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SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q [x]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIESEXCHANGE ACT OF 1934
 For the quarterly period
ended March 31, 2004 or[  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIESEXCHANGE 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 [X] 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 April 30, 2004, there were
15,000,000 shares of $1 par value common stock authorized, and
5,557,019 shares issued and outstanding. Page 1




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|                                         |                                                                                                |                                                               |  |  |  |  |  | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------- |  |  |  |  |  | 
|Part I                                  
|                                         |                                                                                                | CONDENSED CONSOLIDATED BALANCE SHEETS                        
|                                         |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF INCOME                  
|                                         |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY    
|                                         |                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS              
|                                         |                                                                                                | SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                         | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                         | Item 4: Controls and Procedures                                                               
|PART II                                 
|                                         | Item 4 - Submission of Matters to a Vote of Security Holders                                  
|                                         | Item 5 - Other Information                                                                    
|                                         | Item 6 - Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                              
|Consent of Certified Public Accountants 
|Certification of Chief Executive Officer
|Certification of Chief Financial Officer
|Certification of Chief Executive Officer
|Certification of Chief Financial Officer



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PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, December 31, and March 31,
    
    2004
    
    2003
    
    2003AssetsCash and due from banks
    
    $
    38,078,406
    
    
    $
    33,861,029
    
    
    $
    60,539,875Held to maturity securities, market value of
$4,432,000 - March 31, 2004;
$4,527,000 - December 31, 2003;
$13,132,000 - March 31, 2003
    
    
    4,251,461
    
    
    
    4,352,854
    
    
    
    12,786,448Available for sale securities, at market value
    
    
    212,972,197
    
    
    
    207,486,172
    
    
    
    191,386,475Federal Home Loan Bank stock, at cost
    
    
    1,680,000
    
    
    
    1,974,200
    
    
    
    1,940,300Federal funds sold
    
    
    4,000,000
    
    
    
    
    
    
    
    1,600,000Loans
    
    
    305,481,911
    
    
    
    297,922,945
    
    
    
    298,156,093Less: Allowance for loan losses
    
    
    6,434,980
    
    
    
    6,398,694
    
    
    
    6,343,099Loans, net
    
    
    299,046,931
    
    
    
    291,524,251
    
    
    
    291,812,994Bank premises and equipment, net of
accumulated depreciation of
$16,690,000 -
March 31, 2004; $16,275,000 - December 31,
2003; and $15,446,000 - March 31, 2003
    
    
    17,779,350
    
    
    
    17,952,504
    
    
    
    17,863,459Other real estate
    
    
    1,215,451
    
    
    
    1,383,451
    
    
    
    1,721,780Accrued interest receivable
    
    
    2,914,868
    
    
    
    3,096,002
    
    
    
    3,039,082Other assets
    
    
    13,651,377
    
    
    
    13,804,039
    
    
    
    12,894,073Total assets
    
    $
    595,590,041
    
    
    $
    575,434,502
    
    
    $
    595,584,486
 Page 2




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) March 31, December 31, and March 31,
    
    2004
    
    2003
    
    2003Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    85,639,210
    
    
    $
    76,423,904
    
    
    $
    87,126,693Savings and demand, interest bearing
    
    
    189,843,958
    
    
    
    173,913,054
    
    
    
    184,214,635Time, $100,000 or more
    
    
    62,884,594
    
    
    
    58,182,870
    
    
    
    71,960,009Other time deposits
    
    
    64,513,669
    
    
    
    64,036,836
    
    
    
    72,316,265Total deposits
    
    
    402,881,431
    
    
    
    372,556,664
    
    
    
    415,617,602Federal funds purchased and securities
sold under agreements to
repurchase
    
    
    93,293,362
    
    
    
    95,039,261
    
    
    
    84,709,032Borrowings from Federal Home Loan Bank
    
    
    7,084,162
    
    
    
    17,069,848
    
    
    
    6,332,874Notes payable
    
    
    11,618
    
    
    
    110,235
    
    
    
    310,850Other liabilities
    
    
    6,809,128
    
    
    
    7,154,545
    
    
    
    6,257,183Total liabilities
    
    
    510,079,701
    
    
    
    491,930,553
    
    
    
    513,227,541Shareholders Equity:Common Stock, $1 par value, 15,000,000
shares
authorized, 5,557,019, 5,557,379 and
5,567,415
shares issued and outstanding at March
31, 2004, December 31,
2003 and March 31, 2003,
respectively
    
