The Peoples Bank: .

Peoples Financial Corporation

Charter of the Audit Committee

Mission

The Audit Committee is responsible for oversight of: the external auditor’s qualifications and independence, the performance of the Corporation’s internal audit function and external auditor, and the Chief Executive Officer’s and senior management’s responsibilities to assure that there is in place an effective system of controls reasonably designed to:

safeguard the assets and income of the Corporation,
assure the integrity of the Corporation’s financial statements, and
maintain compliance with the Corporation’s ethical standards, policies, plans and procedures, and with laws and regulations

The Audit Committee shall also be responsible for preparing the Audit Committee report required by the rules of the Securities and Exchange Commission to be included in the Corporation’s annual proxy statement.

Membership

The Audit Committee shall be composed of not fewer than three directors, each of whom shall be independent.
Each member of the Audit Committee shall be financially literate, or become financially literate within a reasonable period of time after appointment to the Audit Committee. At least one member of the Audit Committee shall have accounting or related financial management expertise. The Board of Directors shall determine whether any members of the Audit Committee are audit committee financial experts as defined by the Securities and Exchange Commission.
Determinations of independence, audit committee financial expertise, financial literacy and accounting, banking or related financial management expertise shall be made by the Board of Directors as the Board interprets such qualifications in its business judgement and in accordance with applicable law and NASDAQ listing standards.
No director may serve as a member of the Audit Committee if such director serves on the audit committees of more than two other public companies, unless the Board of Directors determines that such simultaneous service would not impair the ability of such director to effectively serve on the Audit Committee and discloses such determination in the proxy statement.
No member of the Audit Committee may be a large customer of the Corporation, as determined by the Board in accordance with the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and applicable rules and regulations.

Authorities and responsibilities

The Audit Committee shall meet as often as it determines, but not less frequently than quarterly. The Audit Committee shall meet, at least quarterly, with the Auditor, the external auditor, and management in separate private sessions to discuss any matters that the Audit Committee or these groups believe should be discussed. The Audit Committee may also meet periodically in separate executive sessions. The Audit Committee may request any officer or employee of the Corporation or the Corporation’s outside counsel or external auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.
The Audit Committee has authority to retain outside legal counsel, or accounting or other advisors, when deemed necessary, without the prior permission from the Corporation’s Board of Directors or management and shall be provided the necessary resources for such purposes.
The Audit Committee shall maintain minutes and other relevant documentation of all meetings held.
The Audit Committee shall review, at lease annually, the committee’s charter and recommend any proposed changes to the Board for approval
The Audit Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, and for the confidential anonymous submission by Corporation employees of concerns regarding questionable accounting or auditing matters.

Oversight of the corporation’s relationship to internal and external auditors

The external auditor for the Corporation is accountable to the Board of Directors and Audit Committee of the Corporation, as representatives of the stockholders, and shall report directly to the Audit Committee. The Audit Committee shall have the authority and responsibility to select, evaluate and, where appropriate, replace the external auditor, subject to stockholder ratification of the selection if such ratification is required or sought by the Board of Directors.
The Audit Committee shall advise the Board of Directors of the engagement of the external auditor, based on review and discussion by the Audit Committee as to the overall plan of audit; adequacy of scope; coordination with the Auditor; reasonableness of fees; quality of prior performance; composition of the audit team, including a review and evaluation of the external auditor’s lead partner and the experience and qualifications of the senior members of the audit team; results of the audit firm’s last internal quality- control or peer review; and any other issues raised by the annual auditor’s report, status of significant regulatory or litigation problems that may affect the external auditor, and the amount of non-audit services provided by the audit firm. The Audit Committee shall advise the Board of Directors when any change in the audit firm engaged as the principal external auditor, or other action with respect to the external auditor, seems necessary or desirable, provided that the Audit Committee shall be directly responsible for any action to retain or terminate the external auditor.
The external auditor shall submit, at least annually, a report to the Audit Committee regarding (a) the auditor’s internal quality-control procedures and (b) any material issues raised by the most recent internal quality-control or peer review or by any inquiry or investigations by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the audit firm, and any steps taken to deal with such issues. The external auditor shall also submit a report to the Audit Committee promptly after any review, inquiry or investigation referred to in the preceding sentence. The Audit Committee is responsible for reviewing and discussing with the external auditor whether the auditor’s quality controls are adequate.
The external auditor shall also submit on a periodic basis, but at least annually, to the Audit Committee a formal written statement delineating all relationships between the audit firm and the Corporation including each non-audit service provided to the Corporation and at least the matters set forth in Independence Standards Board No. 1. The Audit Committee is responsible for actively engaging in a dialogue with the external auditor as to whether any disclosed relationships or services may impact the objectivity and independence of the external auditor.
The Audit Committee shall have sole authority to approve all audit engagement fees and terms as well as all non-audit engagements with the external auditor. The Audit Committee shall review and approve management’s conclusion that any proposed performance of non-audit services by the principal external auditor would not affect the independence of such auditor in the performance of its audit services.
The Audit Committee shall consider whether, in order to assure continuing auditor independence, there should be a regular rotation of the lead audit partner or the audit firm itself, and recommended to the Board policies for the Corporation’s hiring of employees or former employees of the audit firm. These policies shall provide that no former employee of the external auditor may become the chief executive officer, controller, chief financial officer or chief accounting officer (or serve in a similar capacity) if such person participated in any capacity in the Corporation’s audit within the one-year period preceding the date of initiation of the audit.
The Audit Committee shall review and concur in the appointment, replacement, reassignment, or dismissal of the Auditor. The Audit Committee shall review and approve the Auditor’s proposed annual audit plan and financial budget and staffing. The Audit Committee shall receive periodic communications from the Auditor on the completion status of the annual audit plan, as well as a summary of significant changes made to such plan.

