##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 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
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer oDo not check if a smaller reporting company
Smaller reporting company o o þ




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TABLE OF CONTENTS  Part 1  Financial Information Item 1: Financial StatementsItem 2: Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4: Controls and ProceduresPART II  OTHER INFORMATIONItem 1: Legal ProceedingsItem 6  Exhibits and Reports on Form 8-KSIGNATURESEX-10.1EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 Part 1  Financial Information  Item 1: Financial Statements
 Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition
 September 30, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    34,523,516
    
    
    $
    29,155,294Available for sale securities
    
    
    302,832,580
    
    
    
    311,434,437Held to maturity securities, fair value of
$2,972,300 at September 30, 2010;
$3,340,974 at December 31, 2009
    
    
    2,814,137
    
    
    
    3,201,966Other investments
    
    
    4,020,754
    
    
    
    4,036,304Federal Home Loan Bank Stock, at cost
    
    
    3,375,400
    
    
    
    5,015,900Loans
    
    
    422,161,589
    
    
    
    464,976,291Less: Allowance for loan losses
    
    
    8,995,828
    
    
    
    7,827,806Loans, net
    
    
    413,165,761
    
    
    
    457,148,485Bank premises and equipment, net
of accumulated depreciation
    
    
    30,150,716
    
    
    
    31,418,884Other real estate
    
    
    2,818,833
    
    
    
    1,521,313Accrued interest receivable
    
    
    3,307,210
    
    
    
    4,646,752Cash surrender value of life insurance
    
    
    15,786,368
    
    
    
    15,329,394Prepaid FDIC assessments
    
    
    3,990,239
    
    
    
    4,958,309Other assets
    
    
    2,651,824
    
    
    
    1,139,861Total assets
    
    $
    819,437,338
    
    
    $
    869,006,899
 2




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##### Table of Contents



Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition (continued)
 September 30, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Audited)Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    116,955,635
    
    
    $
    96,541,387Savings and demand, interest bearing
    
    
    221,140,824
    
    
    
    206,167,484Time, $100,000 or more
    
    
    144,589,941
    
    
    
    117,347,663Other time deposits
    
    
    50,229,892
    
    
    
    50,644,895Total deposits
    
    
    532,916,292
    
    
    
    470,701,429Federal funds purchased and securities sold under
agreements to repurchase
    
    
    142,380,679
    
    
    
    174,430,877Borrowings from Federal Home Loan Bank
    
    
    18,978,441
    
    
    
    104,270,452Other liabilities
    
    
    17,019,609
    
    
    
    16,016,204Total liabilities
    
    
    711,295,021
    
    
    
    765,418,962Shareholders Equity:Common stock, $1 par value, 15,000,000 shares
authorized, 5,151,697 shares issued and outstanding
at September 30, 2010 and December
31, 2009
    
    
    5,151,697
    
    
    
    5,151,697Surplus
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    34,968,596
    
    
    
    32,853,346Accumulated other comprehensive income (loss),
net of tax
    
    
    2,241,770
    
    
    
    (197,360
    )Total shareholders equity
    
    
    108,142,317
    
    
    
    103,587,937Total liabilities & shareholders equity
    
    $
    819,437,338
    
    
    $
    869,006,899
  3




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Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2010
    
    2009
    
    2010
    
    2009Interest income:Interest and fees on loans
    
    $
    4,814,583
    
    
    $
    5,028,179
    
    
    $
    14,695,051
    
    
    $
    15,232,634Interest and dividends on securities:U.S. Treasury
    
    
    77,382
    
    
    
    243,566
    
    
    
    402,860
    
    
    
    1,019,885U.S. Government agencies
    
    
    1,620,180
    
    
    
    2,704,828
    
    
    
    6,232,606
    
    
    
    7,474,592Mortgage-backed securities
    
    
    
    
    
    
    388,091
    
    
    
    518,924
    
    
    
    1,179,745States and political subdivisions
    
    
    332,366
    
    
    
    291,065
    
    
    
    1,005,963
    
    
    
    903,488Other investments
    
    
    14,769
    
    
    
