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 September 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)
  
  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
 September 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    37,935,156
    
    
    $
    34,665,370Federal funds sold
    
    
    25,760,000
    
    
    
    270,000Available for sale securities
    
    
    293,385,286
    
    
    
    387,028,925Held to maturity securities, fair value of
$3,424,632 at September 30, 2008;
$4,676,471 at December 31, 2007
    
    
    3,393,506
    
    
    
    4,629,992Other investments
    
    
    3,160,000Federal Home Loan Bank Stock, at cost
    
    
    936,000
    
    
    
    936,200Loans
    
    
    462,554,828
    
    
    
    450,992,074Less: Allowance for loan losses
    
    
    10,982,580
    
    
    
    9,378,137Loans, net
    
    
    451,572,248
    
    
    
    441,613,937Bank premises and equipment, net
of accumulated depreciation
    
    
    34,236,961
    
    
    
    34,410,789Accrued interest receivable
    
    
    5,090,902
    
    
    
    7,371,216Cash surrender value of life insurance
    
    
    14,548,067
    
    
    
    13,578,536Other assets
    
    
    4,682,239
    
    
    
    2,851,608Total assets
    
    $
    874,700,365
    
    
    $
    927,356,573
 2




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition (continued)
 September 30, 2008
    
    
    December 31, 2007(Unaudited)
    
    
    (Audited)Liabilities & Shareholders
EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    124,360,867
    
    
    $
    113,916,041Savings and demand,
interest bearing
    
    
    257,188,216
    
    
    
    231,435,685Time, $100,000 or more
    
    
    98,081,246
    
    
    
    166,078,473Other time deposits
    
    
    57,906,928
    
    
    
    57,700,280Total deposits
    
    
    537,537,257
    
    
    
    569,130,479Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    212,308,695
    
    
    
    231,225,118Borrowings
from Federal Home Loan Bank
    
    
    6,978,202
    
    
    
    7,100,305Other liabilities
    
    
    12,634,428
    
    
    
    13,359,047Total liabilities
    
    
    769,458,582
    
    
    
    820,814,949Shareholders Equity:Common stock, $1 par value,
15,000,000 shares
authorized, 5,315,651 and
5,420,204 shares issued
and outstanding at September
30, 2008 and December 31,
2007, respectively
    
    
    5,315,651
    
    
    
    5,420,204Surplus
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    33,868,806
    
    
    
    34,458,291Accumulated other
comprehensive income, net of
tax
    
    
    277,072
    
    
    
    882,875Total shareholders equity
    
    
    105,241,783
    
    
    
    106,541,624Total liabilities &
shareholders equity
    
    $
    874,700,365
    
    
    $
    927,356,573
  3




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
 (Unaudited)
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    2007Interest income:Interest and fees on loans
    
    $
    6,603,096
    
    
    $
    8,919,024
    
    
    $
    20,711,343
    
    
    $
    25,131,638Interest and dividends on securities:U. S. Treasury
    
    
    748,056
    
    
    
    965,272
    
    
    
    2,338,282
    
    
    
    3,432,861U.S. Government agencies
    
    
    2,568,752
    
    
    
    3,723,883
    
    
    
    8,283,083
    
    
    
    12,140,300Mortgage-backed securities
    
    
    421,063
    
    
    
    313,705
    
    
    
    1,317,989
    
    
    
    647,302States and politicial subdivisions
    
    
    273,419
    
    
    
    229,574
    
    
    
    782,665
    
    
    
    686,689Other investments
    
    
    42,475
    
    
    
    76,568
    
    
    
    143,455
    
    
    
    182,739Interest on federal funds sold
    
    
    49,549
    
    
    
    107,931
    
    
    
    111,620
    
    
    
    189,642Total interest income
    
    
    10,706,410
    
    
    
    14,335,957
    
    
    
    33,688,437
    
    
    
    42,411,171Interest expense:Deposits
    
    
    2,273,965
    
    
    
    3,862,267
    
    
    
    8,111,706
    
    
    
    11,093,430Long-term borrowings
    
    
    103,726
    
    
    
    138,604
    
    
    
    343,491
    
    
    
    418,451Federal funds purchased and securities
sold under agreements to repurchase
    
    
    1,111,474
    
    
    
    2,474,717
    
    
    
    3,731,166
    
    
    
    8,044,886Total interest expense
    
    
    3,489,165
    
    
    
    6,475,588
    
    
    
    12,186,363
    
    
    
    19,556,767Net interest income
    
    
    7,217,245
    
    
    
    7,860,369
    
    
    
