##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 or o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-30050 PEOPLES FINANCIAL CORPORATION 
  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 
  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 þ
    
    No o
 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 April 29, 2005, there were 15,000,000 shares of $1 par value common stock
authorized, and 5,552,280 shares issued and outstanding. Page 1




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TABLE OF CONTENTS  PART IItem 2  Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4: Controls and ProceduresPART IIItem 4  Submission of Matters to a Vote of Security HoldersItem 5  Other InformationItem 6  Exhibits and Reports on Form 8-KSIGNATURESConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO to Section 1350Certification of CFO to Section 1350    Table of Contents  
 PART I 
 March 31, December 31, and March 31,
    
    2005
    
    
    2004
    
    
    2004AssetsCash and due from banks
    
    $
    59,547,832
    
    
    $
    32,724,625
    
    
    $
    38,078,406Held to maturity securities, market value of
$6,467,000 - March 31, 2005;
$6,698,000 - December 31, 2004;
$4,431,000 - March 31, 2004
    
    
    6,360,990
    
    
    
    6,587,375
    
    
    
    4,251,461Available for sale securities, at market value
    
    
    219,288,050
    
    
    
    173,030,808
    
    
    
    212,972,197Federal Home Loan Bank stock, at cost
    
    
    1,410,500
    
    
    
    1,401,900
    
    
    
    1,680,000Federal funds sold
    
    
    3,900,000
    
    
    
    
    
    
    
    4,000,000Loans
    
    
    323,074,684
    
    
    
    334,193,124
    
    
    
    309,283,145Less: Allowance for loan losses
    
    
    5,863,024
    
    
    
    6,569,614
    
    
    
    6,434,980Loans, net
    
    
    317,211,660
    
    
    
    327,623,510
    
    
    
    302,848,165Bank premises and equipment, net of
accumulated depreciation of
$17,604,000 -
March 31, 2005; $17,174,000 - December 31,
2004; and $16,690,000 - March 31, 2004
    
    
    17,997,662
    
    
    
    18,018,504
    
    
    
    17,779,350Other real estate
    
    
    168,025
    
    
    
    168,091
    
    
    
    1,215,451Accrued interest receivable
    
    
    2,789,580
    
    
    
    2,745,235
    
    
    
    2,914,868Other assets
    
    
    16,961,460
    
    
    
    15,141,101
    
    
    
    13,651,377Total assets
    
    $
    645,635,759
    
    
    $
    577,441,149
    
    
    $
    599,391,275
 Page 2




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##### Table of Contents



PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) March 31, December 31, and March 31,
    
    2005
    
    
    2004
    
    
    2004Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    100,941,569
    
    
    $
    89,529,270
    
    
    $
    89,373,774Savings and demand, interest bearing
    
    
    210,313,052
    
    
    
    180,464,256
    
    
    
    189,910,628Time, $100,000 or more
    
    
    49,620,444
    
    
    
    51,948,077
    
    
    
    62,884,594Other time deposits
    
    
    65,902,392
    
    
    
    67,249,927
    
    
    
    64,513,669Total deposits
    
    
    426,777,457
    
    
    
    389,191,530
    
    
    
    406,682,665Federal funds purchased and securities
sold under agreements to
repurchase
    
    
    117,042,843
    
    
    
    87,277,125
    
    
    
    93,293,362Borrowings from Federal Home Loan Bank
    
    
    7,293,846
    
    
    
    7,202,970
    
    
    
    7,084,162Notes payable
    
    
    
    
    
    
    1,239
    
    
    
    11,618Other liabilities
    
    
    7,830,752
    
    
    
    7,966,852
    
    
    
    6,809,128Total liabilities
    
    
    558,944,898
    
    
    
    491,639,716
    
    
    
    513,880,935Shareholders Equity:Common Stock, $1 par value, 15,000,000
shares authorized, 5,552,379,
5,555,419 and 5,557,019 shares
issued and outstanding at March 31,
2005, December 31, 2004 and
March 31, 2004, respectively
    
    
    5,552,379
    
    
    
    5,555,419
    
    
    
    5,557,019Surplus
    
    
    65,780,254
    
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    17,730,464
    
    
    
    15,391,524
    
    
    
