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 June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 001-12103
 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)
  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



Part 1  Financial Information
Item 1: Financial Statements
 Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition
 June 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    38,023,789
    
    
    $
    34,665,370Federal funds sold
    
    
    810,000
    
    
    
    270,000Available for sale securities
    
    
    327,756,116
    
    
    
    387,028,925Held to maturity securities, fair value of
$3,438,637 at June 30, 2008;
$4,676,471 at December 31, 2007
    
    
    3,392,881
    
    
    
    4,629,992Other investments
    
    
    3,160,000Federal Home Loan Bank Stock, at cost
    
    
    928,100
    
    
    
    936,200Loans
    
    
    472,964,561
    
    
    
    450,992,074Less: Allowance for loan losses
    
    
    9,327,780
    
    
    
    9,378,137Loans, net
    
    
    463,636,781
    
    
    
    441,613,937Bank premises and equipment, net
of accumulated depreciation
    
    
    34,861,451
    
    
    
    34,410,789Accrued interest receivable
    
    
    6,411,661
    
    
    
    7,371,216Cash surrender value of life insurance
    
    
    14,408,531
    
    
    
    13,578,536Other assets
    
    
    3,147,524
    
    
    
    2,851,608Total assets
    
    $
    896,536,834
    
    
    $
    927,356,573
 2




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition (continued)
 June 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (Audited)Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    121,021,954
    
    
    $
    113,916,041Savings and demand, interest bearing
    
    
    264,908,659
    
    
    
    231,435,685Time, $100,000 or more
    
    
    123,004,126
    
    
    
    166,078,473Other time deposits
    
    
    55,687,734
    
    
    
    57,700,280Total deposits
    
    
    564,622,473
    
    
    
    569,130,479Federal funds purchased and securities sold under
agreements to repurchase
    
    
    205,356,130
    
    
    
    231,225,118Borrowings from Federal Home Loan Bank
    
    
    7,018,242
    
    
    
    7,100,305Other liabilities
    
    
    14,013,402
    
    
    
    13,359,047Total liabilities
    
    
    791,010,247
    
    
    
    820,814,949Shareholders Equity:Common stock, $1 par value, 15,000,000 shares
authorized, 5,340,355 and 5,420,204 shares issued
and outstanding at June 30, 2008 and December 31,
2007, respectively
    
    
    5,340,355
    
    
    
    5,420,204Surplus
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    35,446,170
    
    
    
    34,458,291Accumulated other comprehensive income, net of tax
    
    
    (1,040,192
    )
    
    
    882,875Total shareholders equity
    
    
    105,526,587
    
    
    
    106,541,624Total liabilities & shareholders equity
    
    $
    896,536,834
    
    
    $
    927,356,573
  3




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Interest income:Interest and fees on loans
    
    $
    6,675,902
    
    
    $
    8,422,725
    
    
    $
    14,108,247
    
    
    $
    16,212,614Interest and dividends on
securities:U. S. Treasury
    
    
    776,286
    
    
    
    1,152,278
    
    
    
    1,590,226
    
    
    
    2,467,589U.S. Government agencies
    
    
    2,700,844
    
    
    
    4,144,884
    
    
    
    5,714,331
    
    
    
    8,416,417Mortgage-backed securities
    
    
    435,554
    
    
    
    253,532
    
    
    
    896,926
    
    
    
    333,597States and politicial
subdivisions
    
    
    249,196
    
    
    
    233,953
    
    
    
    509,246
    
    
    
    457,115Other investments
    
    
    38,063
    
    
    
    42,688
    
    
    
    100,980
    
    
    
    106,171Interest on federal funds sold
    
    
    25,258
    
    
    
    30,602
    
    
    
    62,070
    
    
    
    81,711Total interest income
    
    
    10,901,103
    
    
    
    14,280,662
    
    
    
    22,982,026
    
    
    
    28,075,214Interest expense:Deposits
    
    
    2,618,729
    
    
    
    3,704,829
    
    
    
    5,837,741
    
    
    