    21,502,074
    
    
    
    22,854,404Provision for losses on loans
    
    
    2,001,000
    
    
    
    (1,197,000
    )
    
    
    2,095,000
    
    
    
    (1,097,000
    )Net interest income after provision
for losses on loans
    
    $
    5,216,245
    
    
    $
    9,057,369
    
    
    $
    19,407,074
    
    
    $
    23,951,404
 4




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income (continued)
(Unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Non-interest income:Trust department income and fees
    
    $
    407,643
    
    
    $
    495,172
    
    
    $
    1,236,758
    
    
    $
    1,393,417Service charges on deposit accounts
    
    
    1,717,985
    
    
    
    1,710,913
    
    
    
    5,139,820
    
    
    
    5,014,671Gain (loss) on sales, liquidation,
or calls of securities
    
    
    249,000
    
    
    
    4,688
    
    
    
    364,277
    
    
    
    (614,327
    )Other income
    
    
    436,610
    
    
    
    293,266
    
    
    
    1,238,890
    
    
    
    1,321,953Total non-interest income
    
    
    2,811,238
    
    
    
    2,504,039
    
    
    
    7,979,745
    
    
    
    7,115,714Non-interest expense:Salaries and employee benefits
    
    
    3,564,471
    
    
    
    3,743,041
    
    
    
    10,641,717
    
    
    
    10,608,272Net occupancy
    
    
    538,799
    
    
    
    524,162
    
    
    
    1,545,957
    
    
    
    1,443,656Rentals, depreciation and maintenance
    
    
    950,180
    
    
    
    810,879
    
    
    
    2,744,481
    
    
    
    2,429,454Other expense
    
    
    4,572,677
    
    
    
    1,508,815
    
    
    
    7,722,910
    
    
    
    4,411,652Total non-interest expense
    
    
    9,626,127
    
    
    
    6,586,897
    
    
    
    22,655,065
    
    
    
    18,893,034Income before income taxes
    
    
    (1,598,644
    )
    
    
    4,974,511
    
    
    
    4,731,754
    
    
    
    12,174,084Income taxes
    
    
    (545,000
    )
    
    
    1,580,000
    
    
    
    1,518,000
    
    
    
    4,078,000Net Income
    
    $
    (1,053,644
    )
    
    $
    3,394,511
    
    
    $
    3,213,754
    
    
    $
    8,096,084Basic and diluted earnings per share
    
    ($
    .20
    )
    
    $
    .62
    
    
    $
    .60
    
    
    $
    1.47
  5




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##### 



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,213,754
    
    
    
    
    
    
    $
    3,213,754
    
    
    
    3,213,754Net unrealized loss on
available for sale
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,060,961
    )
    
    
    (1,060,961
    )
    
    
    (1,060,961
    )Reclassification
adjustment for available
for sale securities called
or sold in current year,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (240,423
    )
    
    
    (240,423
    )
    
    
    (240,423
    )Gain from unfunded post-
retirement benefit
obligation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    695,581
    
    
    
    695,581
    
    
    
    695,581Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,607,951Cumulative effect
adjustment from
adoption of EITF 06-04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,732
    )
    
    
    
    
    
    
    
    
    
    
    (56,732
    )Effect of stock retirement
on accrued dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,816
    
    
    
    
    
    
    
    
    
    
    
    8,816Dividend declared,
($ .29 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,548,703
    )
    
    
    
    
    
    
    
    
    
    
    (1,548,703
    )Retirement of stock
    
    
    (104,553
    )
    
    
    (104,553
    )
    
    
    
    
    
    
    (2,206,620
    )
    
    
    
    
    
    
    
    
    
    
    (2,311,173
    )Balance,
September 30, 2008
    
    
    5,315,651
    
    
    $
    5,315,651
    
    
    $
    65,780,254
    
    
    $
    33,868,806
    
    
    $
    277,072
    
    
    
    
    
    
    $
    105,241,783
   6




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    3,213,754
    
    
    $
    8,096,084Adjustment to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    1,777,500
    
    
    
    1,385,000Provision for allowance for loan losses
    
    
    2,095,000
    
    
    
    (1,097,000
    )Impairment loss on FHLMC preferred stock
    
    
    2,964,000Gain on sale of bank premises
    
    
    (142,607
    )
    
    
    (192,200
    )Gain on sale of other real estate
    
    
    
    
    
    
    (10,470
    )(Gain) loss on sales and calls of securities
    
    
    (364,277
    )
    
    
    614,327Change in accrued interest receivable
    
    
    2,280,314
    
    
    
