365		3,772		23


Total by class of loans:
Residential and land development		300		300		109		308
Real estate, construction		2,341		1,736		165		1,682
Real estate, mortgage		12,848		12,117		1,089		11,682		40
Commercial and industrial		573		535		2		543


Total	$	16,062	$	14,688	$	1,365	$	14,215	$	40


	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2015:
With no related allowance recorded:
Real estate, construction	$	2,228	$	1,842	$		$	1,878	$
Real estate, mortgage		9,771		9,014				9,175		21
Commercial and industrial		619		581				653


Total		12,618		11,437				11,706		21


With a related allowance recorded:
Residential and land development		323		323		109		343
Real estate, construction		814		681		252		780
Real estate, mortgage		3,977		3,977		1,443		3,920		18


Total		5,114		4,981		1,804		5,043		18


Total by class of loans:
Residential and land development		323		323		109		343
Real estate, construction		3,042		2,523		252		2,658
Real estate, mortgage		13,748		12,991		1,443		13,095		39
Commercial and industrial		619		581				653


Total	$	17,732	$	16,418	$	1,804	$	16,749	$	39

6. Allowance for Loan Losses:

Transactions in the allowance for loan losses for the quarters and nine months ended September 30, 2016 and 2015, and the balances of loans, individually and collectively evaluated for impairment, as of September 30, 2016 and 2015, are as follows (in thousands):


	Gaming		Residential and Land Development		Real Estate, Construction			Real Estate, Mortgage			Commercial and Industrial			Other			Total
For the Nine Months Ended September 30, 2016:
Allowance for Loan Losses:
Beginning balance	$	582	$	189	$	589		$	5,382		$	1,075		$	253		$	8,070
Charge-offs						(173	)		(700	)		(509	)		(153	)		(1,535	)
Recoveries						57			107			61			50			275
Provision		48		20		(113	)		(24	)		127			79			137

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


For the Quarter Ended September 30, 2016:
Allowance for Loan Losses:
Beginning Balance	$	582	$	202	$	375		$	4,976		$	718		$	256		$	7,109
Charge-offs									(147	)					(59	)		(206	)
Recoveries						19			8			1			16			44
Provision		48		7		(34	)		(72	)		35			16

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


Allowance for Loan Losses, September 30, 2016:
Ending balance: individually evaluated for impairment	$		$	109	$	239		$	1,311		$	218		$	17		$	1,894

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


Total Loans, September 30, 2016:
Ending balance: individually evaluated for impairment	$		$	300	$	2,285		$	35,260		$	1,733		$	33		$	39,611

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


	Gaming		Residential and Land Development			Real Estate, Construction			Real Estate, Mortgage			Commercial and Industrial			Other			Total
For the Nine Months Ended September 30, 2015:
Allowance for Loan Losses:
Beginning Balance	$	573	$	251		$	860		$	6,609		$	587		$	326		$	9,206
Charge-offs				(1,504	)		(955	)		(1,171	)		(62	)		(141	)		(3,833	)
Recoveries							102			20			14			61			197
Provision		38		1,484			606			243			350			86			2,807

Ending Balance	$	611	$	231		$	613		$	5,701		$	889		$	332		$	8,377


For the Quarter Ended September 30, 2015:
Allowance for Loan Losses:
Beginning Balance	$	570	$	226		$	1,104		$	6,639		$	655		$	356		$	9,550
Charge-offs							(546	)		(952	)		(38	)		(44	)		(1,580	)
Recoveries							102			7			1			12			122
Provision		41		5			(47	)		7			271			8			285

Ending Balance	$	611	$	231		$	613		$	5,701		$	889		$	332		$	8,377


Allowance for Loan Losses, September 30, 2015:
Ending balance: individually evaluated for impairment	$		$	117		$	479		$	1,759		$	364		$	4		$	2,723

Ending balance: collectively evaluated for impairment	$	611	$	114		$	134		$	3,942		$	525		$	328		$	5,654


Total Loans, September 30, 2015:
Ending balance: individually evaluated for impairment	$		$	3,117		$	4,223		$	36,947		$	3,548		$	20		$	47,855

Ending balance: collectively evaluated for impairment	$	32,181	$	650		$	31,274		$	183,338		$	40,769		$	12,632		$	300,844

7. Deposits:

Time deposits of $100,000 or more at September 30, 2016 and December 31, 2015 included brokered deposits of $5,000,000, which mature in 2017.