    9,673
    
    
    
    22,423
    
    
    
    16,567Interest on federal funds sold
    
    
    4,496
    
    
    
    5,194
    
    
    
    9,832
    
    
    
    6,631Total interest income
    
    
    6,863,776
    
    
    
    8,670,596
    
    
    
    22,887,659
    
    
    
    25,833,542Interest expense:Deposits
    
    
    826,304
    
    
    
    1,072,368
    
    
    
    2,493,090
    
    
    
    4,026,055Long-term borrowings
    
    
    57,894
    
    
    
    141,723
    
    
    
    304,098
    
    
    
    413,500Federal funds purchased and securities
sold under agreements to repurchase
    
    
    249,005
    
    
    
    437,897
    
    
    
    811,746
    
    
    
    1,531,569Total interest expense
    
    
    1,133,203
    
    
    
    1,651,988
    
    
    
    3,608,934
    
    
    
    5,971,124Net interest income
    
    
    5,730,573
    
    
    
    7,018,608
    
    
    
    19,278,725
    
    
    
    19,862,418Provision for allowance for losses
on loans
    
    
    1,045,000
    
    
    
    1,875,000
    
    
    
    3,780,000
    
    
    
    3,725,000Net interest income after provision
for allowance for losses on loans
    
    $
    4,685,573
    
    
    $
    5,143,608
    
    
    $
    15,498,725
    
    
    $
    16,137,418
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Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income (continued)
(Unaudited)
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2010
    
    2009
    
    2010
    
    2009Non-interest income:Trust department income and fees
    
    $
    352,712
    
    
    $
    355,982
    
    
    $
    942,949
    
    
    $
    1,017,998Service charges on deposit accounts
    
    
    1,513,957
    
    
    
    1,692,387
    
    
    
    4,665,945
    
    
    
    5,057,784Gain on sales or calls of securities
    
    
    92,023
    
    
    
    265,247
    
    
    
    1,659,509
    
    
    
    402,046Other income
    
    
    254,446
    
    
    
    281,810
    
    
    
    762,394
    
    
    
    906,395Total non-interest income
    
    
    2,213,138
    
    
    
    2,595,426
    
    
    
    8,030,797
    
    
    
    7,384,223Non-interest expense:Salaries and employee benefits
    
    
    3,393,160
    
    
    
    3,557,067
    
    
    
    10,203,623
    
    
    
    10,631,766Net occupancy
    
    
    604,669
    
    
    
    564,631
    
    
    
    1,673,567
    
    
    
    1,757,734Equipment rentals, depreciation and maintenance
    
    
    911,225
    
    
    
    939,523
    
    
    
    2,797,990
    
    
    
    2,844,079FDIC assessments
    
    
    400,307
    
    
    
    251,508
    
    
    
    1,141,211
    
    
    
    875,947Other expense
    
    
    1,621,950
    
    
    
    1,357,195
    
    
    
    4,731,194
    
    
    
    4,199,331Total non-interest expense
    
    
    6,931,311
    
    
    
    6,669,924
    
    
    
    20,547,585
    
    
    
    20,308,857Income before income taxes
    
    
    (32,600
    )
    
    
    1,069,110
    
    
    
    2,981,937
    
    
    
    3,212,784Income taxes
    
    
    (397,000
    )
    
    
    95,000
    
    
    
    300,000
    
    
    
    335,000Net income
    
    $
    364,400
    
    
    $
    974,110
    
    
    $
    2,681,937
    
    
    $
    2,877,784Basic and diluted earnings per share
    
    $
    .07
    
    
    $
    .19
    
    
    $
    .52
    
    
    $
    .56
  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 (Loss)
    
    
    Income
    
    
    TotalBalance, January 1, 2010
    
    
    5,151,697
    
    
    $
    5,151,697
    
    
    $
    65,780,254
    
    
    $
    32,853,346
    
    
    $
    (197,360
    )
    
    
    
    
    
    $
    103,587,937Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,681,937
    
    
    
    
    
    
    $
    2,681,937
    
    
    