    1,306,371Change in other assets
    
    
    725,810
    
    
    
    (764,856
    )Change in other liabilities
    
    
    (1,009,809
    )
    
    
    (5,928,288
    )Net cash provided by operating activities
    
    
    11,539,685
    
    
    
    3,408,968Cash flows from investing activities:Proceeds
from maturities, sales, liquidation and calls of available for
sale securities
    
    
    200,027,056
    
    
    
    137,413,444Investment in available for sale securities
    
    
    (110,080,676
    )
    
    
    (134,426,587
    )Proceeds from maturities of held to maturity securities
    
    
    1,240,000
    
    
    
    82,460,000Investment in held to maturity securities
    
    
    (3,514
    )
    
    
    (5,513,926
    )Purchases of other investments
    
    
    (3,160,000
    )Redemption of Federal Home Loan Bank Stock
    
    
    200
    
    
    
    207,400Proceeds from sales of other real estate
    
    
    19,500
    
    
    
    55,000Loans, net change
    
    
    (12,424,936
    )
    
    
    (49,108,938
    )Proceeds from sale of bank premises
    
    
    266,812
    
    
    
    250,000Acquisition of premises and equipment
    
    
    (1,727,877
    )
    
    
    (9,213,987
    )Other assets
    
    
    (990,201
    )
    
    
    (564,215
    )Net cash provided by investing activities
    
    $
    73,166,364
    
    
    $
    21,558,191
 7




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##### 



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from financing activities:Demand and savings deposits, net change
    
    $
    36,197,357
    
    
    $
    (39,942,427
    )Time deposits, net change
    
    
    (67,790,579
    )
    
    
    36,523,396Cash dividends
    
    
    (3,003,342
    )
    
    
    (2,655,031
    )Retirement of common stock
    
    
    (2,311,173
    )
    
    
    (2,817,784
    )Borrowings from Federal Home Loan Bank
    
    
    16,500,000
    
    
    
    45,800,375Repayments to Federal Home Loan Bank
    
    
    (16,622,103
    )
    
    
    (45,925,984
    )Federal funds purchased and securities sold
under agreements to repurchase, net change
    
    
    (18,916,423
    )
    
    
    (18,058,291
    )Net cash used in financing activities
    
    
    (55,946,263
    )
    
    
    (27,075,746
    )Net increase (decrease) in cash and cash equivalents
    
    
    28,759,786
    
    
    
    (2,108,587
    )Cash and cash equivalents, beginning of period
    
    
    34,935,370
    
    
    
    44,193,493Cash and cash equivalents, end of period
    
    $
    63,695,156
    
    
    $
    42,084,906
  8




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##### 



9




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##### 



Less Than Twelve Months
    
    Over Twelve Months
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. Government
Agencies
    
    $
    71,573,135
    
    
    $
    1,189,793
    
    
    $
    
    
    
    $
    
    
    
    $
    71,573,135
    
    
    $
    1,189,793States and
political
subdivisions
    
    
    16,270,454
    
    
    
    839,261
    
    
    
    1,095,478
    
    
    
    147,382
    
    
    
    17,365,932
    
    
    
    986,643TOTAL
    
    $
    87,843,589
    
    
    $
    2,029,054
    
    
    $
    1,095,478
    
    
    $
    147,382
    
    
    $
    88,939,067
    
    
    $
    2,176,436
  
   10




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##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Balance, beginning of period
    
    $
    9,327,780
    
    
    $
    10,864,266
    
    
    $
    9,378,137
    
    
    $
    10,841,367Recoveries
    
    
    52,754
    
    
    
    80,750
    
    
    
    331,884
    
    
    
    211,395Loans charged off
    
    
    (398,954
    )
    
    
    (288,926
    )
    
    
    (822,441
    )
    
    
    (496,672
    )Provision for allowance for loan losses
    
    
    2,001,000
    
    
    
    (1,197,000
    )
    
    
    2,095,000
    
    
    
    (1,097,000
    )Balance, end of period
    
    $
    10,982,580
    
    
    $
    9,459,090
    
    
    $
    10,982,580
    
    
    $
    9,459,090
 
  
    11




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##### 



Fair Value Measurement UsingSeptember 30, 2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available for sale
securities
    
    $
    293,385,286
    
    
    
    
    
    
    $
    293,385,286
    Fair Value Measurement UsingSeptember 30, 2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired loans
    
    $
    16,425,001
    
    
    
    
    
    
    $
    16,425,001
   12




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##### 



13




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##### 



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
   Forward-Looking Information
  Emergency Economic Stabilization Act
   14