    7,231,163Long-term borrowings
    
    
    117,531
    
    
    
    165,304
    
    
    
    239,765
    
    
    
    279,847Federal funds purchased and
securities
sold under agreements to
repurchase
    
    
    1,081,298
    
    
    
    2,845,117
    
    
    
    2,619,692
    
    
    
    5,570,169Total interest expense
    
    
    3,817,558
    
    
    
    6,715,250
    
    
    
    8,697,198
    
    
    
    13,081,179Net interest income
    
    
    7,083,545
    
    
    
    7,565,412
    
    
    
    14,284,828
    
    
    
    14,994,035Provision for allowance for
losses
on loans
    
    
    48,000
    
    
    
    51,000
    
    
    
    94,000
    
    
    
    100,000Net interest income after
provision
for allowance for losses on
loans
    
    $
    7,035,545
    
    
    $
    7,514,412
    
    
    $
    14,190,828
    
    
    $
    14,894,035
 4




---



##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income (continued)
(Unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Non-interest income:Trust department income
and fees
    
    $
    434,025
    
    
    $
    449,625
    
    
    $
    829,115
    
    
    $
    898,245Service charges on
deposit accounts
    
    
    1,729,375
    
    
    
    1,631,897
    
    
    
    3,421,835
    
    
    
    3,303,758Gain (loss) on sales or
calls of securites
    
    
    27,629
    
    
    
    (603,022
    )
    
    
    115,277
    
    
    
    (619,015
    )Other income
    
    
    439,686
    
    
    
    483,204
    
    
    
    802,280
    
    
    
    1,028,687Total non-interest income
    
    
    2,630,715
    
    
    
    1,961,704
    
    
    
    5,168,507
    
    
    
    4,611,675Non-interest expense:Salaries and employee
benefits
    
    
    3,611,848
    
    
    
    3,478,055
    
    
    
    7,077,246
    
    
    
    6,865,231Net occupancy
    
    
    467,333
    
    
    
    541,789
    
    
    
    1,007,158
    
    
    
    919,494Rentals, depreciation and
maintenance
    
    
    872,248
    
    
    
    834,905
    
    
    
    1,794,301
    
    
    
    1,618,575Other expense
    
    
    1,452,833
    
    
    
    1,425,117
    
    
    
    3,090,232
    
    
    
    2,902,837Total non-interest expense
    
    
    6,404,262
    
    
    
    6,279,866
    
    
    
    12,968,937
    
    
    
    12,306,137Income before income taxes
    
    
    3,261,998
    
    
    
    3,196,250
    
    
    
    6,390,398
    
    
    
    7,199,573Income taxes
    
    
    1,084,000
    
    
    
    1,210,000
    
    
    
    2,123,000
    
    
    
    2,498,000Net Income
    
    $
    2,177,998
    
    
    $
    1,986,250
    
    
    $
    4,267,398
    
    
    $
    4,701,573Basic and diluted earnings
per share
    
    $
    .41
    
    
    $
    .36
    
    
    $
    .79
    
    
    $
    .85
  5




---



##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statement of Shareholders Equity
 AccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherCommon
    
    
    Common
    
    
    
    
    
    
    Undivided
    
    
    Comprehensive
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Surplus
    
    
    Profits
    
    
    Income
    
    
    Income
    
    
    TotalBalance, January 1,
2008
    
    
    5,420,204
    
    
    $
    5,420,204
    
    
    $
    65,780,254
    
    
    $
    34,458,291
    
    
    $
    882,875
    
    
    
    
    
    
    $
    106,541,624Comprehensive
Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,267,398
    
    
    
    
    
    
    $
    4,267,398
    
    
    
    4,267,398Net unrealized loss
on
available for sale
securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,542,565
    )
    
    
    (2,542,565
    )
    
    
    (2,542,565
    )Reclassification
adjustment for
available
for sale securities
called
or sold in current
year,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,083
    )
    
    
    (76,083
    )
    
    
    (76,083
    )Gain from unfunded
post-
retirement benefit
obligation, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    695,581
    