    2,681,937Net unrealized gain on
available for sale
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,473,671
    
    
    
    3,473,671
    
    
    
    3,473,671Reclassification
adjustment for available
for sale securities called
or sold in current year,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,034,541
    )
    
    
    (1,034,541
    )
    
    
    (1,034,541
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,121,067Dividend declared,
($.11 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (566,687
    )
    
    
    
    
    
    
    
    
    
    
    (566,687
    )Balance, Sept. 30, 2010
    
    
    5,151,697
    
    
    $
    5,151,697
    
    
    $
    65,780,254
    
    
    $
    34,968,596
    
    
    $
    2,241,770
    
    
    
    
    
    
    $
    108,142,317
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Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    2,681,937
    
    
    $
    2,877,784Adjustment to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    1,807,000
    
    
    
    1,798,500Provision for allowance for loan losses
    
    
    3,780,000
    
    
    
    3,725,000Loss on writedown of other real estate
    
    
    77,350Loss on sales of other real estate
    
    
    48,850
    
    
    
    3,000(Income) loss on other investments
    
    
    15,550
    
    
    
    (110,338
    )Gain on sales and calls of securities
    
    
    (1,659,509
    )
    
    
    (402,046
    )Loss on impairment of equity securities
    
    
    
    
    
    
    149,517Change in accrued interest receivable
    
    
    1,339,542
    
    
    
    461,749Change in other assets
    
    
    (893,521
    )
    
    
    (801,830
    )Change in other liabilities
    
    
    385,503
    
    
    
    2,540,113Net cash provided by operating activities
    
    
    7,582,702
    
    
    
    10,241,449Cash flows from investing activities:Proceeds from maturities, sales and calls of available for
sale securities
    
    
    337,327,553
    
    
    
    218,568,260Investment in available for sale securities
    
    
    (323,142,857
    )
    
    
    (215,425,390
    )Proceeds from maturities of held to maturity securities
    
    
    389,920
    
    
    
    195,000Investment in held to maturity securities
    
    
    (2,091
    )
    
    
    (2,012
    )(Investment in) redemption of Federal Home Loan Bank Stock
    
    
    1,640,500
    
    
    
    (1,453,100
    )Proceeds from sales of other real estate
    
    
    1,092,500
    
    
    
    326,076Loans, net change
    
    
    37,686,504
    
    
    
    (8,054,574
    )Acquisition of premises and equipment
    
    
    (538,832
    )
    
    
    (88,645
    )Change in cash surrender value of life insurance
    
    
    (458,474
    )
    
    
    (453,808
    )Net cash provided by (used in) investing activities
    
    $
    53,994,723
    
    
    $
    (6,388,193
    )
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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(Unaudited)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows from financing activities:Demand and savings deposits, net change
    
    $
    35,387,588
    
    
    $
    (21,400,239
    )Time deposits, net change
    
    
    26,827,275
    
    
    
    52,491,912Cash dividends
    
    
    (1,081,857
    )
    
    
    (2,614,119
    )Retirement of common stock
    
    
    
    
    
    
    (2,366,559
    )Borrowings from Federal Home Loan Bank
    
    
    621,880,492
    
    
    
    219,906,300Repayments to Federal Home Loan Bank
    
    
    (707,172,503
    )
    
    
    (219,971,353
    )Federal funds purchased and securities sold
under agreements to repurchase, net change
    
    
    (32,050,198
    )
    
    
    (38,126,176
    )Net cash used in financing activities
    
    
    (56,209,203
    )
    
    
    (12,080,234
    )Net increase (decrease) in cash and cash equivalents
    
    
    5,368,222
    
    
    
    (8,226,978
    )Cash and cash equivalents, beginning of year
    
    
    29,155,294
    
    
    
    34,019,590Cash and cash equivalents, end of year
    
    $
    34,523,516
    
    
    $
    25,792,612
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Gross
    
    Grossunrealized
    
    unrealized
    
    EstimatedSeptember 30, 2010
    
    Amortized cost
    
    gains
    
    losses
    
    fair valueAvailable for sale securities:Debt securities:U.S. Treasury
    
    $
    48,006,860
    
    
    $
    77,594
    
    
    $
    (81
    )
    