Compliance and regulatory oversight responsibilities

The Audit Committee shall:

Receive periodic communications and presentations from the Auditor on the adequacy of management’s systems of control, including computerized information system controls and security, in the Corporation and its subsidiaries; significant audit findings identified and management’s responses thereto, including any special audit steps adopted in light of material control deficiencies; and initiation and status of significant special investigations.
Receive, when needed, presentations from management and the external auditor on the identification and resolution status of material weaknesses and reportable conditions in the internal control environment, including computerized information system controls and security, if any, and on any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal controls.
Review with management the program established that provides for compliance with laws and regulations and review the record of such compliance; review significant legal cases outstanding against the Corporation or its subsidiaries or other regulatory or legal matters that may have a material impact on the Corporation’s financial statements.
Review the program established by management that monitors compliance with the Code of Conduct and review the record of such compliance.
Review regulatory authorities’ significant examination reports pertaining to the Corporation, its subsidiaries and associated companies.
Fulfill the requirements of Mississippi State Banking Law with respect to conducting director’s examinations. Report thereon to the Board of Directors and the Department of Banking and Consumer Finance. Utilize assistance, as deemed necessary by the committee, to discharge these statutory duties.
Review summaries of significant issues in reports of directors’ examinations, or other similar examinations, of the subsidiaries of the Corporation.
Receive communications and presentations from management summarizing the suspicious activity reports filed by subsidiaries with the appropriate regulatory and law enforcement agencies.
Review management reports issued by the Corporation in accordance with FDICIA and the corresponding external auditor’s attestation and agreed-upon procedures reports.
Receive from management, periodically, and from the Auditor, as appropriate, presentations on significant operating and control issues in internal audit reports, management letters, and regulatory authorities’ examination reports, and initiate such other inquiries into the affairs of the Corporation as it deems necessary or appropriate.

Financial Statement and disclosure matters

The Audit Committee Shall:

Review and discuss with management, the external auditor and the Auditor the scope of the audit, including obtaining assurances from the external auditor that the audit was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934.
Review and discuss, at least quarterly, with management, the external auditor and, as appropriate, the Auditor the annual audited financial statements, quarterly financial statements and significant current reports, including disclosures made in “Management’s Discussion and Analysis of financial Condition and Results of Operation,” and review the process for and content of required quarterly CEO and CFO certifications.
Review and discuss with management, the external auditor and, as appropriate, the Auditor any significant accounting, income tax, financial and reporting policies, issues or judgments made in connection with the preparation, or audit, of the Corporation’s financial statements and other financial or informational reports, including any major issues regarding or significant changes in the Corporation’s selection or application of accounting principles, the development, selection and disclosure of critical accounting estimates or judgments (including tax reserves), an analysis of the effect of any alternative assumptions, estimates or GAAP methods on the financial statements, and the effect of regulatory examinations or any regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements.
Review internal accounting control reports (management letters) submitted by the external auditor which related to the Corporation. Review summaries of significant issues in management letters addressed to subsidiaries of the Corporation.
Discuss with the external auditor the matters required to be described by SAS 61, including without limitation, any difficulties encountered in the course of the work, any restriction on the scope of the external auditor’s activities or on access to requested information and any significant disagreements with management.