    12,639,347Accumulated other comprehensive income
    
    
    (2,372,236
    )
    
    
    (925,764
    )
    
    
    1,533,720Total shareholders equity
    
    
    86,690,861
    
    
    
    85,801,433
    
    
    
    85,510,340Total liabilities and shareholders equity
    
    $
    645,635,759
    
    
    $
    577,441,149
    
    
    $
    599,391,275
 See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed
Consolidated Financial Statements. Page 3




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Quarters Ended March 31,
    
    2005
    
    
    2004Interest income:Interest and fees on loans
    
    $
    5,011,680
    
    
    $
    4,054,373Interest and dividends on investments:U. S. Treasury
    
    
    414,999
    
    
    
    295,257U. S. Government agencies and corporations
    
    
    946,050
    
    
    
    1,374,955States and political subdivisions
    
    
    198,240
    
    
    
    105,639Other investments
    
    
    70,842
    
    
    
    72,023Interest on federal funds sold
    
    
    86,488
    
    
    
    14,163Total interest income
    
    
    6,728,299
    
    
    
    5,916,410Interest expense:Time deposits of $100,000 or more
    
    
    237,667
    
    
    
    167,610Other deposits
    
    
    817,870
    
    
    
    660,135Borrowings from Federal Home Loan Bank
    
    
    103,394
    
    
    
    115,683Federal funds purchased and securities sold under
agreements to repurchase
    
    
    316,135
    
    
    
    235,181Total interest expense
    
    
    1,475,066
    
    
    
    1,178,609Net interest income
    
    
    5,253,233
    
    
    
    4,737,801Provision for losses on loans
    
    
    (678,975
    )
    
    
    180,000Net interest income after provision for losses on loans
    
    $
    5,932,208
    
    
    $
    4,557,801
 Page 4




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited) For the Quarters Ended March 31,
    
    2005
    
    
    2004Other operating income:Trust department income and fees
    
    $
    343,525
    
    
    $
    356,102Service charges on deposit accounts
    
    
    1,276,411
    
    
    
    1,598,480Other service charges, commissions and fees
    
    
    73,384
    
    
    
    66,954Other income
    
    
    243,228
    
    
    
    326,497Total other operating income
    
    
    1,936,548
    
    
    
    2,348,033Other operating expense:Salaries and employee benefits
    
    
    2,837,957
    
    
    
    2,769,903Net occupancy
    
    
    346,519
    
    
    
    318,373Equipment rentals, depreciation and maintenance
    
    
    664,494
    
    
    
    671,314Other expense
    
    
    1,314,864
    
    
    
    1,617,120Total other operating expense
    
    
    5,163,834
    
    
    
    5,376,710Income before income taxes and extraordinary gain
    
    
    2,704,922
    
    
    
    1,529,124Income taxes
    
    
    771,480
    
    
    
    457,492Income before extraordinary gain
    
    
    1,933,442
    
    
    
    1,071,632Extraordinary gain, net of income taxes
    
    
    459,000Net income
    
    $
    2,392,442
    
    
    $
    1,071,632
 See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed
Consolidated Financial Statements. Page 5




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited) Accumu-lated Other# of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    Compre-Common
    
    
    Common
    
    
    
    
    
    
    Undivided
    
    
    Compen-
    
    
    hensive
    
    
    Comprehen-Shares
    
    
    Stock
    
    
    Surplus
    
    
    Profits
    
    
    sation
    
    
    Income
    
    

    sive Income
    
    
    TotalBalance, January 1,
2004
    
    
    5,557,379
    
    
    $
    5,557,379
    
    
    $
    65,780,254
    
    
    $
    11,574,074
    
    
    $
    (94,899
    )
    
    $
    687,141
    
    
    
    
    
    
    $
    83,503,949Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071,632
    
    
    
    
    
    
    
    
    
    
    $
    1,071,632
    
    
    
    1,071,632Net unrealized
gain on available
for sale
securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872,075
    
    
    
    872,075
    
    
    
    872,075Reclassification
adjustment for
available for sale
securities called
or sold in the
current year, net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,496
    )
    
    
    (25,496
    )
    
    
    (25,496
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,918,211Allocation of ESOP
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,899
    
    
    