    $
    48,084,373U.S. Government agencies
    
    
    209,984,401
    
    
    
    2,569,662
    
    
    
    (47,470
    )
    
    
    212,506,593States and political subdivisions
    
    
    39,495,091
    
    
    
    2,237,940
    
    
    
    (141,400
    )
    
    
    41,591,631Total debt securities
    
    
    297,486,352
    
    
    
    4,885,196
    
    
    
    (188,951
    )
    
    
    302,182,597Equity securities
    
    
    649,983
    
    
    
    
    
    
    
    
    
    
    
    649,983Total available for sale securities
    
    $
    298,136,335
    
    
    $
    4,885,196
    
    
    $
    (188,951
    )
    
    $
    302,832,580Held to maturity securities:States and political subdivisions
    
    $
    2,814,137
    
    
    $
    158,163
    
    
    $
    
    
    
    $
    2,972,300Total held to maturity securities
    
    $
    2,814,137
    
    
    $
    158,163
    
    
    $
    
    
    
    $
    2,972,300
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Gross
    
    Grossunrealized
    
    unrealized
    
    EstimatedDecember 31, 2009
    
    Amortized cost
    
    gains
    
    losses
    
    fair valueAvailable for sale securities:Debt securities:U.S. Treasury
    
    $
    23,987,222
    
    
    $
    752,918
    
    
    $
    
    
    
    $
    24,740,140U.S. Government agencies
    
    
    216,473,270
    
    
    
    695,213
    
    
    
    (2,590,287
    )
    
    
    214,578,196Mortgage-backed securities
    
    
    30,035,546
    
    
    
    1,278,310
    
    
    
    (51,186
    )
    
    
    31,262,670States and political subdivisions
    
    
    39,290,502
    
    
    
    1,179,412
    
    
    
    (266,466
    )
    
    
    40,203,448Total debt securities
    
    
    309,786,540
    
    
    
    3,905,853
    
    
    
    (2,907,939
    )
    
    
    310,784,454Equity securities
    
    
    649,983
    
    
    
    
    
    
    
    
    
    
    
    649,983Total available for sale securities
    
    $
    310,436,523
    
    
    $
    3,905,853
    
    
    $
    (2,907,939
    )
    
    $
    311,434,437Held to maturity securities:States and political subdivisions
    
    $
    3,201,966
    
    
    $
    139,008
    
    
    $
    
    
    
    $
    3,340,974Total held to maturity securities
    
    $
    3,201,966
    
    
    $
    139,008
    
    
    $
    
    
    
    $
    3,340,974
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Fair Value Measurement UsingSeptember 30, 2010:
    
    Total
    
    Level 1
    
    Level 2
    
    Level 3U.S. Treasury
    
    $
    48,084,373
    
    
    $
    
    
    
    $
    48,084,373
    
    
    $U.S. Government agencies
    
    
    212,506,593
    
    
    
    
    
    
    
    212,506,593States and political subdivisions
    
    
    41,591,631
    
    
    
    
    
    
    
    41,591,631Equity securities
    
    
    649,983
    
    
    
    
    
    
    
    649,983Totals
    
    $
    302,832,580
    
    
    $
    
    
    
    $
    302,832,580
    
    
    $
 Fair Value Measurement UsingDecember 31, 2009:
    
    Total
    
    Level 1
    
    Level 2
    
    Level 3U.S. Treasury
    
    $
    24,740,140
    
    
    $
    
    
    
    $
    24,740,140
    
    
    $U.S. Government agencies
    
    
    214,578,196
    
    
    
    
    
    
    
    214,578,196Mortgage-backed securities
    
    
    31,262,670
    
    
    
    
    
    
    
    31,262,670States and political subdivisions
    
    
    40,203,448
    
    
    
    
    
    
    
    40,203,448Equity securities
    
    
    649,983
    
    
    
    
    
    
    