Time deposits of $250,000 or more totaled approximately $26,853,000 and $24,090,000 at September 30, 2016 and December 31, 2015, respectively.

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.

Available for Sale Securities

The fair value of available for sale securities is based on quoted market prices. The Company’s available for sale securities are reported at their estimated fair value, which is determined utilizing several sources. The primary source is Interactive Data Corporation, which utilizes pricing models that vary based on asset class and include available trade, bid and other market information and whose methodology includes broker quotes, proprietary models and vast descriptive databases. Another source for determining fair value is matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark securities. The Company’s available for sale securities for which fair value is determined through the use of such pricing models and matrix pricing are classified as Level 2 assets. If the fair value of available for sale securities is generated through model-based techniques, including the discounting of estimated cash flows, such securities are classified as Level 3 assets.

Held to Maturity Securities

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

Other Investments

The carrying amount shown as other investments approximates fair value.

Federal Home Loan Bank Stock

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

Loans

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

Other Real Estate

In the course of lending operations, Management may determine that it is necessary to foreclose on the related collateral. Other real estate acquired through foreclosure is carried at fair value, less estimated costs to sell. The fair value of the collateral is based on appraisals performed by third-party valuation specialists. Factors including the assumptions and techniques utilized by the appraiser are considered by Management. If the current appraisal is more than one year old and/or the loan balance is more than $200,000, a new appraisal is obtained. Otherwise, the Bank’s in-house property evaluator and Management will determine the fair value of the collateral, based on comparable sales, market conditions, Management’s plans for disposition and other estimates of fair value obtained from principally independent sources, adjusted for estimated selling costs. Other real estate is a non-recurring Level 3 asset.

Cash Surrender Value of Life Insurance

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

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.

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, 2016 and December 31, 2015 are as follows (in thousands):


			Fair Value Measurements Using
	Total		Level 1	Level 2		Level 3
September 30, 2016:
U.S. Treasuries	$	125,461	$	$	125,461	$
U.S. Government agencies		30,302			30,302
Mortgage-backed securities		32,902			32,902
States and political subdivisions		19,797			19,797
Equity securities		458			458

Total	$	208,920	$	$	208,920	$


December 31, 2015:
U.S. Treasuries	$	63,754	$	$	63,754	$
U.S. Government agencies		84,546			84,546
Mortgage-backed securities		30,130			30,130
States and political subdivisions		23,727			23,547		180
Equity securities		650			650

Total	$	202,807	$	$	202,627	$	180

Impaired loans, which are measured at fair value on a non-recurring basis, by level within the fair value hierarchy as of September 30, 2016 and December 31, 2015 are as follows (in thousands):


			Fair Value Measurements Using
	Total		Level 1	Level 2	Level 3
September 30, 2016	$	6,605	$	$	$	6,605
December 31, 2015		7,811				7,811

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, 2016 and December 31, 2015 are as follows (in thousands):


			Fair Value Measurements Using
	Total		Level 1	Level 2	Level 3
September 30, 2016	$	9,437	$	$	$	9,437
December 31, 2015		9,916				9,916

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


	For the Nine Months Ended September 30, 2016			For the Year Ended December 31, 2015
Balance, beginning of period	$	9,916		$	7,646

Loans transferred to ORE		1,759			7,502

Sales		(1,818	)		(4,295	)

Writedowns		(420	)		(937	)