    
    5,557,019
    
    
    
    5,557,379
    
    
    
    5,567,415Surplus
    
    
    65,780,254
    
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    12,639,347
    
    
    
    11,574,074
    
    
    
    9,346,122Unearned compensation
    
    
    
    
    
    
    (94,899
    )
    
    
    (131,043
    )Accumulated other comprehensive income
    
    
    1,533,720
    
    
    
    687,141
    
    
    
    1,794,197Total shareholders equity
    
    
    85,510,340
    
    
    
    83,503,949
    
    
    
    82,356,945Total liabilities and shareholders equity
    
    $
    595,590,041
    
    
    $
    575,434,502
    
    
    $
    595,584,486
 See Independent Accountants Review Report 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,
    
    2004
    
    2003Interest income:Interest and fees on loans
    
    $
    4,054,373
    
    
    $
    4,543,327Interest and dividends on investments:U. S. Treasury
    
    
    295,257
    
    
    
    321,438U. S. Government agencies and corporations
    
    
    1,374,955
    
    
    
    1,291,276States and political subdivisions
    
    
    105,639
    
    
    
    86,734Other investments
    
    
    72,023
    
    
    
    120,197Interest on federal funds sold
    
    
    14,163
    
    
    
    47,487Total interest income
    
    
    5,916,410
    
    
    
    6,410,459Interest expense:Time deposits of $100,000 or more
    
    
    167,610
    
    
    
    402,891Other deposits
    
    
    660,135
    
    
    
    940,562Borrowings from Federal Home Loan Bank
    
    
    115,683
    
    
    
    98,271Mortgage indebtedness
    
    
    
    
    
    
    1,960Federal funds purchased and securities sold under
agreements to repurchase
    
    
    235,181
    
    
    
    241,348Total interest expense
    
    
    1,178,609
    
    
    
    1,685,032Net interest income
    
    
    4,737,801
    
    
    
    4,725,427Provision for losses on loans
    
    
    180,000
    
    
    
    178,640Net interest income after provision for losses on loans
    
    $
    4,557,801
    
    
    $
    4,546,787
 Page 4




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited) For the Quarters Ended March 31,
    
    2004
    
    2003Other operating income:Trust department income and fees
    
    $
    356,102
    
    
    $
    363,211Service charges on deposit accounts
    
    
    1,598,480
    
    
    
    1,687,066Other service charges, commissions and fees
    
    
    66,954
    
    
    
    65,517Other income
    
    
    326,497
    
    
    
    329,234Total other operating income
    
    
    2,348,033
    
    
    
    2,445,028Other operating expense:Salaries and employee benefits
    
    
    2,769,903
    
    
    
    2,888,736Net occupancy
    
    
    318,373
    
    
    
    316,940Equipment rentals, depreciation and maintenance
    
    
    671,314
    
    
    
    775,717Other expense
    
    
    1,617,120
    
    
    
    1,626,671Total other operating expense
    
    
    5,376,710
    
    
    
    5,608,064Income before income taxes
    
    
    1,529,124
    
    
    
    1,383,751Income taxes
    
    
    457,492
    
    
    
    346,580Net income
    
    $
    1,071,632
    
    
    $
    1,037,171
 See Independent Accountants Review Report 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) # of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated OtherCommon
    
    
    
    
    
    
    
    
    
    Undivided
    
    Unearned
    
    Comprehensive
    
    ComprehensiveShares
    
    Common Stock
    
    Surplus
    
    Profits
    
    Compensation
    
    Income
    
    Income
    
    TotalBalance, January 1,
2003
    
    
    5,583,472
    
    
    $
    5,583,472
    
    
    $
    65,780,254
    
    
    $
    8,510,341
    
    
    $
    (143,043
    )
    
    $
    2,000,582
    
    
    
    
    
    
    $
    81,731,606Comprehensive
Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,037,171
    
    
    
    
    
    
    
    
    
    
    $
    1,037,171
    
    
    
    1,037,171Net unrealized
loss on available
for sale
securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,835
    )
    
    
    (174,835
    )
    
    
    (174,835
    )Reclassification
adjustment for
available for sale
securities called
or sold in the
current year, net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,550
    )
    
    
    (31,550
    )
    