    649,983Totals
    
    $
    311,434,437
    
    
    $
    
    
    
    $
    311,434,437
    
    
    $
   EstimatedAmortized cost
    
    fair valueAvailable for sale securities:Due in one year or less
    
    $
    39,019,639
    
    
    $
    39,045,296Due after one year through five years
    
    
    91,047,253
    
    
    
    92,346,530Due after five years through ten years
    
    
    90,858,610
    
    
    
    93,147,617Due after ten years
    
    
    76,560,850
    
    
    
    77,643,154Totals
    
    $
    297,486,352
    
    
    $
    302,182,597Held to maturity securities:Due in one year or less
    
    $
    210,000
    
    
    $
    213,437Due after one year through five years
    
    
    1,606,671
    
    
    
    1,717,626Due after five years through ten years
    
    
    997,466
    
    
    
    1,041,237Totals
    
    $
    2,814,137
    
    
    $
    2,972,300
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Less Than Twelve Months
    
    Over Twelve Months
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedSeptember 30, 2010
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. Treasury
    
    $
    7,049,389
    
    
    $
    81
    
    
    $
    
    
    
    $
    
    
    
    $
    7,049,389
    
    
    $
    81U.S. Government
agencies
    
    
    18,452,530
    
    
    
    47,470
    
    
    
    
    
    
    
    
    
    
    
    18,452,530
    
    
    
    47,470States and political
subdivisions
    
    
    2,117,991
    
    
    
    109,424
    
    
    
    630,489
    
    
    
    31,976
    
    
    
    2,748,480
    
    
    
    141,400TOTAL
    
    $
    27,619,910
    
    
    $
    156,975
    
    
    $
    630,489
    
    
    $
    31,976
    
    
    $
    28,250,399
    
    
    $
    188,951
 Less Than Twelve Months
    
    Over Twelve Months
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDecember 31, 2009:
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. Government
agencies
    
    $
    138,913,530
    
    
    $
    2,590,287
    
    
    $
    
    
    
    $
    
    
    
    $
    138,913,530
    
    
    $
    2,590,287Mortgage-backed
Securities
    
    
    4,856,429
    
    
    
    51,186
    
    
    
    
    
    
    
    
    
    
    
    4,856,429
    
    
    
    51,186States and political
subdivisions
    
    
    9,501,227
    
    
    
    148,396
    
    
    
    2,520,564
    
    
    
    118,070
    
    
    
    12,021,791
    
    
    
    266,466TOTAL
    
    $
    153,271,186
    
    
    $
    2,789,869
    
    
    $
    2,520,564
    
    
    $
    118,070
    
    
    $
    155,791,750
    
    
    $
    2,907,939
  13




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14




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Fair Value Measurement UsingTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3September 30, 2010
    
    $
    19,750,301
    
    
    $
    
    
    
    $
    11,917,278
    
    
    $
    7,833,023December 31, 2009
    
    
    20,110,334
    
    
    
    
    
    
    
    20,110,334
  For the ninemonths endedseptember 30, 2010Fair value, beginning of period
    
    $Net gains
    
    
    7,833,023Fair value, end of period
    
    $
    7,833,023
  15




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##### Table of Contents



Fair Value Measurement UsingTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3September 30, 2010
    
    $
    2,818,833
    
    
    $
    
    
    
    $
    2,818,833
    
    
    $December 31, 2009
    
    
    1,521,313
    
    
    
    
    
    
    
    1,521,313
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance, beginning of period
    
    $
    9,167,927
    
    
    $
    9,797,881
    
    
    $
    7,827,806
    
    
    $
    11,113,575Recoveries
    
    
    90,591
    
    
    
    5,140
    
    
    
    164,792
    
    
    
    334,774Loans charged off
    
    
    (1,307,690
    )
    
    
    (3,571,433
    )
    
    
    (2,776,770
    )
    
    
    (7,066,761
    )Provision for allowance for loan losses
    
    
    1,045,000
    
    
    
    1,875,000
    
    
    
    3,780,000
    
    
    