    
    
    695,581
    
    
    
    695,581Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,344,331Cumulative effect
adjustment 
from
adoption of EITF
06-04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,732
    )
    
    
    
    
    
    
    
    
    
    
    (56,732
    )Effect of stock retirement
on accrued dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,868
    
    
    
    
    
    
    
    
    
    
    
    5,868Dividend declared,
($ .29 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,548,703
    )
    
    
    
    
    
    
    
    
    
    
    (1,548,703
    )Retirement of stock
    
    
    (79,849
    )
    
    
    (79,849
    )
    
    
    
    
    
    
    (1,679,952
    )
    
    
    
    
    
    
    
    
    
    
    (1,759,801
    )Balance, June 30,
2008
    
    
    5,340,355
    
    
    $
    5,340,355
    
    
    $
    65,780,254
    
    
    $
    35,446,170
    
    
    $
    (1,040,192
    )
    
    
    
    
    
    $
    105,526,587
   6




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    4,267,398
    
    
    $
    4,701,573Adjustment to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    1,097,500
    
    
    
    910,000Provision for allowance for loan losses
    
    
    94,000
    
    
    
    100,000Gain on sale of bank premises
    
    
    (142,607
    )
    
    
    (417,107
    )Gain on sale of other real estate
    
    
    
    
    
    
    (10,470
    )(Gain) loss on sales and calls of securities
    
    
    (115,277
    )
    
    
    619,015Change in accrued interest receivable
    
    
    959,555
    
    
    
    (270,777
    )Change in other assets
    
    
    776,622
    
    
    
    (866,793
    )Change in other liabilities
    
    
    776,346
    
    
    
    (7,810,083
    )Net cash provided by (used in) operating activities
    
    
    7,713,537
    
    
    
    (3,044,642
    )Cash flows from investing activities:Proceeds from maturities, sales and calls of available for
sale securities
    
    
    138,371,132
    
    
    
    105,881,327Investment in available for sale securities
    
    
    (82,129,694
    )
    
    
    (124,481,485
    )Proceeds from maturities of held to maturity securities
    
    
    1,240,000
    
    
    
    75,390,000Investment in held to maturity securities
    
    
    (2,889
    )
    
    
    (5,508,486
    )Purchases of other investments
    
    
    (3,160,000
    )(Investment in) redemption of Federal Home Loan Bank Stock
    
    
    8,100
    
    
    
    (29,600
    )Proceeds from sales of other real estate
    
    
    19,500
    
    
    
    55,000Loans, net change
    
    
    (22,264,844
    )
    
    
    (28,736,474
    )Proceeds from sale of bank premises
    
    
    266,812
    
    
    
    474,907Acquisition of premises and equipment
    
    
    (1,672,367
    )
    
    
    (5,551,234
    )Other assets
    
    
    (814,423
    )
    
    
    (344,428
    )Net cash
provided by investing activities
    
    $
    29,861,327
    
    
    $
    17,149,527
 7




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from financing activities:Demand and savings deposits, net change
    
    $
    40,578,887
    
    
    $
    44,782,320Time deposits, net change
    
    
    (45,086,893
    )
    
    
    10,756,175Cash dividends
    
    
    (1,457,587
    )
    
    
    (1,276,086
    )Retirement of common stock
    
    
    (1,759,801
    )
    
    
    (815,875
    )Borrowings from Federal Home Loan Bank
    
    
    12,000,000
    
    
    
    35,850,030Repayments to Federal Home Loan Bank
    
    
    (12,082,063
    )
    
    
    (29,135,201
    )Federal funds purchased and securities sold
under agreements to repurchase, net change
    
    
    (25,868,988
    )
    
    
    (28,889,552
    )Net cash provided by (used in) financing activities
    
    
    (33,676,445
    )
    
    
    31,271,811Net increase in cash and cash equivalents
    
    
    3,898,419
    
    
    
    45,376,696Cash and cash equivalents, beginning of year
    
    
    34,935,370
    
    
    