    
    (31,550
    )Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    830,786Issuance of stock
for stock incentive
plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    12,000Retirement of
common stock
    
    
    (16,057
    )
    
    
    (16,057
    )
    
    
    
    
    
    
    (201,390
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217,447
    )Balance, March 31,
2003
    
    
    5,567,415
    
    
    $
    5,567,415
    
    
    $
    65,780,254
    
    
    $
    9,346,122
    
    
    $
    (131,043
    )
    
    $
    1,794,197
    
    
    
    
    
    
    $
    82,356,945
 Page 6




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Continued)
(Unaudited) # of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated OtherCommon
    
    
    
    
    
    
    
    
    
    Undivided
    
    Unearned
    
    Comprehensive
    
    ComprehensiveShares
    
    Common Stock
    
    Surplus
    
    Profits
    
    Compensation
    
    Income
    
    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 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
 See Independent Accountants Review Report and Selected Notes to Condensed
Consolidated Financial Statements. Page 7




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES 
 
 For the Quarters Ended March 31,
    
    2004
    
    2003Cash flows from operating activities:Net income
    
    $
    1,071,632
    
    
    $
    1,037,171Adjustments to reconcile net income to net
cash provided by operating
activities:(Gain) loss on sales of other real estate
    
    
    10,000
    
    
    
    (24,500
    )Depreciation
    
    
    413,000
    
    
    
    486,000Provision for losses on loans
    
    
    180,000
    
    
    
    178,640Provision for losses on other real estate
    
    
    168,000
    
    
    
    73,440Changes in assets and liabilities:Accrued interest receivable
    
    
    181,134
    
    
    
    (180,892
    )Other assets
    
    
    (110,412
    )
    
    
    173,222Other liabilities
    
    
    488,190
    
    
    
    426,576Net cash provided by operating activities
    
    
    2,401,544
    
    
    
    2,169,657Cash flows from investing activities:Proceeds from maturities and calls of held
to maturity securities
    
    
    101,393
    
    
    
    4,801,242Proceeds from maturities, sales and calls of
available for sale securities
    
    
    45,867,994
    
    
    
    35,552,547Investment in available for sale securities
    
    
    (50,073,040
    )
    
    
    (75,768,509
    )Investment in Federal Home Loan Bank
    
    
    
    
    
    
    (13,300
    )Redemption of Federal Home Loan Bank stock
    
    
    294,200Proceeds from sales of other real estate
    
    
    50,000
    
    
    
    175,000Loans, net (increase) decrease
    
    
    (7,762,680
    )
    
    
    12,857,718Acquisition of premises and equipment
    
    
    (239,846
    )
    
    
    (1,290,059
    )Federal funds sold
    
    
    (4,000,000
    )
    
    
    (1,600,000
    )Other assets
    
    
    (171,326
    )
    
    
    (26,599
    )Net cash used in investing activities
    
    $
    (15,933,305
    )
    
    $
    (25,311,960
    )
 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,
    
    2004
    
    2003Cash flows from financing activities:Demand and savings deposits, net increase
    
    $
    25,146,210
    
    
    $
    30,688,080Time deposits, net increase (decrease)
    
    
    5,178,557
    
    
    
    (3,244,290
    )Principal payments on notes
    
    
    (3,718
    )
    
    
    (11,521
    )Borrowings from Federal Home Loan Bank
    
    
    15,071,113
    
    
    
    19,797Repayments to Federal Home Loan Bank
    
    
    (25,056,799
    )Retirement of common stock
    
    
    (6,719
    )
    
    
    (217,447
    )Cash dividends
    
    
    (833,607
    )
    
    
    (670,017
    )Federal funds purchased and securities sold
under agreements to
repurchase, net decrease
    
    
    (1,745,899
    )
    
    
    17,463,329Net cash provided by financing activities
    
    
    17,749,138
    
    
    
    44,027,931Net increase in cash and cash equivalents
    
    
    4,217,377
    
    
    
    20,885,628Cash and cash equivalents, beginning of period
    
    
    33,861,029
    
    
    
    39,654,247Cash and cash equivalents, end of period
    
    $
    38,078,406
    
    
    $
    60,539,875
 See Independent Accountants Review Report and Selected Notes to Condensed
Consolidated Financial Statements. Page 9