    3,725,000Balance, end of period
    
    $
    8,995,828
    
    
    $
    8,106,588
    
    
    $
    8,995,828
    
    
    $
    8,106,588
       16




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying Amount
    
    
    Fair Value
    
    
    Carrying Amount
    
    
    Fair ValueFinancial Assets:Cash and due from banks
    
    $
    34,523,516
    
    
    $
    34,523,516
    
    
    $
    29,155,294
    
    
    $
    29,155,294Available for sale securities
    
    
    302,832,580
    
    
    
    302,832,580
    
    
    
    311,434,437
    
    
    
    311,434,437Held to maturity securities
    
    
    2,814,137
    
    
    
    2,972,300
    
    
    
    3,201,966
    
    
    
    3,340,974Other investments
    
    
    4,020,754
    
    
    
    4,020,754
    
    
    
    4,036,304
    
    
    
    4,036,304Federal Home Loan Bank stock
    
    
    3,375,400
    
    
    
    3,375,400
    
    
    
    5,015,900
    
    
    
    5,015,900Loans, net
    
    
    413,165,761
    
    
    
    416,311,962
    
    
    
    457,148,485
    
    
    
    460,587,836Cash surrender value
    
    
    15,786,368
    
    
    
    15,786,368
    
    
    
    15,329,394
    
    
    
    15,329,394Financial Liabilities:Deposits:Non-interest bearing
    
    
    116,955,635
    
    
    
    116,955,635
    
    
    
    96,541,387
    
    
    
    96,541,387Interest bearing
    
    
    415,960,657
    
    
    
    416,784,975
    
    
    
    374,160,042
    
    
    
    375,051,835Total deposits
    
    
    532,916,292
    
    
    
    533,740,610
    
    
    
    470,701,429
    
    
    
    471,593,222Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    142,380,679
    
    
    
    142,380,679
    
    
    
    174,430,877
    
    
    
    174,430,877Borrowings from Federal Home Loan Bank
    
    
    18,978,441
    
    
    
    20,586,523
    
    
    
    104,270,452
    
    
    
    105,815,000
    17




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18




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##### Table of Contents



Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
   Forward-Looking Information
  New Accounting Pronouncements
  Critical Accounting Policies
  19




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OVERVIEW
   20




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##### Table of Contents



RESULTS OF OPERATIONS
 Net Interest Income
  21




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##### Table of Contents



Quarter Ended September 30, 2010 as Compared with Quarter Ended September 30, 2009
    Nine Months Ended September 30, 2010 as Compared with Nine Months Ended September 30, 2009
   22




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23




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##### Table of Contents



Three Months Ended September 30, 2010
    
    Three Months Ended September 30, 2009Average Balance
    
    Interest Earned/Paid
    
    Rate
    
    Average Balance
    
    Interest Earned/Paid
    
    RateLoans (2)(3)
    
    $
    428,664
    
    
    $
    4,815
    
    
    
    4.49
    %
    
    $
    466,954
    
    
    $
    5,028
    
    
    
    4.30
    %Federal Funds Sold
    
    
    10,202
    
    
    
    5
    
    
    
    0.20
    %
    
    
    7,631
    
    
    
    5
    
    
    
    0.26
    %HTM:Non taxable (1)
    
    
    2,814
    
    
    
    40
    
    
    
    5.69
    %
    
    
    3,201
    
    
    
    39
    
    
    
    4.87
    %AFS:Taxable
    
    
    270,549
    
    
    
    1,698
    
    
    
    2.51
    %
    
    
    306,267
    
    
    
    3,336
    
    
    
    4.36
    %Non taxable (1)
    
    
    40,627
    
    
    
    462
    
    
    
    4.55
    %
    
    
    34,848
    
    
    
    402
    
    
    
    4.61
    %Other
    
    
    4,025
    
    
    
    15
    
    
    
    1.49
    %
    
    
    4,174
    
    
    
    10
    
    
    
    0.96
    %Total
    
    $
    756,881
    
    
    $
    7,035
    
    
    
    3.72
    %
    
    $
    823,075
    
    
    $
    8,820
    
    
    
