##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2004  [   ]
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number  0 - 30050 PEOPLES FINANCIAL CORPORATION 
  Mississippi
    
    64-0709834(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 Lameuse and Howard Avenues, Biloxi, Mississippi
    
    39533(Address of principal executive offices)
    
    (Zip Code)
 (228) 435-5511 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes   [X]
    
    No    [   ]
 Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the last practicable date. Peoples Financial Corporation has only one class of common stock authorized.
At November 1, 2004, there were 15,000,000 shares of $1 par value common stock
authorized, and 5,555,419 shares issued and outstanding. Page 1 of 20




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TABLE OF CONTENTS  PART ICONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF INCOMECONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSItem 2  Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4: Controls and ProceduresPART IIItem 5  Other InformationItem 6  Exhibits and Reports on Form 8-KSIGNATURESConsent of Certified Public AccountantsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to 18 U.S.C. Section 1350Certification of CFO Pursuant to 18 U.S.C. Section 1350    Table of Contents  
 PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES 
 
 September 30, December 31, and September 30,
    
    2004
    
    2003
    
    2003AssetsCash and due from banks
    
    $
    47,911,793
    
    
    $
    33,861,029
    
    
    $
    29,452,234Held to maturity securities, market value of
$3,078,000 - September 30, 2004;
$4,527,000 - December 31, 2003;
$7,858,000 - September 30, 2003
    
    
    2,944,232
    
    
    
    4,352,854
    
    
    
    7,354,334Available for sale securities, at market value
    
    
    210,686,836
    
    
    
    207,486,172
    
    
    
    223,843,642Federal Home Loan Bank Stock, at cost
    
    
    1,395,200
    
    
    
    1,974,200
    
    
    
    1,964,300Loans
    
    
    323,722,208
    
    
    
    297,922,945
    
    
    
    286,269,051Less: Allowance for loan losses
    
    
    6,593,339
    
    
    
    6,398,694
    
    
    
    6,402,722Loans, net
    
    
    317,128,869
    
    
    
    291,524,251
    
    
    
    279,866,329Bank premises and equipment, net of
accumulated depreciation of $16,780,000 -
September 30, 2004; $16,275,000 - December
31, 2003; and $15,914,000 - September 30, 2003
    
    
    16,621,465
    
    
    
    17,952,504
    
    
    
    18,130,419Other real estate
    
    
    335,968
    
    
    
    1,383,451
    
    
    
    1,417,646Accrued interest receivable
    
    
    2,750,455
    
    
    
    3,096,002
    
    
    
    3,070,728Other assets
    
    
    17,044,290
    
    
    
    13,804,039
    
    
    
    13,922,481Total assets
    
    $
    616,819,108
    
    
    $
    575,434,502
    
    
    $
    579,022,113
 Page 2 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) September 30, December 31, and September 30,
    
    2004
    
    2003
    
    2003Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    96,184,626
    
    
    $
    76,423,904
    
    
    $
    89,320,951Savings and demand, interest bearing
    
    
    197,231,961
    
    
    
    173,913,054
    
    
    
    169,862,914Time, $100,000 or more
    
    
    60,448,594
    
    
    
    58,182,870
    
    
    
    60,321,462Other time deposits
    
    
    64,140,656
    
    
    
    64,036,836
    
    
    
    67,341,920Total deposits
    
    
    418,005,837
    
    
    
    372,556,664
    
    
    
    386,847,247Federal funds purchased and securities
sold under agreements to repurchase
    
    
    98,221,499
    
    
    
    95,039,261
    
    
    
    95,663,210Borrowings from Federal Home Loan Bank
    
    
    7,201,167
    
    
    
    17,069,848
    
    
    
    6,791,786Notes payable
    
    
    4,183
    
    
    
    110,235
    
    
    
    264,920Other liabilities
    
    
    7,067,223
    
    
    
    7,154,545
    
    
    
    6,388,845Total liabilities
    
    
    530,499,909
    
    
    
    491,930,553
    
    
    
    495,956,008Shareholders Equity:Common Stock, $1 par value, 15,000,000
shares authorized, 5,555,419 shares
issued and outstanding
at September 30, 2004, 5,557,379
shares issued and outstanding at December
31, 2003 and 5,558,699 shares
issued and
outstanding at September 30, 2003
    
    
    5,555,419
    
    
    
    5,557,379
    
    
    
    5,558,699Surplus
    
    
    65,780,254
    
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    15,081,064
    
    
    
    11,574,074
    
    
    
    11,047,120Unearned compensation
    
    
    
    
    
    
    (94,899
    )
    
    
    (107,043
    )Accumulated other comprehensive income
    
    
    (97,538
    )
    
    
    687,141
    
    
    
    787,075Total shareholders equity
    
    
    86,319,199
    
    
    
    83,503,949
    
    
    
    83,066,105Total liabilities and shareholders equity
    
    $
    616,819,108
    
    
    $
    575,434,502
    
    
    $
    579,022,113
 See Report of Independent Registered Public Accounting Firm and Selected Notes
to Condensed Consolidated Financial Statements. Page 3 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For The Quarters Ended September 30,
    
    For The Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Interest income:Interest and fees on loans
    
    $
    4,403,970
    
    
    $
    4,180,508
    
    
    $
    12,567,666
    
    
    $
    13,119,200Interest and dividends on securities:U. S. Treasury
    
    
    351,134
    
    
    
    338,278
    
    
    
    972,783
    
    
    
    986,570U. S. Government agencies and
corporations
    
    
    1,196,517
    
    
    
    1,496,709
    
    
    
    3,777,752
    
    
    
    4,287,439States and political subdivisions
    
    
    149,105
    
    
    
    92,773
    
    
    