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES 
 
 1. The accompanying unaudited condensed consolidated financial statements have
been prepared with the accounting policies in effect as of December 31, 2003 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, 2004, 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 5,557,284 and 5,569,913 for the quarters ended March 31, 2004 and 2003,
respectively. 3. At March 31, 2004 and 2003, the total recorded investment in impaired loans
amounted to $7,241,000 and $8,200,000, respectively. The average recorded
investment in impaired loans amounted to approximately $7,166,000 and
$8,189,000 at March 31, 2004 and 2003, respectively. The amount of that
recorded investment in impaired loans for which there is a related allowance
for loan losses was $7,241,000 at March 31, 2004. The allowance for losses
related to these loans amounted to approximately $1,110,000 at March 31, 2004.
The amount of interest not accrued on these loans amounted to approximately
$32,000 and $72,000 for the quarter ended March 31, 2004 and 2003,
respectively. In compliance with a bankruptcy court order, interest in the
amount of $50,000 has been received and recorded as interest income relating to
one impaired loan, with an average balance of $5,696,000 for the quarter ended
March 31, 2004. 4. Transactions in the allowance for loan losses were as follows: For the Quarter
    
    
    
    
    
    For the QuarterEnded March 31,
    
    For the Year Ended
    
    Ended March 31,2004
    
    December 31, 2003
    
    2003Balance, beginning of
period
    
    $
    6,398,694
    
    
    $
    6,696,911
    
    
    $
    6,696,911Provision for loan losses
    
    
    180,000
    
    
    
    447,000
    
    
    
    178,640Recoveries
    
    
    71,312
    
    
    
    599,783
    
    
    
    181,786Loans charged off
    
    
    (215,026
    )
    
    
    (1,345,000
    )
    
    
    (714,238
    )Balance, end of period
    
    $
    6,434,980
    
    
    $
    6,398,694
    
    
    $
    6,343,099
 5. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $1,179,000 and $1,604,000 for the quarters ended
March 31, 2004 and 2003, respectively, for interest on deposits and borrowings.
Income tax payments of $277,000 were made during the quarter ended March
31, 2003. Page 10




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Loans transferred to other real estate amounted to $60,000 and $750,000 for
the quarters ended March 31, 2004 and 2003, respectively. The income tax
effect on the accumulated other comprehensive income was $436,000 and
($106,000) at March 31, 2004 and 2003, respectively. 6. Certain reclassifications, which had no effect on prior year net income,
have been made to the prior period statements to conform to current year
presentation. Page 11




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Independent Accountants Review Report 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, 2004, March 31, 2003 and December
31, 2003, and the related condensed consolidated statements of income,
shareholders equity, and cash flows for the three months ended March 31, 2004
and March 31, 2003. These financial statements are the responsibility of the
Companys management. We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. 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 in
accordance with generally accepted auditing standards, 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 auditing standards
generally accepted in the United States of America, the consolidated
balance sheets of Peoples Financial Corporation as of
December 31, 2003, 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 21, 2004, 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, 2003, 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 5, 2004
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, 2004 and 2003.
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 2004, net income was $1,072,000, as compared with
$1,037,000 for the first quarter of 2003. The Company continues to focus on
managing its interest margin in its trade areas extremely competitive interest
rate environment. With the stabilization of the local economy, which began in
the fourth quarter of 2003, the Company has experienced a 2.50% growth in loan
volume. As can been seen in the schedule on page 17, however, the yield earned
on loans has decreased in the first quarter of 2004 due to this competition. The following schedule compares financial highlights for the quarters ended
March 31, 2004 and 2003: For the quarters ended March 31,
    
    2004
    
    2003Net income per share
    
    $
    0.19
    
    
    $
    0.19Book value per share
    
    $
    15.39
    
    
    $
    14.79Return on average total assets
    
    
    .73
    %
    
    
    .72
    %Return on average shareholders equity
    
    
    5.07
    %
    
    
    5.06
    %Allowance for loan losses as a % of loans,
net of unearned discount
    
    
    2.11
    %
    
    
    2.13
    %
 Page 13




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##### Table of Contents



Financial Condition Held to Maturity Securities
Held to maturity securities decreased $8,535,000 at March 31, 2004, compared
with March 31, 2003, as a result of the management of the Companys liquidity
position. As funds were available from the maturity of these securities, they
were generally invested in short term U. S. Government Agency securities, which
have been classified as available for sale. Gross unrealized gains for held to
maturity securities were $180,000 and $346,000 at March 31, 2004 and 2003,
respectively. There were no gross unrealized losses for held to maturity
securities at March 31, 2004 and 2003, respectively. The following schedule
reflects the mix of the held to maturity investment portfolio at March 31, 2004
and 2003: March 31,
    