    4.29
    %Savings & interest-bearing DDA
    
    $
    217,807
    
    
    $
    251
    
    
    
    0.46
    %
    
    $
    225,233
    
    
    $
    303
    
    
    
    0.54
    %CDs
    
    
    194,379
    
    
    
    575
    
    
    
    1.18
    %
    
    
    203,479
    
    
    
    769
    
    
    
    1.51
    %Federal funds
purchased
    
    
    151,615
    
    
    
    249
    
    
    
    0.66
    %
    
    
    209,578
    
    
    
    437
    
    
    
    0.83
    %FHLB advances
    
    
    47,999
    
    
    
    58
    
    
    
    0.48
    %
    
    
    54,960
    
    
    
    142
    
    
    
    1.03
    %Total
    
    $
    611,800
    
    
    $
    1,133
    
    
    
    0.74
    %
    
    $
    693,250
    
    
    $
    1,651
    
    
    
    0.95
    %Net tax-equivalent
yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    3.48
    %
 
 (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in
2010 and 2009.(2)
    
    Loan fees of $60,510 and $107,898 for 2010 and 2009, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 24




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##### Table of Contents



Nine Months Ended September 30, 2010
    
    Nine Months Ended September 30, 2009Interest
    
    
    
    
    
    
    
    
    
    InterestAverage Balance
    
    Earned/Paid
    
    Rate
    
    Average Balance
    
    Earned/Paid
    
    RateLoans (2)(3)
    
    $
    443,282
    
    
    $
    14,695
    
    
    
    4.42
    %
    
    $
    470,290
    
    
    $
    15,233
    
    
    
    4.32
    %Federal Funds Sold
    
    
    6,315
    
    
    
    10
    
    
    
    0.21
    %
    
    
    3,409
    
    
    
    7
    
    
    
    0.27
    %HTM:Non taxable (1)
    
    
    3,012
    
    
    
    116
    
    
    
    5.14
    %
    
    
    3,286
    
    
    
    129
    
    
    
    5.23
    %AFS:Taxable
    
    
    268,584
    
    
    
    7,154
    
    
    
    3.55
    %
    
    
    313,690
    
    
    
    9,674
    
    
    
    4.11
    %Non taxable (1)
    
    
    40,446
    
    
    
    1,408
    
    
    
    4.64
    %
    
    
    33,645
    
    
    
    1,239
    
    
    
    4.91
    %Other
    
    
    4,758
    
    
    
    22
    
    
    
    0.62
    %
    
    
    3,155
    
    
    
    17
    
    
    
    0.72
    %Total
    
    $
    766,397
    
    
    $
    23,405
    
    
    
    4.07
    %
    
    $
    827,475
    
    
    $
    26,299
    
    
    
    4.24
    %Savings & interest-bearing DDA
    
    $
    221,561
    
    
    $
    829
    
    
    
    0.50
    %
    
    $
    235,388
    
    
    $
    1,540
    
    
    
    0.87
    %CDs
    
    
    189,707
    
    
    
    1,664
    
    
    
    1.17
    %
    
    
    198,821
    
    
    
    2,486
    
    
    
    1.67
    %Federal funds
purchased
    
    
    159,281
    
    
    
    812
    
    
    
    0.68
    %
    
    
    222,447
    
    
    
    1,532
    
    
    
    0.92
    %FHLB advances
    
    
    58,310
    
    
    
    304
    
    
    
    0.70
    %
    
    
    33,539
    
    
    
    413
    
    
    
    1.64
    %Total
    
    $
    628,859
    
    
    $
    3,609
    
    
    
    0.77
    %
    
    $
    690,195
    
    
    $
    5,971
    
    
    
    1.15
    %Net tax-equivalent
yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.28
    %
 
 (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in
2010 and 2009.(2)
    
    Loan fees of $376,112 and $395,114 for 2010 and 2009, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 25