Balance, end of period	$	9,437		$	9,916

The carrying value and estimated fair value of financial instruments, by level within the fair value hierarchy, at September 30, 2016 and December 31, 2015, are as follows (in thousands):


	Carrying		Fair Value Measurements Using
	Amount		Level 1		Level 2		Level 3		Total
September 30, 2016:
Financial Assets:
Cash and due from banks	$	64,509	$	64,509	$		$		$	64,509
Available for sale securities		208,920				208,920				208,920
Held to maturity securities		35,524				35,888				35,888
Other investments		2,717		2,717						2,717
Federal Home Loan Bank stock		536				536				536
Loans, net		317,160						321,510		321,510
Other real estate		9,437						9,437		9,437
Cash surrender value of life insurance		19,115				19,115				19,115
Financial Liabilities:
Deposits:
Non-interest bearing		141,098		141,098						141,098
Interest bearing		422,462						422,775		422,775
Borrowings from Federal Home Loan Bank		6,339				6,777				6,777


December 31, 2015:
Financial Assets:
Cash and due from banks	$	31,396	$	31,396	$		$		$	31,396
Available for sale securities		202,807				202,627		180		202,807
Held to maturity securities		19,025				19,220				19,220
Other investments		2,744		2,744						2,744
Federal Home Loan Bank stock		1,637				1,637				1,637
Loans, net		329,487						331,026		331,026
Other real estate		9,916						9,916		9,916
Cash surrender value of life insurance		18,735				18,735				18,735
Financial Liabilities:
Deposits:
Non-interest bearing		122,743		122,743						122,743
Interest bearing		389,964						390,205		390,205
Borrowings from Federal Home Loan Bank		18,409				19,731				19,731

9. Reclassifications:

Certain reclassifications have been made to the prior year statements to conform to current year presentation. The reclassifications had no effect on prior year net income (loss).

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

The following presents Management’s 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, 2015.

Forward-Looking Information

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

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued several new accounting standards updates for the first three quarters of 2016 which are disclosed in the Notes to Unaudited Consolidated Financial Statements. The Company does not generally expect that these updates will have a material effect on its financial position or results of operations but the effect of ASU 2016-13 is still being considered.

Critical Accounting Policies

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

Investments

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

Allowance for loan losses

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

Other Real Estate

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

Employee Benefit Plans

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

Income Taxes

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

OVERVIEW

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

The Company earned net income of $406,000 for the third quarter of 2016 compared with a net loss of $2,553,000 for the third quarter of 2015 and earned net income of $543,000 for the first three quarters of 2016 compared with a net loss of $5,309,000 for the first three quarters of 2015. Results in 2016 for both time periods included decreases in the provision for the allowance for loan losses and non-interest expense which were partially offset by a decrease in net interest income as compared with 2015. In addition, non-interest income decreased for the first three quarters of 2016 as compared with 2015.

Managing the net interest margin in the Company’s highly competitive market and in context of larger economic conditions has been very challenging and will continue to be so, for the foreseeable future. Net interest income was impacted primarily by the decrease in interest on U.S. Government agency securities of $314,000 and $806,000 for the third quarter and first three quarters ended September 30, 2016, respectively, as compared with 2015. This decrease in both time periods is the result of recent purchases of these securities having shorter durations, and therefore lower yields, in anticipation of rising rates as well as proceeds from calls and maturities of U.S. Agency securities being invested in U.S. Treasury securities which generally have a lower rate.

