NOTE O - EMPLOYEE AND DIRECTOR BENEFIT PLANS:

The Company sponsors the Peoples Financial Corporation Employee Stock Ownership Plan (“ESOP”). Employees who are in a position requiring at least

1,000

hours of service during a plan year and who are

years of age are eligible to participate in the ESOP. The Plan included

401

(k) provisions and the former Gulf National Bank Profit Sharing Plan. Effective

January 1, 2001,

the ESOP was amended to separate the

401

(k) funds into the Peoples Financial Corporation

401

(k) Profit Sharing Plan. The separation had

impact on the eligibility or benefits provided to participants of either plan. The

401

(k) provides for a matching contribution of

75%

of the amounts contributed by the employee (up to

of compensation). Contributions are determined by the Board of Directors and

may

be paid either in cash or Peoples Financial Corporation common stock. Total contributions to the plans charged to operating expense were

$260,000,

$260,000

and

$260,000

2019,

2018

and

2017,

respectively.

The ESOP was frozen to further contributions and eligibility effective

January 1, 2019.

Compensation expense of

$7,285,390

and

$7,106,959

was the basis for determining the ESOP contribution allocation to participants for

2018

and

2017,

respectively. The ESOP held

237,923,

247,627

and

270,455

allocated shares at

December 31, 2019,

2018

and

2017,

respectively.

The Company established an Executive Supplemental Income Plan and a Directors' Deferred Income Plan, which provide for pre-retirement and post-retirement benefits to certain key executives and directors. Benefits under the Executive Supplemental Income Plan are based upon the position and salary of the officer at retirement or death. Normal retirement benefits under the plan are equal to

67%

of salary for the president and chief executive officer,

58%

of salary for the executive vice president and

50%

of salary for all other executive officers and are payable monthly over a period of

fifteen

years. Under the Directors’ Deferred Income Plan, the directors are given an opportunity to defer receipt of their annual directors’ fees until retirement from the board. For those who choose to participate, benefits are payable monthly for

ten

years beginning the

first

day of the month following the director’s normal retirement date. The normal retirement date is the later of the normal retirement age (

) or separation of service. Interest on deferred fees accrues at an annual rate of

ten

percent, compounded annually. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary, which it

may

use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted to

$17,024,779

and

$16,620,943

December 31, 2019

and

2018,

respectively. The present value of accumulated benefits under these plans, using an interest rate of

4.00%

and the interest ramp-up method has been accrued. The accrual amounted to

$13,229,501

and

$12,919,127

December 31, 2019

and

2018,

respectively, and is included in Employee and director benefit plans liabilities.

The Company also has additional plans for post-retirement benefits for certain key executives. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary, which it

may

use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted to

$1,850,592

and

$1,729,904

December 31, 2019

and

2018,

respectively. The present value of accumulated benefits under these plans using an interest rate of

4.00%

and the projected unit cost method has been accrued. The accrual amounted to

$1,622,840

and

$1,613,326

December 31, 2019

and

2018,

respectively, and is included in Employee and director benefit plans liabilities.

Additionally, there are

two

endorsement split dollar policies, with the bank subsidiary as owner and beneficiary, which provide a guaranteed death benefit to the participants’ beneficiaries. These contracts are carried at their cash surrender value, which amounted to

$311,088

and

$306,146

December 31, 2019

and

2018,

respectively. The present value of accumulated benefits under these plans using an interest rate of

4.00%

and the projected unit cost method has been accrued. The accrual amounted to

$101,613

and

$97,587

December 31, 2019

and

2018,

respectively, and is included in Employee and director benefit plans liabilities.

The Company has additional plans for post-retirement benefits for directors. The Company has acquired insurance policies, with the bank subsidiary as owner and beneficiary, which it

may

use as a source to pay potential benefits to the plan participants. These contracts are carried at their cash surrender value, which amounted to

$194,270

and

$184,070

December 31, 2019

and

2018,

respectively. The present value of accumulated benefits under these plans using an interest rate of

4.00%

and the projected unit cost method has been accrued. The accrual amounted to

$229,392

and

$213,661

December 31, 2019

and

2018,

respectively, and is included in Employee and director benefit plans liabilities.