    
    
    
    
    
    
    
    
    94,899Retirement of
common stock
    
    
    (360
    )
    
    
    (360
    )
    
    
    
    
    
    
    (6,359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,719
    )Balance, March 31,
2004
    
    
    5,557,019
    
    
    $
    5,557,019
    
    
    $
    65,780,254
    
    
    $
    12,639,347
    
    
    $
    
    
    
    $
    1,533,720
    
    
    
    
    
    
    $
    85,510,340
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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Continued)
(Unaudited) Accumu-lated Other# of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    Compre-Common
    
    
    Common
    
    
    
    
    
    
    Undivided
    
    
    Compen-
    
    
    hensive
    
    
    Comprehen-Shares
    
    
    Stock
    
    
    Surplus
    
    
    Profits
    
    
    sation
    
    
    Income
    
    
    sive Income
    
    
    TotalBalance, January 1,
2005
    
    
    5,555,419
    
    
    $
    5,555,419
    
    
    $
    65,780,254
    
    
    $
    15,391,524
    
    
    
    
    
    
    $
    (925,764
    )
    
    
    
    
    
    $
    85,801,433Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,392,442
    
    
    
    
    
    
    
    
    
    
    $
    2,392,442
    
    
    
    2,392,442Net unrealized loss
on available for
sale securities,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,446,472
    )
    
    
    (1,446,472
    )
    
    
    (1,446,472
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    945,970Effect of stock
retirement on
accrued dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    399
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    399Retirement of
common stock
    
    
    (3,040
    )
    
    
    (3,040
    )
    
    
    
    
    
    
    (53,901
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,941
    )Balance, March 31,
2005
    
    
    5,552,379
    
    
    $
    5,552,379
    
    
    $
    65,780,254
    
    
    $
    17,730,464
    
    
    $
    
    
    
    $
    (2,372,236
    )
    
    
    
    
    
    $
    86,690,861
 See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed
Consolidated Financial Statements. Page 7




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Quarters Ended March 31,
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    2,392,442
    
    
    $
    1,071,632Adjustments to reconcile net income to net
cash provided by operating
activities:Loss on sales of other real estate
    
    
    
    
    
    
    10,000Depreciation
    
    
    429,429
    
    
    
    413,000Provision for losses on loans
    
    
    (678,975
    )
    
    
    180,000Provision for losses on other real estate
    
    
    
    
    
    
    168,000Changes in assets and liabilities:Accrued interest receivable
    
    
    (44,345
    )
    
    
    181,134Other assets
    
    
    (384,129
    )
    
    
    (110,412
    )Other liabilities
    
    
    310,875
    
    
    
    488,190Net cash provided by operating activities
    
    
    2,025,297
    
    
    
    2,401,544Cash flows from investing activities:Proceeds from maturities and calls of held
to maturity securities
    
    
    226,385
    
    
    
    101,393Proceeds from maturities, sales and calls of
available for sale securities
    
    
    39,000,000
    
    
    
    45,867,994Investment in available for sale securities
    
    
    (87,449,714
    )
    
    
    (50,073,040
    )Investment in Federal Home Loan Bank
    
    
    (8,600
    )Redemption of Federal Home Loan Bank stock
    
    
    
    
    
    
    294,200Proceeds from sales of other real estate
    
    
    
    
    
    
    50,000Loans, net (increase) decrease
    
    
    11,090,825
    
    
    
    (7,762,680
    )Acquisition of premises and equipment
    
    
    (408,587
    )
    
    
    (239,846
    )Federal funds sold
    
    
    (3,900,000
    )
    
    
    (4,000,000
    )Other assets
    
    
    (137,164
    )
    
    
    (171,326
    )Net cash used in investing activities
    
    $
    (41,586,855
    )
    
    $
    (15,933,305
    )
 Page 8




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited) For the Quarters Ended March 31,
    
    2005
    
    
    2004Cash flows from financing activities:Demand and savings deposits, net increase
    
    $
    41,261,095
    
    
    $
    25,146,210Time deposits, net increase (decrease)
    
    
    (3,675,168
    )
    
    
    5,178,557Principal payments on notes
    
    
    (1,239
    )
    