Monitoring asset quality, estimating potential losses in our loan portfolio and addressing non-performing loans continue to be emphasized during these difficult economic times, as the local economy continues to negatively impact collateral values and borrowers’ ability to repay their loans. The Company did not record a provision for the allowance for loan losses for the third quarter of 2016 and only recorded a provision of $137,000 for the first three quarters of 2016. Provisions for the allowance for loan losses of $285,000 and $2,807,000, respectively, were recorded for the third quarter and first three quarters of 2015. The Company is working diligently to address and reduce its non-performing assets. The Company’s nonaccrual loans totaled $13,491,000 and $15,186,000 at September 30, 2016 and December 31, 2015, 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 $82,000 for the third quarter of 2016 and decreased $493,000 for the first three quarters of 2016 as compared with 2015 results. The increase between the quarters primarily is the result of the gain on the liquidation, sale and calls of securities of $67,000 during the third quarter of 2016. The decrease between the three quarters is the result of service charges on deposit accounts decreasing $535,000 for the first three quarters of 2016 as compared with 2015 primarily as a result of decreased ATM fee income.

Non-interest expense decreased $2,777,000 and $4,466,000 for the third quarter and first three quarters of 2016 as compared with 2015 results. This decrease for the third quarter of 2016 was the result of the decrease in ORE expense of $936,000 as compared with 2015 and 2015’s results including the loss on credit impairment of securities of $1,695,000. This decrease for the first three quarters of 2016 was the result of decreases in salaries and employee benefits of $613,000, ATM expenses of $582,000 and ORE expense of $1,204,000 as compared with 2015 and 2015’s results including the loss on credit impairment of securities.

Total assets at September 30, 2016 increased $41,517,000 as compared with December 31, 2015. Cash and due from banks increased $33,113,000 and held to maturity securities increased $16,499,000 at September 30, 2016. These increases were funded by total deposits which increased $50,853,000 at September 30, 2016 as compared with December 31, 2015 as customers in the casino industry and county and municipal entities reallocate their resources periodically.

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, 2016 as Compared with Quarter Ended September 30, 2015

The Company’s average interest-earning assets increased approximately $12,797,000, or 2%, from approximately $591,211,000 for the third quarter of 2015 to approximately $604,008,000 for the third quarter of 2016. Average balances due from financial institutions increased approximately $49,872,000 as a result of the decrease in average loans and the increase in average savings and interest-bearing DDA. The Company’s average loans decreased approximately $30,673,000 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans.

The average yield on earning assets decreased by 15 basis points, from 3.30% for the third quarter of 2015 to 3.15% for the third quarter of 2016. The yield on average loans increased from 4.13% for the third quarter of 2015 to 4.40% for the third quarter of 2016 primarily as a result of the effect of the increase in prime rate during December 2015 on the Company’s floating rate loans. Offsetting this was the yield on average taxable available for sale securities which decreased from 1.75% for the third quarter of 2015 to 1.27% for the third quarter of 2016 as recent purchases have shorter durations, and therefore lower yields, in anticipation of rising rates.

Average interest bearing liabilities increased approximately $2,135,000, or .50%, from approximately $441,456,000 for the third quarter of 2015 to approximately $443,591,000 for the third quarter of 2016. Average savings and interest bearing DDA balances increased approximately $15,725,000 primarily as several large commercial customers reallocate their balances periodically. Average borrowings from the Federal Home Loan Bank decreased approximately $18,158,000 due to the liquidity needs of the bank subsidiary.

The average rate paid on interest bearing liabilities for the third quarter of 2015 was .21% as compared with .24% for the third quarter of 2016.

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.14% for the third quarter of 2015 as compared with 2.97% for the third quarter of 2016.

Nine Months Ended September 30, 2016 as Compared with Nine Months Ended September 30, 2015

The Company’s average interest-earning assets decreased approximately $14,620,000, or 2%, from approximately $606,993,000 for the first three quarters of 2015 to approximately $592,373,000 for the first three quarters of 2016. Average balances due from financial institutions increased approximately $21,742,000 primarily as a result of the decrease in average loans. The Company’s average loans decreased approximately $30,079,000 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans.