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##### 



Critical Accounting Policies
  OVERVIEW
    15




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##### 



RESULTS OF OPERATIONS
 Net Interest Income
   Quarter Ended September 30, 2008 as Compared with Quarter Ended September 30, 2007
      16




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##### 



Nine Months Ended September 30, 2008 as Compared with Nine Months Ended September 30, 2007
       17




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##### 



Three Months Ended September 30, 2008
    
    
    
    
    
    Three Months Ended September 30, 2007Average Balance
    
    
    Interest Earned/Paid
    
    
    Rate
    
    Average Balance
    
    
    Interest Earned/Paid
    
    
    RateLoans (2)(3)
    
    $
    472,088
    
    
    $
    6,603
    
    
    
    5.59
    %
    
    $
    433,657
    
    
    $
    8,919
    
    
    
    8.23
    %Federal Funds Sold
    
    
    11,397
    
    
    
    50
    
    
    
    1.75
    %
    
    
    8,635
    
    
    
    108
    
    
    
    5.00
    %HTM:Taxable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,237
    
    
    
    59
    
    
    
    4.51
    %Non taxable (1)
    
    
    3,393
    
    
    
    52
    
    
    
    6.13
    %
    
    
    4,629
    
    
    
    72
    
    
    
    6.22
    %AFS:Taxable
    
    
    285,869
    
    
    
    3,738
    
    
    
    5.23
    %
    
    
    381,025
    
    
    
    4,944
    
    
    
    5.19
    %Non taxable (1)
    
    
    24,214
    
    
    
    362
    
    
    
    5.98
    %
    
    
    18,661
    
    
    
    276
    
    
    
    5.92
    %Other
    
    
    7,362
    
    
    
    42
    
    
    
    2.82
    %
    
    
    5,281
    
    
    
    76
    
    
    
    5.76
    %Total
    
    $
    804,323
    
    
    $
    10,847
    
    
    
    5.39
    %
    
    $
    857,125
    
    
    $
    14,454
    
    
    
    6.75
    %Savings & interest-
bearing DDA
    
    $
    254,513
    
    
    $
    972
    
    
    
    1.53
    %
    
    $
    265,333
    
    
    $
    1,441
    
    
    
    2.17
    %CDs
    
    
    184,393
    
    
    
    1,303
    
    
    
    2.83
    %
    
    
    215,774
    
    
    
    2,421
    
    
    
    4.49
    %Federal funds
purchased
    
    
    215,548
    
    
    
    1,111
    
    
    
    2.06
    %
    
    
    213,200
    
    
    
    2,475
    
    
    
    4.64
    %FHLB advances
    
    
    7,686
    
    
    
    103
    
    
    
    5.36
    %
    
    
    9,326
    
    
    
    139
    
    
    
    5.96
    %Total
    
    $
    662,140
    
    
    $
    3,489
    
    
    
    2.11
    %
    
    $
    703,633
    
    
    $
    6,476
    
    
    
    3.68
    %Net tax-equivalent
yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %
 
 (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 $183,079 and $375,548 for 2008 and 2007, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 18




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##### 



Nine Months Ended September 30, 2008
    
    
    
    
    
    Nine Months Ended September 30, 2007Average Balance
    
    
    Interest Earned/Paid
    
    
    Rate
    
    Average Balance
    
    
    Interest Earned/Paid
    
    
    RateLoans (2)(3)
    
    $
    461,948
    
    
    $
    20,711
    
    
    
    5.98
    %
    
    $
    421,795
    
    
    $
    25,132
    
    
    
    7.94
    %Federal Funds Sold
    
    
    7,024
    
    
    
    112
    
    
    
    2.12
    %
    
    
    4,839
    
    
    
    189
    
    
    
    5.21
    %HTM:Taxable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,085
    
    
    
    1,060
    
    
    
    5.03
    %Non taxable (1)
    
    
    3,791
    
    
    
    178
    
    
    
    6.26
    %
    
    
    4,830
    
    
    
    229
    
    
    
    6.32
    %AFS:Taxable
    
    
    309,603
    
    
    
    11,939
    
    
    
    5.14
    %
    
    
    397,409
    
    
    
    15,161
    
    
    
    5.09
    %Non taxable (1)
    
    
    23,166
    
    
    
    1,008
    
    
    
    5.80
    %
    
    
    18,382
    
    
    
    811
    
    
    
    5.89
    %Other
    
    
    7,424
    
    
    
    143
    
    
    
    2.57
    %
    
    
    5,371
    
    
    