    44,193,493Cash and cash equivalents, end of year
    
    $
    38,833,789
    
    
    $
    89,570,189
  8




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##### 



9




---



##### 



Less Than Twelve Months
    
    Over Twelve Months
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. Government
Agencies
    
    $
    83,222,180
    
    
    $
    1,498,182
    
    
    $
    
    
    
    $
    
    
    
    $
    83,222,180
    
    
    $
    1,498,182Mortgage-backed
securities
    
    
    24,151,931
    
    
    
    308,322
    
    
    
    
    
    
    
    
    
    
    
    24,151,931
    
    
    
    308,322States and political
subdivisions
    
    
    12,164,684
    
    
    
    356,198
    
    
    
    1,159,950
    
    
    
    88,369
    
    
    
    13,324,634
    
    
    
    444,567FHLMC preferred stock
    
    
    
    
    
    
    
    
    
    
    1,594,807
    
    
    
    1,480,193
    
    
    
    1,594,807
    
    
    
    1,480,193TOTAL
    
    $
    119,538,795
    
    
    $
    2,162,702
    
    
    $
    2,754,757
    
    
    $
    1,568,562
    
    
    $
    122,293,552
    
    
    $
    3,731,264
     10




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##### 



Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Balance, beginning of period
    
    $
    9,404,270
    
    
    $
    10,854,058
    
    
    $
    9,378,137
    
    
    $
    10,841,367Recoveries
    
    
    211,039
    
    
    
    66,486
    
    
    
    279,130
    
    
    
    130,645Loans charged off
    
    
    (335,529
    )
    
    
    (107,278
    )
    
    
    (423,487
    )
    
    
    (207,746
    )Provision for allowance for loan losses
    
    
    48,000
    
    
    
    51,000
    
    
    
    94,000
    
    
    
    100,000Balance, end of period
    
    $
    9,327,780
    
    
    $
    10,864,266
    
    
    $
    9,327,780
    
    
    $
    10,864,266
      11




---



##### 



Fair Value Measurement UsingJune 30, 2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available for sale
securities
    
    $
    327,756,116
    
    
    
    
    
    
    $
    327,756,116
    Fair Value Measurement UsingJune 30, 2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired loans
    
    $
    11,441,250
    
    
    
    
    
    
    $
    11,441,250
  12




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##### 



13




---



##### 



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
   Forward-Looking Information
  Critical Accounting Policies
  14




---



##### 



OVERVIEW
    RESULTS OF OPERATIONS
 Net Interest Income
   Quarter Ended June 30, 2008 as Compared with Quarter Ended June 30, 2007
  15




---



##### 



Six Months Ended June 30, 2008 as Compared with Six Months Ended June 30, 2007
     16




---



##### 



17




---



##### 



Three Months Ended June 30, 2008
    
    Three Months Ended June 30, 2007Average Balance
    
    Interest Earned/Paid
    
    Rate
    
    Average Balance
    
    Interest Earned/Paid
    
    RateLoans (2)(3)
    
    $
    463,561
    
    
    $
    6,676
    
    
    
    5.76
    %
    
    $
    427,626
    
    
    $
    8,423
    
    
    
    7.88
    %Federal Funds Sold
    
    
    5,067
    
    
    
    25
    
    
    
    1.97
    %
    
    
    2,183
    
    
    
    31
    
    
    
    5.68
    %HTM:Taxable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,150
    
    
    
    316
    
    
    
    5.03
    %Non taxable (1)
    
    
    3,653
    
    
    
    57
    
    
    
    6.24
    %
    
    
    4,837
    
    
    
    75
    
    
    
    6.20
    %AFS:Taxable
    
    
    306,118
    
    
    
    3,912
    
    
    
    5.11
    %
    
    
    410,427
    
    
    
    5,235
    
    
    
    5.10
    %Non taxable (1)
    
    
    22,609
    
    
    
    322
    
    
    
    5.70
    %
    
    
    18,953
    
    
    
    279
    
    
    