The average yield on earning assets decreased by 6 basis points, from 3.30% for the first three quarters of 2015 to 3.24% for the first three quarters of 2016. The yield on average loans increased from 4.07% for the first three quarters of 2015 to 4.36% for the first three quarters of 2016 primarily as a result of the effect of the increase in prime rate during December 2015 on the Company’s floating rate loans. The yield on average taxable available for sale securities decreased from 1.73% for the first three quarters of 2015 to 1.35% for the first three quarters of 2016 as recent purchases have shorter durations, and therefore lower yields, in anticipation of rising rates.

Average interest-bearing liabilities decreased approximately $17,536,000, or 4%, from approximately $464,011,000 for the first three quarters of 2015 to approximately $446,475,000 for the first three quarters of 2016. Average borrowings from the Federal Home Loan Bank decreased approximately $19,120,000 due to the liquidity needs of the bank subsidiary.

The average rate paid on interest-bearing liabilities for the first three quarters of 2015 was .19% compared with .23% for the first two quarters of 2016.

The Company’s net interest margin on a tax-equivalent basis, which is net interest income as a percentage of average earning assets, was 3.15% for the first three quarters of 2015 as compared with 3.07% for the first three quarters of 2016.

The tables on the following pages analyze the changes in tax-equivalent net interest income for the quarters and nine months ended September 30, 2016 and 2015.

Analysis of Average Balances, Interest Earned/Paid and Yield

(In Thousands)


	Quarter Ended September 30, 2016							Quarter Ended September 30, 2015
	Average Balance		Interest Earned/Paid		Rate			Average Balance		Interest Earned/Paid		Rate
Loans (2)(3)	$	324,160	$	3,568		4.40	%	$	354,833	$	3,665		4.13	%

Balances due from depository institutions		54,734		95		0.69	%		4,862		15		1.23	%

HTM:
Taxable		8,593		60		2.79	%
Non taxable (1)		19,981		191		3.82	%		17,534		150		3.42	%

AFS:
Taxable		174,377		553		1.27	%		184,473		809		1.75	%
Non taxable (1)		20,422		277		5.43	%		26,779		221		3.30	%
Other		1,741		9		2.07	%		2,730		13		1.90	%


Total	$	604,008	$	4,753		3.15	%	$	591,211	$	4,873		3.30	%

Savings & interest-bearing DDA	$	357,950	$	116		0.13	%	$	342,225	$	87		0.10	%

Time deposits		78,727		121		0.61	%		74,159		92		0.50	%

Borrowings from FHLB		6,914		30		1.74	%		25,072		57		0.91	%


Total	$	443,591	$	267		0.24	%	$	441,456	$	236		0.21	%


Net tax-equivalent spread						2.91	%						3.09	%


Net tax-equivalent margin on earning assets						2.97	%						3.14	%

(1)	All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2016 and 2015.

(2)	Loan fees of $119 and $67 for 2016 and 2015, respectively, are included in these figures.

(3)	Includes nonaccrual loans.

Analysis of Average Balances, Interest Earned/Paid and Yield

(In Thousands)


	Nine Months September 30, 2016							Nine Months September 30, 2015
	Average Balance		Interest Earned/Paid		Rate			Average Balance		Interest Earned/Paid		Rate
Loans (2)(3)	$	331,022	$	10,833		4.36	%	$	361,101	$	11,031		4.07	%

Balances due from depository institutions		29,814		212		0.95	%		8,072		50		0.83	%

HTM:
Taxable		3,911		61		2.08	%
Non taxable (1)		19,473		541		3.70	%		17,687		452		3.41	%

AFS:
Taxable		184,692		1,870		1.35	%		188,650		2,449		1.73	%
Non taxable (1)		21,482		865		5.37	%		28,838		1,018		4.71	%
Other		1,979		19		1.28	%		2,645		20		1.01	%


Total	$	592,373	$	14,401		3.24	%	$	606,993	$	15,020		3.30	%

Savings & interest-bearing DDA	$	360,127	$	330		0.12	%	$	360,757	$	232		0.09	%

Time deposits		77,445		331		0.57	%		75,231		276		0.49	%

Borrowings from FHLB		8,903		115		1.72	%		28,023		152		0.72	%


Total	$	446,475	$	776		0.23	%	$	464,011	$	660		0.19	%


Net tax-equivalent spread						3.01	%						3.11	%


Net tax-equivalent margin on earning assets						3.07	%						3.15	%

(1)	All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2016 and 2015.