    183
    
    
    
    4.54
    %Total
    
    $
    812,956
    
    
    $
    34,091
    
    
    
    5.59
    %
    
    $
    880,711
    
    
    $
    42,765
    
    
    
    6.47
    %Savings & interest-
bearing DDA
    
    $
    253,197
    
    
    $
    3,032
    
    
    
    1.60
    %
    
    $
    276,246
    
    
    $
    4,225
    
    
    
    2.04
    %CDs
    
    
    201,571
    
    
    
    5,080
    
    
    
    3.36
    %
    
    
    206,536
    
    
    
    6,869
    
    
    
    4.43
    %Federal funds
purchased
    
    
    207,612
    
    
    
    3,731
    
    
    
    2.40
    %
    
    
    228,248
    
    
    
    8,045
    
    
    
    4.70
    %FHLB advances
    
    
    7,839
    
    
    
    343
    
    
    
    5.83
    %
    
    
    9,303
    
    
    
    418
    
    
    
    5.99
    %Total
    
    $
    670,219
    
    
    $
    12,186
    
    
    
    2.42
    %
    
    $
    720,333
    
    
    $
    19,557
    
    
    
    3.62
    %Net tax-equivalent
yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.59
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %
 
 (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 $592,391 and $682,574 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
     FINANCIAL CONDITION
  21




---



##### 



September 30, 2008
    
    December 31, 2007Available for sale securities:U.S. Treasury
    
    $
    66,392,175
    
    
    $
    73,306,340U.S. Government agencies and
corp.
    
    
    170,324,369
    
    
    
    253,799,811Mortgage-backed securities
    
    
    29,917,772
    
    
    
    33,383,897States and political
subdivisions
    
    
    25,017,133
    
    
    
    22,482,364Equity securities
    
    
    1,733,837
    
    
    
    4,056,513Total available for sale securities
    
    $
    293,385,286
    
    
    $
    387,028,925
   September 30, 2008
    
    December 31, 2007Real estate, construction
    
    $
    114,222,465
    
    
    $
    93,739,256Real estate, mortgage
    
    
    290,467,377
    
    
    
    265,463,768Loans to finance agricultural production
    
    
    3,094,971
    
    
    
    2,545,169Commercial and industrial loans
    
    
    42,332,888
    
    
    
    76,267,162Loans to individuals for household, family and other
consumer expenditures
    
    
    11,027,296
    
    
    
    11,173,054Obligations of states and political subdivisions
    
    
    1,408,852
    
    
    
    1,747,293All other loans
    
    
    979
    
    
    
    56,372Total
    
    $
    462,554,828
    
    
    $
    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 September 30,
    
    2008
    
    
    2007Net interest income
    
    $
    7,217
    
    
    $
    7,860Provision for loan losses
    
    
    2,001
    
    
    
    (1,197
    )Non-interest income
    
    
    2,811
    
    
    
    2,504Non-interest expense
    
    
    9,626
    
    
    
    6,586Income taxes
    
    
    (545
    )
    
    
    1,580Net income
    
    
    (1,054
    )
    
    
    3,395Earnings per share
    
    
    (.20
    )
    
    
    .62
 Nine Months Ended September 30,
    
    2008
    
    
    2007Net interest income
    
    $
    21,502
    
    
    $
    22,854Provision for loan losses
    
    
    2,095
    
    
    
    (1,097
    )Non-interest income
    
    
    7,980
    
    
    
    7,116Non-interest expense
    
    
    22,655
    
    
    
    18,893Income taxes
    
    
    1,518
    
    
    
    4,078Net income
    
    
    3,214
    
    
    
    8,096Earnings per share
    
    
    .60
    
    
    
    1.47
 PERFORMANCE RATIOS (annualized)
 September 30,
    
    2008
    
    
    2007Return on average assets
    
    
    .47
    %
    
    
    1.12
    %Return on average equity
    
    
    3.69
    %
    
    
    10.73
    %Net interest margin
    
    
    3.59
    %
    
    
    3.51
    %Efficiency ratio
    
    
    83
    %
    
    
    61
    %
 Item 4: Controls and Procedures
   24




---



##### 



PART II  OTHER INFORMATION
 Item 1: Legal Proceedings
        25




---



##### 



Item 6  Exhibits and Reports on Form 8-K
  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:
    
    November 7, 2008By:
    
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive Officer
(principal executive officer)Date:
    
    November 7, 2008By:
    
    /s/ Lauri A. WoodLauri A. Wood
Chief Financial Officer and Controller
(principal financial and accounting officer)
 27