The Company provides post-retirement health insurance to certain of its retired employees. Employees are eligible to participate in the retiree health plan if they retire from active service

earlier than age

60.

In addition, the employee must have at least

continuous years of service with the Company immediately preceding retirement. However, any active employee who was at least age

as of

January 1, 1995,

does

not

have to meet the

years of service requirement. The Company reserves the right to modify, reduce or eliminate these health benefits. The Company has chosen to

not

offer this post-retirement benefit to individuals entering the employ of the Company after

December 31, 2006.

Employees who are eligible and enroll in the bank subsidiary’s group medical and dental health care plans upon their retirement must enroll in Medicare Parts A, B and D when

first

eligible upon their retirement from the bank subsidiary. This results in the bank subsidiary’s programs being secondary insurance coverage for retired employees and any dependent(s), if applicable, while Medicare Parts A and B will be their primary coverage, and Medicare Part D will be the sole and exclusive prescription drug benefit plan for retired employees.

The following is a summary of the components of the net periodic post-retirement benefit cost (credit)(in thousands):

Years Ended December 31,	2019			2018			2017

Service cost	$	88		$	171		$	153

Interest cost		107			136			135

Amortization of net gain		(129	)

Amortization of prior service credit		(81	)		(81	)		(81	)

Net periodic post-retirement benefit cost (credit)	$	(15	)	$	226		$	207

The discount rate used in determining the accumulated post-retirement benefit obligation was

3.20%

2019

and

4.30%

2018.

The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation was

6.25%

2019.

The rate was assumed to decrease gradually to

4.50%

for

2026

and remain at that level thereafter. If the health care cost trend rate assumptions were increased

1.00%,

the accumulated post-retirement benefit obligation as of

December 31, 2019,

would be increased by

16.78%,

and the aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for the year then ended would have increased by

17.46%.

If the health care cost trend rate assumptions were decreased

1.00%,

the accumulated post-retirement benefit obligation as of

December 31, 2019,

would be decreased by

13.51%,

and the aggregate of the service and interest cost components of the net periodic post-retirement benefit cost for the year then ended would have decreased by

13.98%.

The following table presents the estimated benefit payments for each of the next

five

years and in the aggregate for the next

five

years (in thousands):

2020	$	73
2021		91
2022		108
2023		128
2024		164
2025-2029		1,025

The following is a reconciliation of the accumulated post-retirement benefit obligation, which is included in Employee and director benefit plans liabilities (in thousands):

Accumulated post-retirement benefit obligation as of December 31, 2018	$	3,571
Service cost		88
Interest cost		107
Actuarial gain		(604	)
Employer contributions		20
Accumulated post-retirement benefit obligation as of December 31, 2019	$	3,182

The following is a summary of the change in plan assets (in thousands):

	2019			2018			2017
Fair value of plan assets at beginning of year	$			$			$
Actual return on assets
Employer contribution		20			28			48
Benefits paid, net		(20	)		(28	)		(48	)
Fair value of plan assets at end of year	$			$			$

Amounts recognized in the Accumulated Other Comprehensive Income (Loss), net of tax, were (in thousands):

For the year ended December 31,	2019		2018		2017
Net gain	$	816	$	440	$	11
Prior service charge		616		680		622

Total other comprehensive income	$	1,432	$	1,120	$	633

Amounts recognized in the accumulated post-retirement benefit obligation and other comprehensive income (loss) were (in thousands):

For the year ended December 31,	2019
Unrecognized actuarial gain	$	475
Amortization of prior service cost		(81	)
Total accumulated other comprehensive income	$	394

The prior service credit and amortization of net gain that will be recognized in accumulated other comprehensive income during

2020

$81,381

and

$74,600,

respectively.