    
    (3,718
    )Borrowings from Federal Home Loan Bank
    
    
    127,160
    
    
    
    15,071,113Repayments to Federal Home Loan Bank
    
    
    (36,284
    )
    
    
    (25,056,799
    )Retirement of common stock
    
    
    (56,941
    )
    
    
    (6,719
    )Cash dividends
    
    
    (999,576
    )
    
    
    (833,607
    )Federal funds purchased and securities sold
under agreements to
repurchase, net increase (decrease)
    
    
    29,765,718
    
    
    
    (1,745,899
    )Net cash provided by financing activities
    
    
    66,384,765
    
    
    
    17,749,138Net increase in cash and cash equivalents
    
    
    26,823,207
    
    
    
    4,217,377Cash and cash equivalents, beginning of period
    
    
    32,724,625
    
    
    
    33,861,029Cash and cash equivalents, end of period
    
    $
    59,547,832
    
    
    $
    38,078,406
 See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed
Consolidated Financial Statements. Page 9




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 2005 and 2004 1. The accompanying unaudited condensed consolidated financial statements have been prepared with
the accounting policies in effect as of December 31, 2004 as set forth in the Notes to the
Consolidated Financial Statements of Peoples Financial Corporation and Subsidiaries (the Company).
In the opinion of Management, all adjustments necessary for a fair presentation of the condensed
consolidated financial statements have been included and are of a normal recurring nature. The
accompanying unaudited consolidated financial statements have been prepared also in accordance with
the instructions to Form 10-Q and Rule 10-01 of Regulations S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting principles for
complete financial statements. 2. The results of operations for the quarter ended March 31, 2005, are not necessarily indicative
of the results to be expected for the full year. Per share data is based on the weighted average
shares of common stock outstanding of 5,552,801 and 5,557,284 for the quarters ended March 31, 2005
and 2004, respectively. 3. At March 31, 2005 and 2004, the total recorded investment in impaired loans amounted to
$5,817,000 and $7,241,000, respectively. The average recorded investment in impaired loans
amounted to approximately $5,817,000 and $7,166,000 at March 31, 2005 and 2004, respectively. The
amount of that recorded investment in impaired loans for which there is a related allowance for
loan losses was $284,000 at March 31, 2005. The allowance for losses related to these loans
amounted to approximately $3,000 at March 31, 2005. The amount of interest not accrued on these
loans amounted to approximately $3,000 and $32,000 for the quarter ended March 31, 2005 and 2004,
respectively. In compliance with a bankruptcy court order, interest in the amount of $56,000 and
$50,000 has been received and recorded as interest income relating to one impaired loan, with an
average balance of $5,532,796 and $5,696,000, for the quarters ended March 31, 2005 and 2004,
respectively. 4. Transactions in the allowance for loan losses were as follows: For the Quarter
    
    
    For the Year
    
    
    For the QuarterEnded March 31,
    
    
    Ended December
    
    
    Ended March 31,2005
    
    
    31,2004
    
    
    2004Balance, beginning of
period
    
    $
    6,569,614
    
    
    $
    6,398,694
    
    
    $
    6,398,694Provision for loan losses
    
    
    (678,975
    )
    
    
    448,000
    
    
    
    180,000Recoveries
    
    
    74,526
    
    
    
    493,920
    
    
    
    71,312Loans charged off
    
    
    (102,141
    )
    
    
    (771,000
    )
    
    
    (215,026
    )Balance, end of period
    
    $
    5,863,024
    
    
    $
    6,569,614
    
    
    $
    6,434,980
 Page 10




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5. The Company has defined cash and cash equivalents to include cash and due from
banks. The Company paid $1,430,000 and $1,179,000 for the quarters ended March 31, 2005 and 2004,
respectively, for interest on deposits and borrowings. Income tax payments of $793,000 were
made during the quarter ended March 31, 2005. Loans transferred to other real estate amounted to
$60,000 for the quarter ended March 31, 2004. The income tax effect on the accumulated other
comprehensive income was ($745,000) and $436,000 at March 31, 2005 and 2004, respectively. 6. Securities with gross unrealized losses at March 31, 2005, aggregated by investment category and
length of time that individual securities have been in a continuous loss position as follows: Less Than TwelveMonths
    