(2)	Loan fees of $314 and $251 for 2016 and 2015, 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, 2016 compared with September 30, 2015
	Volume			Rate			Rate/Volume			Total
Interest earned on:

Loans	$	(317	)	$	240		$	(20	)	$	(97	)

Balances due from financial institutions		154			(7	)		(67	)		80

Held to maturity securities:
Taxable		60									60
Non taxable		21			18			2			41

Available for sale securities:
Taxable		(44	)		(224	)		12			(256	)
Non taxable		(52	)		142			(34	)		56
Other		(5	)		1						(4	)


Total	$	(183	)	$	170		$	(107	)	$	(120	)


Interest paid on:

Savings & interest-bearing DDA	$	4		$	24		$	1		$	29

Time deposits		6			22			1			29

Borrowings from FHLB		(41	)		52			(38	)		(27	)


Total	$	(31	)	$	98		$	(36	)	$	31

Analysis of Changes in Interest Income and Interest Expense

(In Thousands)


	For the Nine Months Ended
	September 30, 2016 compared with September 30, 2015
	Volume			Rate			Rate/Volume			Total
Interest earned on:

Loans	$	(919	)	$	786		$	(65	)	$	(198	)

Balances due from financial institutions		135			7			20			162

Held to maturity securities:
Taxable		61									61
Non taxable		46			39			4			89

Available for sale securities:
Taxable		(51	)		(539	)		11			(579	)
Non taxable		(260	)		143			(36	)		(153	)
Other		(5	)		5			(1	)		(1	)


Total	$	(993	)	$	441		$	(67	)	$	(619	)


Interest paid on:

Savings & interest-bearing DDA	$	(1	)	$	99		$			$	98

Time deposits		8			46			1			55

Borrowings from FHLB		(104	)		210			(143	)		(37	)


Total	$	(97	)	$	355		$	(142	)	$	116

Provision for Loan Losses

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

Management relies on its guidelines and existing methodology to monitor the performance of its loan portfolio and identify and estimate potential losses based on the best available information. The potential effect of the continuing decline in real estate values and actual losses incurred by the Company were key factors in our analysis. Much of the Company’s loan portfolio is collateral-dependent, requiring careful consideration of changes in the value of the collateral.

The Company’s analysis includes evaluating the current values of collateral securing all nonaccrual loans. Even though nonaccrual loans were $13,491,000 and $15,186,000 at September 30, 2016 and December 31, 2015, respectively, specific reserves of only $1,258,000 and $1,697,000, respectively, have been allocated to these loans as collateral values appear sufficient to cover loan losses or the loan balances have been charged down to their realizable value.

The Company records a provision for loan losses based on its on-going, systematic evaluation. This process resulted in the Company recording no provision for loan losses for the third quarter of 2016 and a provision for loan losses of $285,000 for the third quarter of 2015 and $137,000 and $2,807,000 for the first three quarters of 2016 and 2015, respectively. The allowance for loan losses as a percentage of loans was 2.14% and 2.39% at September 30, 2016 and December 31, 2015, respectively. The Company believes that its allowance for loan losses is appropriate as of September 30, 2016.

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

Non-interest income

Quarter Ended September 30, 2016 as Compared with Quarter Ended September 30, 2015

Non-interest income increased $82,000 for the third quarter of 2016 as compared with the third quarter of 2015 primarily as the Company realized a gain of $67,000 in 2016 from the liquidation, sale and call of securities as compared with $8,000 in 2015.