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##### Table of Contents



Provision for Loan Losses
     Non-interest income
  26




---



##### Table of Contents



Non-interest expense
   27




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##### Table of Contents



Income Taxes
  Quarter Ended September 30,2010
    
    2009Tax
    
    Rate
    
    Tax
    
    RateTaxes at statutory rate
    
    $
    (11,084
    )
    
    
    (34.00
    )
    
    $
    363,497
    
    
    
    34.00Increase (decrease) resulting from:Tax-exempt interest income
    
    
    (113,016
    )
    
    
    (346.68
    )
    
    
    (98,962
    )
    
    
    (9.26
    )Income from BOLI
    
    
    (42,991
    )
    
    
    (131.87
    )
    
    
    7,477
    
    
    
    0.70Federal tax credits
    
    
    (208,289
    )
    
    
    (638.92
    )
    
    
    (65,000
    )
    
    
    (6.08
    )Other
    
    
    (21,620
    )
    
    
    (66.32
    )
    
    
    (112,012
    )
    
    
    (10.48
    )Total income taxes
    
    $
    (397,000
    )
    
    
    (1,217.79
    )
    
    $
    95,000
    
    
    
    8.88
 Nine Months Ended September 30,2010
    
    2009Tax
    
    Rate
    
    Tax
    
    RateTaxes at statutory rate
    
    $
    1,013,859
    
    
    
    34.00
    
    
    $
    1,092,347
    
    
    
    34.00Increase (decrease) resulting from:Tax-exempt interest income
    
    
    (342,027
    )
    
    
    (11.47
    )
    
    
    (307,186
    )
    
    
    (9.56
    )Income from BOLI
    
    
    (130,012
    )
    
    
    (4.36
    )
    
    
    (126,562
    )
    
    
    (3.94
    )Federal tax credits
    
    
    (223,289
    )
    
    
    (7.49
    )
    
    
    (195,000
    )
    
    
    (6.07
    )Other
    
    
    (18,531
    )
    
    
    (0.62
    )
    
    
    (128,599
    )
    
    
    (4.00
    )Total income taxes
    
    $
    300,000
    
    
    
    10.06
    
    
    $
    335,000
    
    
    
    10.43
 FINANCIAL CONDITION
  28




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September 30, 2010
    
    December 31, 2009Available for sale securities:U.S. Treasury
    
    $
    48,084,373
    
    
    $
    24,740,140U.S. Government agencies
    
    
    212,506,593
    
    
    
    214,578,196Mortgage-backed securities
    
    
    
    
    
    
    31,262,670States and political subdivisions
    
    
    41,591,631
    
    
    
    40,203,448Equity securities
    
    
    649,983
    
    
    
    649,983Total available for sale securities
    
    $
    302,832,580
    
    
    $
    311,434,437
   September 30, 2010
    
    December 31, 2009Real estate, construction
    
    $
    97,289,179
    
    
    $
    94,460,479Real estate, mortgage
    
    
    267,158,803
    
    
    
    299,402,982Loans to finance agricultural production
    
    
    1,098,584
    
    
    
    1,754,796Commercial and industrial loans
    
    
    44,160,077
    
    
    
    52,250,231Loans to individuals for household, family and other consumer expenditures
    
    
    8,697,520
    
    
    
    9,049,394Obligations of states and political subdivisions
    
    
    3,086,131
    
    
    
    7,890,584All other loans
    
    
    671,295
    
    
    
    167,825Total
    
    $
    422,161,589
    
    
    $
    464,976,291
     29




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##### Table of Contents



SHAREHOLDERS EQUITY AND CAPITAL ADEQUACY
  LIQUIDITY
    30




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##### Table of Contents



REGULATORY MATTERS
    
 Item 4: Controls and Procedures
   31




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1: Legal Proceedings
  
 Item 6  Exhibits and Reports on Form 8-K
  Exhibit 10.1:
    
    Description of Bonus PlanExhibit 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
   32




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##### Table of Contents



PEOPLES FINANCIAL CORPORATION
(Registrant)Date: November 8, 2010
    By:
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive Officer
(principal executive officer) Date: November 8, 2010
    By:
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller
(principal financial and accounting officer) 33