    
    Over Twelve Months
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossUnreal-
    
    
    
    
    
    
    Unreal-
    
    
    
    
    
    
    Unreal-Fair Value
    
    
    ized Loss
    

    Fair Value
    
    
    ized Loss
    
    

    Fair Value
    
    ized LossU. S Treasury
    
    $
    88,817
    
    
    $
    (1,645
    )
    
    $
    13,348
    
    
    $
    (735
    )
    
    $
    102,165
    
    
    $
    (2,380
    )U. S. Govt. Agencies
    
    
    74,219
    
    
    
    (474
    )
    
    
    
    
    
    
    
    
    
    
    74,219
    
    
    
    (474
    )States and
political
subdivisions
    
    
    8,805
    
    
    
    (152
    )
    
    
    764
    
    
    
    (45
    )
    
    
    9,569
    
    
    
    (197
    )FHLMC preferred
stock
    
    
    
    
    
    
    
    
    
    
    2,279
    
    
    
    (797
    )
    
    
    2,279
    
    
    
    (797
    )Total
    
    $
    171,841
    
    
    $
    (2,271
    )
    
    $
    16,391
    
    
    $
    (1,577
    )
    
    $
    188,232
    
    
    $
    (3,848
    )
 Management evaluates securities for other-than-temporary impairment on a monthly basis.
Consideration is given to 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, the cause of the decline in value, the intent and ability of the Company
to hold these securities until maturity and that the Company has traditionally held virtually all
of its securities, including those classified as available for sale, until maturity. Any sales of
available for sale securities, which have been infrequent and immaterial, have been for liquidity
purposes. As a result of this evaluation, the Company has determined that the declines summarized
in the table above are not deemed to be other-than-temporary. 7. On April 29, 2005, a loan in the amount of $5,533,000, which had been classified as an impaired
loan, paid off. As a result, the related allowance for loan losses of $650,000 has been reversed
in these financial statements. During the second quarter of 2005, the Company will recognize
interest income of approximately $900,000, which includes accrued interest previously charged-off
and interest not accrued while this credit was on nonaccrual. A recovery of charged-off principal
of $962,000 also relates to this event. The Company will continue to monitor its allowance for
loan losses according to its policies and will record provisions as deemed necessary during the
remaining quarters of 2005. Page 11




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##### Table of Contents



Report of Independent Registered Public Accounting Firm Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi We have reviewed the accompanying condensed consolidated balance sheets of Peoples Financial
Corporation as of March 31, 2005, March 31, 2004 and December 31, 2004, and the related condensed
consolidated statements of income, shareholders equity, and cash flows for the three months
ended March 31, 2005 and March 31, 2004. These financial statements are the responsibility of the
companys management. We conducted our review in accordance with standards of The Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit conducted in accordance
with the standards of The Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the
accompanying financial statements in order for them to be in conformity with United States
generally accepted accounting principles for interim financial statements. We have previously audited, in accordance with standards of The Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Peoples Financial Corporation as of
December 31, 2004, and the related consolidated statements of
income, shareholders equity,
and cash flows for the year then ended (not presented herein); and in our report dated January 24,
2005, we expressed an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated balance sheet as of
December 31, 2004, is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived. /s/ Piltz, Williams, LaRosa & Co. PILTZ, WILLIAMS, LAROSA & Co. May 6, 2005
Biloxi, Mississippi Page 12




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations The following presents Managements discussion and analysis of the consolidated financial condition
and results of operations of Peoples Financial Corporation and Subsidiaries (the Company) for the
quarters ended March 31, 2005 and 2004. These comments highlight the significant events and should
be considered in combination with the Condensed Consolidated Financial Statements included in this
report on Form 10-Q. 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. Overview During the first quarter of 2005, net income was $2,392,000, as compared with $1,072,000 for the
first quarter of 2004. The Company realized extraordinary income of $459,000, net of taxes, as a
result of the PULSE EFT Association Exchange. While this unusual, non-recurring gain is very
positive, the Company continues to concentrate on its operating results. The economy of the
Mississippi Gulf Coast, our trade area, continues to be robust, and this translates into
opportunities for the Company. The first quarter of 2005 brought a temporary decline in loan
volume, breaking a string of five consecutive quarters with a record growth in the loan portfolio.
Management anticipates that loan volume will resume its prior trend in the remaining quarters of
2005. The quality of the loan portfolio is also strong and non-performing loans have improved, as
discussed in Note 7, contributing to the reduction of the allowance for loan losses during the
first quarter, through a reduction in the loan loss provision. The Company continues to closely
monitor its interest rate risk activities, as it continues to manage pricing challenges in its
competitive market. The following schedule compares financial highlights for the quarters ended March 31, 2005 and
2004: For the quarters ended March 31,
    