    5.89
    %Other
    
    
    7,816
    
    
    
    38
    
    
    
    1.94
    %
    
    
    5,432
    
    
    
    42
    
    
    
    3.09
    %Total
    
    $
    808,824
    
    
    $
    11,030
    
    
    
    5.45
    %
    
    $
    894,608
    
    
    $
    14,401
    
    
    
    6.44
    %Savings & interest-
bearing DDA
    
    $
    260,870
    
    
    $
    1,059
    
    
    
    1.62
    %
    
    $
    276,133
    
    
    $
    1,346
    
    
    
    1.95
    %CDs
    
    
    190,627
    
    
    
    1,559
    
    
    
    3.27
    %
    
    
    207,896
    
    
    
    2,359
    
    
    
    4.54
    %Federal funds
purchased
    
    
    207,973
    
    
    
    1,082
    
    
    
    2.08
    %
    
    
    240,508
    
    
    
    2,845
    
    
    
    4.73
    %FHLB advances
    
    
    7,349
    
    
    
    118
    
    
    
    6.42
    %
    
    
    11,311
    
    
    
    165
    
    
    
    5.84
    %Total
    
    $
    666,819
    
    
    $
    3,818
    
    
    
    2.29
    %
    
    $
    735,848
    
    
    $
    6,715
    
    
    
    3.65
    %Net tax-equivalent
yield on earning
assets
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %
 
 (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2008
and 2007.(2)
    
    Loan fees of $293,340 and $148,527 for 2008 and 2007, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 18




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##### 



Six Months Ended June 30, 2008
    
    Six Months Ended June 30, 2007Average Balance
    
    Interest Earned/Paid
    
    Rate
    
    Average Balance
    
    Interest Earned/Paid
    
    RateLoans (2)(3)
    
    $
    456,822
    
    
    $
    14,108
    
    
    
    6.18
    %
    
    $
    415,765
    
    
    $
    16,213
    
    
    
    7.80
    %Federal Funds Sold
    
    
    4,825
    
    
    
    62
    
    
    
    2.57
    %
    
    
    2,967
    
    
    
    82
    
    
    
    5.53
    %HTM:Taxable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,698
    
    
    
    1,001
    
    
    
    5.04
    %Non taxable (1)
    
    
    3,992
    
    
    
    125
    
    
    
    6.26
    %
    
    
    4,933
    
    
    
    155
    
    
    
    6.28
    %AFS:Taxable
    
    
    321,601
    
    
    
    8,201
    
    
    
    5.10
    %
    
    
    405,738
    
    
    
    10,216
    
    
    
    5.04
    %Non taxable (1)
    
    
    22,636
    
    
    
    647
    
    
    
    5.72
    %
    
    
    18,240
    
    
    
    537
    
    
    
    5.89
    %Other
    
    
    7,986
    
    
    
    101
    
    
    
    2.53
    %
    
    
    5,417
    
    
    
    106
    
    
    
    3.91
    %Total
    
    $
    817,862
    
    
    $
    23,244
    
    
    
    5.68
    %
    
    $
    892,758
    
    
    $
    28,310
    
    
    
    6.34
    %Savings & interest-bearing DDA
    
    $
    253,387
    
    
    $
    2,060
    
    
    
    1.63
    %
    
    $
    281,986
    
    
    $
    2,784
    
    
    
    1.97
    %CDs
    
    
    210,255
    
    
    
    3,778
    
    
    
    3.59
    %
    
    
    201,840
    
    
    
    4,447
    
    
    
    4.41
    %Federal funds
purchased
    
    
    203,600
    
    
    
    2,620
    
    
    
    2.57
    %
    
    
    235,897
    
    
    
    5,570
    
    
    
    4.72
    %FHLB advances
    
    
    7,916
    
    
    
    240
    
    
    
    6.06
    %
    
    
    9,291
    
    
    
    280
    
    
    
    6.03
    %Total
    
    $
    675,158
    
    
    $
    8,698
    
    
    
    2.58
    %
    
    $
    729,014
    
    
    $
    13,081
    
    
    