Nine Months Ended September 30, 2016 as Compared with Nine Months Ended September 30, 2015

Non-interest income decreased $493,000 for the first three quarters of 2016 as compared with the first three quarters of 2015 primarily as the result of the decrease in service charges on deposit accounts of $535,000. More specifically, ATM fee income decreased $451,000 as the Company’s off-site ATMs at two casinos transferred to other vendors. The Company also realized a gain of $158,000 from the liquidation, sale and call of securities in 2016 as compared with $8,000 in 2015.

Non-interest expense

Quarter Ended September 30, 2016 as Compared with Quarter Ended September 30, 2015

Total non-interest expense decreased $2,777,000 for the third quarter of 2016 as compared with the third quarter of 2015. This decrease is partly due to the decrease in other real estate expense in 2016 as compared with 2015. This decrease of $936,000 was the result of the decrease in ORE and the impact of the auction of properties in 2015. The decrease in total non-interest expense is also the result of the Company recording a loss from the credit impairment of a municipal security of $1,695,000 in 2015.

Nine Months Ended September 30, 2016 as Compared with Nine Months Ended September 30, 2015

Total non-interest expense decreased $4,466,000 for the first three quarters of 2016 as compared with the first three quarters of 2015. Salaries and employee benefits decreased $613,000, ATM expense decreased $582,000 and other real estate expense decreased $1,204,000 in 2016 as compared with 2015. The Company recorded a loss from the credit impairment of a municipal security of $1,695,000 in 2015.

Salaries and employee benefits decreased in 2016 as salaries decreased $231,000 as a result of attrition and health insurance costs declined $348,000 as a result of decreasing claims.

ATM expenses decreased in 2016 as a result of decreased ATM activity in the current year as a result of off-site ATMs at two casinos transferring to other vendors.

ORE expense decreased in 2016 as compared with 2015 due to the decrease in ORE and the impact of the auction of properties in 2015.

Income Taxes

At December 31, 2014, the Company established a full valuation allowance on its deferred tax assets. Until such time as the Company returns to sustained earnings, and it is determined that it is more likely than not that the deferred tax asset will be realized, no income tax benefit or expense will generally be recorded. The Company did record income tax expense of $78,000 during the second quarter of 2016 relating to the resolution of a recent examination by the Internal Revenue Service.

FINANCIAL CONDITION

Cash and due from banks increased $33,113,000 at September 30, 2016, compared with December 31, 2015 in the management of the bank subsidiary’s liquidity position.

Held to maturity securities increased $16,499,000 at September 30, 2016, compared with December 31, 2015 as the Company has invested some of its excess funding in order to increase its interest income.

Loan decreased $13,450,000 at September 30, 2016, as compared with December 31, 2015 as principal payments, maturities, charge-offs and foreclosures relating to existing loans outpaced new loans.

Total deposits increased $50,853,000 at September 30, 2016, as compared with December 31, 2015. Typically, significant increases or decreases in total deposits and/or significant fluctuations among the different types of deposits from quarter to quarter are anticipated by Management as customers in the casino industry and county and municipal entities reallocate their resources periodically.

Borrowings from the Federal Home Loan Bank decreased $12,070,000 at September 30, 2016 as compared with December 31, 2015 based on the liquidity needs of the bank subsidiary.

SHAREHOLDERS’ EQUITY AND CAPITAL ADEQUACY

Strength, security and stability have been the hallmark of the Company since its founding in 1985 and of its bank subsidiary since its founding in 1896. A strong capital foundation is fundamental to the continuing prosperity of the Company and the security of its customers and shareholders.

New rules relating to risk-based capital requirements and the method for calculating components of capital and of computing risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act became effective for the Company on January 1, 2015. The rules establish a new common equity Tier 1 minimum capital requirement, increase the minimum capital ratios and assign a higher risk weight to certain assets based on the risk associated with these assets.