    2005
    
    
    2004Net income per share
    
    $
    0.43
    
    
    $
    0.19Book value per share
    
    $
    15.61
    
    
    $
    15.39Return on average total assets
    
    
    1.55
    %
    
    
    .73
    %Return on average shareholders equity
    
    
    11.12
    %
    
    
    5.07
    %Allowance for loan losses as a % of loans,
net of unearned discount
    
    
    1.81
    %
    
    
    2.11
    %
 Page 13




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##### Table of Contents



Financial Condition Held to Maturity Securities Held to maturity securities increased $2,110,000 at March 31, 2005, compared with March 31, 2004,
as a result of the management of the Companys liquidity position. Gross unrealized gains
for held to maturity securities were $132,000 and $180,000 at March 31, 2005 and 2004,
respectively. Gross unrealized losses for held to maturity securities were $26,000 at March 31,
2005. The following schedule reflects the mix of the held to maturity investment portfolio at
March 31, 2005 and 2004: March 31,
    
    2005
    
    
    
    
    
    
    2004Amount
    
    
    %
    
    
    Amount
    
    
    %U. S. Treasury
    
    $
    
    
    
    
    
    
    
    $
    999,944
    
    
    
    24
    %States and political
subdivisions
    
    
    6,360,990
    
    
    
    100
    %
    
    
    3,251,517
    
    
    
    76
    %Totals
    
    $
    6,360,990
    
    
    
    100
    %
    
    $
    4,251,461
    
    
    
    100
    %
 Available for Sale Securities Available for sale securities increased $6,256,000 at March 31, 2005, compared with March 31, 2004,
in the management of the Companys liquidity position. Gross unrealized gains were $222,000
and $2,693,000 and gross unrealized losses were $3,822,000 and $392,000 at March 31, 2005 and 2004,
respectively. The following schedule reflects the mix of available for sale securities at March
31, 2005 and 2004: March 31,
    
    2005
    
    
    
    
    
    
    2004Amount
    
    
    %
    
    
    Amount
    
    
    %U. S. Treasury
    
    $
    88,118,024
    
    
    
    40
    %
    
    $
    67,534,112
    
    
    
    32
    %U. S. Government
agencies
    
    
    114,165,651
    
    
    
    52
    %
    
    
    133,181,953
    
    
    
    63
    %States and political
subdivisions
    
    
    13,909,480
    
    
    
    6
    %
    
    
    7,888,920
    
    
    
    3
    %Other securities
    
    
    3,094,895
    
    
    
    2
    %
    
    
    4,367,212
    
    
    
    2
    %Totals
    
    $
    219,288,050
    
    
    
    100
    %
    
    $
    212,972,197
    
    
    