    2004
    
    2003Amount
    
    %
    
    Amount
    
    %U. S. Treasury
    
    $
    999,944
    
    
    
    24
    %
    
    $
    3,998,600
    
    
    
    31
    %U. S. Government agencies
    
    
    
    
    
    
    
    
    
    
    5,000,000
    
    
    
    39
    %States and political
subdivisions
    
    
    3,251,517
    
    
    
    76
    %
    
    
    3,787,848
    
    
    
    30
    %Totals
    
    $
    4,251,461
    
    
    
    100
    %
    
    $
    12,786,448
    
    
    
    100
    %
 Available for Sale Securities
Available for sale securities increased $21,586,000 at March 31, 2004, compared
with March 31, 2003, in the management of the Companys liquidity position, as
discussed above. Gross unrealized gains were $2,693,000 and $2,764,000 and
gross unrealized losses were $392,000 and $57,000 at March 31, 2004 and 2003,
respectively. The following schedule reflects the mix of available for sale
securities at March 31, 2004 and 2003: March 31,
    
    2004
    
    2003Amount
    
    %
    
    Amount
    
    %U. S. Treasury
    
    $
    67,534,112
    
    
    
    32
    %
    
    $
    55,590,905
    
    
    
    29
    %U. S. Government
agencies
    
    
    133,181,953
    
    
    
    63
    %
    
    
    126,527,811
    
    
    
    67
    %States and political
subdivisions
    
    
    7,888,920
    
    
    
    3
    %
    
    
    4,685,087
    
    
    
    2
    %Other securities
    
    
    4,367,212
    
    
    
    2
    %
    
    
    4,582,672
    
    
    
    2
    %Totals
    
    $
    212,972,197
    
    
    
    100
    %
    
    $
    191,386,475
    
    
    
    100
    %
 Page 14




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##### Table of Contents



Federal Funds Sold
Federal funds sold were $4,000,000 at March 31, 2004, as a direct result of the
management of the bank subsidiarys liquidity position. Loans
Loans increased $7,326,000 at March 31, 2004, as compared with March 31, 2003.
During the fourth quarter of 2003 and continuing into the first quarter of
2004, the local economy has stabilized which has resulted in increased loan
demand. The Company expects that this demand will continue in the remaining
quarters of 2004. Other Real Estate
Other real estate decreased $506,000 at March 31, 2004, as compared with March
31, 2003, primarily due to sale of approximately $400,000 in ORE inventory
during the second, third and fourth quarters of 2003. Deposits
Total deposits decreased $12,736,000 at March 31, 2004, as compared with March
31, 2003. 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 $8,584,000 at March 31, 2004, as compared with March 31, 2003, as the
result of the management of the Companys liquidity position and 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, 2004, as compared with March 31, 2003, as
a result of the maturity and/or early payoff of Company debt. 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 15.69%
at March 31, 2004, as compared with 15.31% at March 31, 2003. 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. Page 15




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##### Table of Contents



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)
    
    2004
    
    2003Total interest income (1)
    
    $
    5,973
    
    
    $
    6,454Total interest expense
    
    
    1,179
    
    
    
    1,685Net interest earnings
    
    $
    4,794
    
    
    $
    4,769Net yield on interest earning assets
    
    
    3.76
    %
    
    
    3.86
    %
 (1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2004 and 2003. 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, 2004 and
2003. Changes in interest income are generally attributable to changes in
interest rates related to interest-earning assets, particularly loans. Changes
in interest expense, while impacted by changes in volume related to
interest-bearing liabilities, particularly brokered time deposits, were heavily
impacted by the decrease in the cost of funds during these time periods. Page 16




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##### Table of Contents



Analysis of Changes in Interest Income and Interest Expense
(In Thousands) Attributable To:For the Quarter
    
    For the QuarterEnded March 31,
    
    Ended March 31,
    
    Increase
    
    
    
    
    
    
    
    
    
    Rate/2004
    
    2003
    
    (Decrease)
    
    Volume
    
    Rate
    
    VolumeINTEREST INCOME: (1)Loans (2) (3)
    