As of September 30, 2016, the most recent notification from the Federal Deposit Insurance Corporation categorized the bank subsidiary as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank subsidiary must have a Total risk-based capital ratio of 10.00% or greater, a Common Equity Tier 1 Capital ratio of 6.50% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater and a Leverage capital ratio of 5.00% or greater. There are no conditions or events since that notification that Management believes have changed the bank subsidiary’s category.

The Company’s actual capital amounts and ratios and required minimum capital amounts and ratios as of September 30, 2016 and December 31, 2015, are as follows (in thousands):


	Actual					For Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
September 30, 2016 :
Total Capital (to Risk Weighted Assets)	$	95,760		22.60	%	$	33,895		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		90,444		21.35	%		19,066		4.50	%
Tier 1 Capital (to Risk Weighted Assets)		90,444		21.35	%		25,421		6.00	%
Tier 1 Capital (to Average Assets)		90,444		13.25	%		27,312		4.00	%

December 31, 2015:
Total Capital (to Risk Weighted Assets)	$	95,395		21.83	%	$	34,954		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		89,901		20.58	%		19,662		4.50	%
Tier 1 Capital (to Risk Weighted Assets)		89,901		20.58	%		26,215		6.00	%
Tier 1 Capital (to Average Assets)		89,901		13.18	%		27,291		4.00	%

The actual capital amounts and ratios and required minimum capital amounts and ratios for the Bank as of September 30, 2016 and December 31, 2015, are as follows (in thousands):


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2016 :
Total Capital (to Risk Weighted Assets)	$	92,349		21.93	%	$	33,694		8.00	%	$	42,118		10.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		87,063		20.67	%		18,953		4.50	%		27,377		6.50	%
Tier 1 Capital (to Risk Weighted Assets)		87,063		20.67	%		25,271		6.00	%		33,694		8.00	%
Tier 1 Capital (to Average Assets)		87,063		12.72	%		27,373		4.00	%		34,217		5.00	%

December 31, 2015:
Total Capital (to Risk Weighted Assets)	$	91,963		21.09	%	$	34,889		8.00	%	$	43,611		10.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)		86,479		19.83	%		19,625		4.50	%		28,347		6.50	%
Tier 1 Capital (to Risk Weighted Assets)		86,479		19.83	%		26,166		6.00	%		34,889		8.00	%
Tier 1 Capital (to Average Assets)		86,479		13.47	%		25,680		4.00	%		32,100		5.00	%

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, which it intends to use only as a contingency.

REGULATORY MATTERS

During 2014, Management identified opportunities for improving risk management and earnings, addressing asset quality concerns, analyzing and assessing the Bank’s management and staffing needs, and managing concentrations of credit risk as a result of its own investigation as well as examinations performed by certain bank regulatory agencies. In concert with the regulators, the Company had identified specific corrective steps and actions to enhance its risk management, earnings, asset quality and staffing. The Company and the Bank may not declare or pay any cash dividends without the prior written approval of their regulators.

Item 4: Controls and Procedures

As of September 30, 2016, 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)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the period ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1: Legal Proceedings

The Bank is involved in various legal matters and claims which are being defended and handled in the ordinary course of business. None of these matters is expected, in the opinion of Management, to have a material adverse effect upon the financial position or results of operations of the Company.

Item 5: Other Information

None.

Item 6 - Exhibits and Reports on Form 8-K

(a) 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 quarter ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Condition at September 30, 2016 and December 31, 2015, (ii) Consolidated Statements of Operations for the quarters and nine months ended September 30, 2016 and 2015, (iii) Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2016 and 2015, (iv) Consolidated Statement of Changes in Shareholders’ Equity for the nine months ended September 30, 2016, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 and (vi) Notes to the Unaudited Consolidated Financial Statements for the nine months ended September 30, 2016 and 2015.

(b) Reports on Form 8-K

A Form 8-K was filed on July 27, 2016, October 26, 2016 and October 28, 2016.

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 14, 2016

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

Date:		November 14, 2016

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