    100
    %
 Page 14




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##### Table of Contents



Federal Funds Sold Federal funds sold were $3,900,000 at March 31, 2005, as a direct result of the management of the
bank subsidiarys liquidity position. Loans Loans increased $13,792,000 at March 31, 2005, as compared with March 31, 2004. During the fourth
quarter of 2003 and continuing in 2004 and into 2005, the local economy has stabilized which has
resulted in an overall increase in loan demand. The Company expects that this demand will continue
in the remaining quarters of 2005. Other Real Estate Other real estate decreased $1,047,000 at March 31, 2005, as compared with March 31, 2004,
primarily due to sale of ORE inventory and a reduction in property taken into ORE in recent
quarters. Other Assets Other assets increased $3,310,000 at March 31, 2005, as compared with March 31, 2004, as a result
of deferred taxes on unrealized losses on available for sale securities. Deposits Total deposits increased $20,095,000 at March 31, 2005, as compared with March 31, 2004.
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 areas reallocate their resources periodically. As
discussed above, the Company has managed its funds including planning the timing and classification
of investment maturities and using other funding sources and their maturity so as to achieve
appropriate liquidity. Federal Funds Purchased and Securities Sold Under Agreements to Repurchase Federal funds purchased and securities sold under agreements to repurchase increased $23,749,000 at
March 31, 2005, as compared with March 31, 2004, as the result of the reallocation of funds by
certain customers between deposit products and non-deposit products. Borrowings from Federal Home Loan Bank The Company acquired funds from the Federal Home Loan Bank in the management of its liquidity
position. Notes Payable Notes payable decreased at March 31, 2005, as compared with March 31, 2004, as a result of the
maturity and/or early payoff of Company debt. Other Liabilities Other liabilities increased $1,022,000 at March 31, 2005, as compared with March 31, 2004, as a
result of the impact of increasing health care costs on the liability for post-retirement health
benefits during 2004, and an increase in the liabilities related to deferred compensation benefits
for officers of the bank subsidiary. Page 15




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##### Table of Contents



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.
One measure of capital adequacy is the primary capital ratio which was 15.01% at March 31, 2005, as
compared with 15.69% at March 31, 2004. These ratios are well above the regulatory minimum of
6.00%. Management continues to emphasize the importance of maintaining the appropriate capital
levels of the Company. 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. The following
schedule summarizes net interest earnings and net yield on interest earning assets: Net Interest Earnings and Net Yield on Interest Earning Assets Quarters Ended March 31, (Inthousands, except percentages)
    
    2005
    
    
    2004Total interest income (1)
    
    $
    6,830
    
    
    $
    5,973Total interest expense
    
    
    1,475
    
    
    
    1,179Net interest earnings
    
    $
    5,355
    
    
    $
    4,794Net yield on interest earning assets
    
    
    3.97
    %
    
    
    3.76
    %
   (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2005
and 2004. The schedule on page 17 provides an analysis of the change in total interest income and total
interest expense for the quarters ended March 31, 2005 and 2004. Changes in interest income are
generally attributable to positive changes in interest rates and volume related to interest-earning
assets, particularly loans. Changes in interest expense, were impacted by the increase in the cost
of funds during the last three quarters. Page 16




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
(In Thousands) Attributable To:For the
    
    
    For theQuarter
    
    
    QuarterEnded
    
    
    EndedMarch,31
    
    
    March 31,
    
    
    Increase2005
    
    
    2004
    
    
    (Decrease)
    
    
    Volume
    
    
    Rate
    
    
    Rate/ VolumeINTEREST INCOME: (1)Loans (2) (3)
    
    $
    5,012
    
    
    $
    4,054
    
    
    $
    958
    
    
    $
    449
    
    
    $
    458
    
    
    $
    51Federal funds sold
    
    
    86
    
    
    
    14
    
    
    
    72
    
    
    
    83
    
    
    
    (2
    )
    
    
    (9
    )Held to maturity:Taxable
    
    
    
    
    
    
    13
    
    
    
    (13
    )
    
    
    (13
    )Non-taxable
    
    
    98
    
    
    
    66
    
    
    
    32
    
    
    
    63
    
    
    
    (16
    )
    
    
    (15
    )Available for sale:Taxable
    
    
    1,361
    
    
    
    1,657
    
    
    
    (296
    )
    
    
    (191
    )
    
    
    (118
    )
    
    
    13Non-taxable
    
    
    202
    
    
    
    97
    
    
    
    105
    
    
    
    77
    
    
    
    15
    
    
    
    13Other
    
    
    71
    
    
    
    72
    
    
    
    (1
    )
    
    
    (18
    )
    
    
    23
    
    
    
    (6
    )Total
    
    $
    6,830
    
    
    $
    5,973
    
    
    $
    857
    
    
    $
    450
    
    
    $
    360
    
    
    $
    47INTEREST EXPENSE:Savings and
demand,
interest
bearing
    
    $
    445
    
    
    $
    339
    
    
    $
    106
    
    
    $
    122
    
    
    $
    (12
    )
    
    $
    (4
    )Time deposits
    
    
    611
    
    
    
    489
    
    
    
    122
    
    
    