    $
    4,054
    
    
    $
    4,543
    
    
    $
    (489
    )
    
    $
    (68
    )
    
    $
    (428
    )
    
    $
    7Federal funds sold
    
    
    14
    
    
    
    47
    
    
    
    (33
    )
    
    
    (33
    )
    
    
    (1
    )
    
    
    1Held to maturity:Taxable
    
    
    13
    
    
    
    234
    
    
    
    (221
    )
    
    
    (214
    )
    
    
    (81
    )
    
    
    74Non-taxable
    
    
    66
    
    
    
    79
    
    
    
    (13
    )
    
    
    (14
    )
    
    
    1Available for sale:Taxable
    
    
    1,657
    
    
    
    1,379
    
    
    
    278
    
    
    
    294
    
    
    
    (13
    )
    
    
    (3
    )Non-taxable
    
    
    97
    
    
    
    52
    
    
    
    45
    
    
    
    40
    
    
    
    3
    
    
    
    2Other
    
    
    72
    
    
    
    120
    
    
    
    (48
    )
    
    
    (7
    )
    
    
    (43
    )
    
    
    2Total
    
    $
    5,973
    
    
    $
    6,454
    
    
    $
    (481
    )
    
    $
    (2
    )
    
    $
    (562
    )
    
    $
    83INTEREST EXPENSE:Savings and
demand,
interest
bearing
    
    $
    339
    
    
    $
    440
    
    
    $
    (101
    )
    
    $
    (22
    )
    
    $
    (83
    )
    
    $
    4Time deposits
    
    
    489
    
    
    
    904
    
    
    
    (415
    )
    
    
    (333
    )
    
    
    (130
    )
    
    
    48Federal funds
purchased and
securities sold
under agreements to
repurchase
    
    
    235
    
    
    
    241
    
    
    
    (6
    )
    
    
    32
    
    
    
    (33
    )
    
    
    (5
    )Borrowings from FHLB
    
    
    116
    
    
    
    98
    
    
    
    18
    
    
    
    76
    
    
    
    (32
    )
    
    
    (26
    )Mortgage
indebtedness
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )Total
    
    $
    1,179
    
    
    $
    1,685
    
    
    $
    (506
    )
    
    $
    (248
    )
    
    $
    (279
    )
    
    $
    21
 (1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2004 and 2003. (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 seafood, 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 provided $180,000 for loan losses during the first
quarter of 2004, primarily due to the increase in loans during the same period.
The Company expects to provide for its loan loss provision on a monthly basis
throughout the remaining quarters of 2004 at a similar level, as deemed
necessary, based on the analysis. Equipment Rentals, Depreciation and Maintenance
Equipment rentals, depreciation and maintenance decreased $104,000 for the
first quarter of 2004 as compared with the first quarter of 2003. This
decrease was primarily the result of a decrease in depreciation of $73,000 on
computer software and hardware acquired in 1998 as a part of the Companys
conversion to the Jack Henry system. 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 2004, as necessary. 
 Item 4: Controls and Procedures Based on their evaluation, as of a date within 90 days of the filing date of
this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule
13a-14( c) and 15d-14 ( c) under the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses. Page 18




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##### Table of Contents



PART II
OTHER INFORMATION 
 Item 4 - Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders of the Company was held on April 14,
2004. (b) The following five directors were elected at the meeting to hold office for
a term of one year: Approve
    
    DisapproveDrew Allen
    
    
    4,843,076.074
    
    
    
    3,500.931Rex E. Kelly
    
    
    4,905,476.074
    
    
    
    3,500.931Dan Magruder
    
    
    4,905,476.074
    
    
    
    3,500.931Lyle M. Page
    
    
    4,892,036.074
    
    
    
    3,500.931Chevis C. Swetman
    
    
    4,905,476.074
    
    
    
    3,500.931
 Of the 5,557,379 shares outstanding and eligible to vote on April 14, shares
not voted amounted to 624,325.731 and shares voted to abstain amounted to
39,244.264. 
 Item 5 - Other Information None. 
 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 23:
    
    Consent of Certified Public AccountantsExhibit 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 Pursuant
to 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, 2004 and April 15, 2004. Page 19




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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 13, 2004 By:
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive Officer Date: May 13, 2004 By:
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller
(principal financial and accounting officer) Page 20