    3.59
    %Net tax-equivalent
yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.56
    %
    
    
    
    
    
    
    
    
    
    
    3.41
    %
 
 (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2008
and 2007.(2)
    
    Loan fees of $409,311 and $307,027 for 2008 and 2007, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 19




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##### 



Provision for Loan Losses
     20




---



##### 



Non-interest income
   Non-interest expense
      21




---



##### 



FINANCIAL CONDITION
  June 30, 2008
    
    
    December 31, 2007Available for sale securities:U.S. Treasury
    
    $
    71,167,542
    
    
    $
    73,306,340U.S. Government agencies and corp.
    
    
    200,001,923
    
    
    
    253,799,811Mortgage-backed securities
    
    
    30,095,635
    
    
    
    33,383,897States and political subdivisions
    
    
    22,742,710
    
    
    
    22,482,364Equity securities
    
    
    3,748,306
    
    
    
    4,056,513Total available for sale securities
    
    $
    327,756,116
    
    
    $
    387,028,925
   June 30, 2008
    
    
    December 31, 2007Real estate, construction
    
    $
    111,414,069
    
    
    $
    93,739,256Real estate, mortgage
    
    
    291,108,404
    
    
    
    265,463,768Loans to finance agricultural production
    
    
    783,390
    
    
    
    2,545,169Commercial and industrial loans
    
    
    57,217,123
    
    
    
    76,267,162Loans to individuals for household, family and other
consumer expenditures
    
    
    11,021,761
    
    
    
    11,173,054Obligations of states and political subdivisions
    
    
    1,418,738
    
    
    
    1,747,293All other loans
    
    
    1,076
    
    
    
    56,372Total
    
    $
    472,964,561
    
    
    $
    450,992,074
 22




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##### 



SHAREHOLDERS EQUITY AND CAPITAL ADEQUACY
   LIQUIDITY
  23




---



##### 



FINANCIAL HIGHLIGHTS (in thousands except per share data)
 EARNINGS SUMMARY
 Three Months Ended June 30,
    
    2008
    
    
    2007Net interest income
    
    $
    7,083
    
    
    $
    7,565Provision for loan losses
    
    
    48
    
    
    
    51Non-interest income
    
    
    2,631
    
    
    
    1,962Non-interest expense
    
    
    6,404
    
    
    
    6,280Income taxes
    
    
    1,084
    
    
    
    1,210Net income
    
    
    2,178
    
    
    
    1,986Earnings per share
    
    
    .41
    
    
    
    .36
 Six Months Ended June 30,
    
    2008
    
    
    2007Net interest income
    
    $
    14,285
    
    
    $
    14,994Provision for loan losses
    
    
    94
    
    
    
    100Non-interest income
    
    
    5,168
    
    
    
    4,612Non-interest expense
    
    
    12,969
    
    
    
    12,306Income taxes
    
    
    2,123
    
    
    
    2,498Net income
    
    
    4,267
    
    
    
    4,702Earnings per share
    
    
    .79
    
    
    
    .85
 PERFORMANCE RATIOS (annualized)
 June 30,
    
    2008
    
    
    2007Return on average assets
    
    
    .92
    %
    
    
    .95
    %Return on average equity
    
    
    7.40
    %
    
    
    9.06
    %Net interest margin
    
    
    3.56
    %
    
    
    3.41
    %Efficiency ratio
    
    
    67
    %
    
    
    63
    %
 Item 4: Controls and Procedures
   24




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##### 



PART
II - OTHER INFORMATION
 Item 1: Legal Proceedings
        25




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##### 



Item 6
- Exhibits and Reports on Form 8-K
 (a)
    
    Exhibits
 Exhibit 31.1:
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes - Oxley Act of 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
   26




---



##### 



PEOPLES FINANCIAL CORPORATION(Registrant)Date:
    
    August 8, 2008By:
    
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive Officer(principal executive officer)Date:
    
    August 8, 2008By:
    
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller(principal financial and accounting officer)
 27