    (21
    )
    
    
    150
    
    
    
    (7
    )Federal funds
purchased and
securities sold
under agreements to
repurchase
    
    
    316
    
    
    
    235
    
    
    
    81
    
    
    
    28
    
    
    
    47
    
    
    
    6Borrowings from FHLB
    
    
    103
    
    
    
    116
    
    
    
    (13
    )
    
    
    (31
    )
    
    
    24
    
    
    
    (6
    )Total
    
    $
    1,475
    
    
    $
    1,179
    
    
    $
    296
    
    
    $
    98
    
    
    $
    209
    
    
    $
    (11
    )
   (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2005
and 2004.(2)
    
    Loan fees are included in these figures.(3)
    
    Includes nonaccrual loans. Page 17




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##### Table of Contents



Provision for Loan Losses Management continuously
monitors the Companys relationships with its loan customers,
especially those in concentrated industries such as gaming and hotel/motel, and their direct and
indirect impact on its operations. A thorough analysis of current economic conditions and the
quality of the loan portfolio are conducted on a quarterly basis. These analyses are utilized in
the computation of the adequacy of the allowance for loan losses. Based on these analyses, the
Company recorded a negative provision during the first quarter of 2005. The Company expects to
record provisions during the remaining quarters of 2005, as deemed necessary, based on its
analyses. See Note 7 for a discussion of the effect of the payoff of a loan previously classified
as impaired. Service Charges on Deposit Accounts Service charges on deposit accounts decreased $322,000 for the quarter ended March 31, 2005, as
compared with the quarter ended March 31, 2004, as a result of a decrease in fee income from off-
site ATMs no longer under contract with the Company. Other Income Other income decreased $83,000 for the quarter ended March 31, 2005, as compared with the quarter
ended March 31, 2004, as result of gains on the sale or call of available for sale securities
during the first quarter of 2004. Other Expense Other expense decreased $302,000 for the quarter ended March 31, 2005, as compared with the quarter
ended March 31, 2004, as a result of a decrease in expenses for off-site ATMs no longer under
contract with the Company. Extraordinary Gain An extraordinary gain of $459,000, net of taxes, was recorded as a result of the PULSE EFT
Association Exchange. 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. 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. As discussed
previously, the Company has utilized non-traditional sources of funds including brokered
certificates and borrowings from the Federal Home Loan Bank. These additional sources have allowed
the Company to satisfy its liquidity needs. The Company will continue to utilize these sources of
funds throughout 2005, as necessary. Page 18




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##### Table of Contents



Item 4: Controls and Procedures As of March 31, 2005, 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 March 31, 2005 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting. 
 PART II  
 Item 4  Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Company was held on April 13, 2005. (b) The following five directors were elected at the meeting to hold office for a term of one year: Approve
    
    
    DisapproveDrew Allen
    
    
    4,817,886.644
    
    
    
    59,885.422Rex E. Kelly
    
    
    4,818,126.644
    
    
    
    59,885.422Dan Magruder
    
    
    4,811,622.446
    
    
    
    59,885.422Lyle M. Page
    
    
    4,819,126.644
    
    
    
    59,885.422Chevis C. Swetman
    
    
    4,745,974.144
    
    
    
    59,885.422
 Of the 5,552,859 shares outstanding and eligible to vote on April 13, shares not voted amounted to
690,426.274. 
 Item 5  Other Information None. Page 19




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##### Table of Contents



Item 6  Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 23:
    
    Consent of Independent Registered Public Accounting FirmExhibit 31.1:
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes  Oxley Act of 2002Exhibit 31.2:
    
    Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes  Oxley Act of 2002Exhibit 32.1:
    
    Certification of Chief Executive Officer Pursuantto 18 U.S.C. ss. 1350Exhibit 32.2:
    
    Certification of Chief Financial Officer Pursuant
to 18 U.S.C. ss. 1350
 (b) Reports on Form 8-K A Form 8-K was filed on January 12, 2005, March 10, 2005, April 11, 2005 and May 12, 2005. Page 20




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##### Table of Contents



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:
    
    May 12, 2005By:
    
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive OfficerDate:
    
    May 12, 2005By:
    
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller(principal financial and accounting officer)
 Page 21