    365,055
    
    
    
    270,245Other investments
    
    
    54,160
    
    
    
    60,682
    
    
    
    177,775
    
    
    
    194,345Interest on federal funds sold
    
    
    35,161
    
    
    
    5,207
    
    
    
    56,088
    
    
    
    58,996Total interest income
    
    
    6,190,047
    
    
    
    6,174,157
    
    
    
    17,917,119
    
    
    
    18,916,795Interest expense:Time deposits of $100,000 or more
    
    
    229,412
    
    
    
    249,717
    
    
    
    592,371
    
    
    
    1,022,659Other deposits
    
    
    717,852
    
    
    
    691,255
    
    
    
    2,021,141
    
    
    
    2,521,050Borrowings from Federal Home Loan
Bank
    
    
    108,276
    
    
    
    113,933
    
    
    
    334,663
    
    
    
    321,081Mortgage indebtedness
    
    
    
    
    
    
    1,848
    
    
    
    
    
    
    
    5,711Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    264,112
    
    
    
    234,213
    
    
    
    745,757
    
    
    
    729,252Total interest expense
    
    
    1,319,652
    
    
    
    1,290,966
    
    
    
    3,693,932
    
    
    
    4,599,753Net interest income
    
    
    4,870,395
    
    
    
    4,883,191
    
    
    
    14,223,187
    
    
    
    14,317,042Provision for losses on loans
    
    
    61,000
    
    
    
    65,299
    
    
    
    424,000
    
    
    
    383,044Net interest income after provision
for losses on loans
    
    
    4,809,395
    
    
    
    4,817,892
    
    
    
    13,799,187
    
    
    
    13,933,998Other operating income:Trust department income and fees
    
    
    328,945
    
    
    
    345,707
    
    
    
    1,079,125
    
    
    
    1,106,719Service charges on deposit accounts
    
    
    1,406,102
    
    
    
    1,696,696
    
    
    
    4,410,645
    
    
    
    5,135,318Other service charges, commissions
and fees
    
    
    71,145
    
    
    
    87,446
    
    
    
    216,422
    
    
    
    221,364Gain on sale of banking premises
    
    
    
    
    
    
    
    
    
    
    1,270,697Other income
    
    
    214,059
    
    
    
    314,467
    
    
    
    772,633
    
    
    
    912,631Total other operating income
    
    $
    2,020,251
    
    
    $
    2,444,316
    
    
    $
    7,749,522
    
    
    $
    7,376,032
 Page 4 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited) For The Quarters Ended September 30,
    
    For The Nine Months Ended September 30,2004
    
    2003
    
    2004
    
    2003Other operating expense:Salaries and employee benefits
    
    $
    2,848,598
    
    
    $
    2,729,284
    
    
    $
    8,454,507
    
    
    $
    8,335,718Net occupancy
    
    
    381,399
    
    
    
    335,896
    
    
    
    1,063,583
    
    
    
    979,711Equipment rentals,
depreciation and
maintenance
    
    
    509,658
    
    
    
    593,606
    
    
    
    1,762,753
    
    
    
    2,092,522Other expense
    
    
    1,146,871
    
    
    
    1,487,713
    
    
    
    3,971,563
    
    
    
    4,803,682Total other operating expense
    
    
    4,886,526
    
    
    
    5,146,499
    
    
    
    15,252,406
    
    
    
    16,211,633Income before income taxes
    
    
    1,943,120
    
    
    
    2,115,709
    
    
    
    6,296,303
    
    
    
    5,098,397Income taxes
    
    
    517,700
    
    
    
    605,000
    
    
    
    1,812,700
    
    
    
    1,462,080Net Income
    
    $
    1,425,420
    
    
    $
    1,510,709
    
    
    $
    4,483,603
    
    
    $
    3,636,317
 See Report of Independent Registered Public Accounting Firm and Selected Notes
to Condensed Consolidated Financial Statements. Page 5 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited) Accumu-Unearned
    
    lated Other
    
    Compre-# of
    
    Common
    
    
    
    
    
    Undivided
    
    Compensa-
    
    Comprehensive
    
    hensiveShares
    
    Stock
    
    Surplus
    
    Profits
    
    tion
    
    Income
    
    Income
    
    TotalBalance, January
1, 2003
    
    
    5,583,472
    
    
    $
    5,583,472
    
    
    $
    65,780,254
    
    
    $
    8,510,341
    
    
    $
    (143,043
    )
    
    $
    2,000,582
    
    
    
    
    
    
    $
    81,731,606Comprehensive
Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,636,317
    
    
    
    
    
    
    
    
    
    
    $
    3,636,317
    
    
    
    3,636,317Net unrealized
(loss) on
available for sale
securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,082,738
    )
    
    
    (1,082,738
    )
    
    
    (1,082,738
    )Reclassification adjustment
for available for
sale securities
sold in current
year,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (130,769
    )
    
    
    (130,769
    )
    
    
    (130,769
    )Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,422,810Allocation of ESOP
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,000
    
    
    
    
    
    
    
    
    
    
    
    36,000Retirement of stock
    
    
    (24,773
    )
    
    
    (24,773
    )
    
    
    
    
    
    
    (320,968
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345,741
    )Cash dividends,
($ .14 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (778,570
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (778,570
    )Balance,
September 30, 2003
    
    
    5,558,699
    
    
    $
    5,558,699
    
    
    $
    65,780,254
    
    
    $
    11,047,120
    
    
    $
    (107,043
    )
    
    $
    787,075
    
    
    
    
    
    
    $
    83,066,105
 Page 6 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (continued)
(Unaudited) Accumu-Unearned
    
    lated Other
    
    Compre-# of
    
    Common
    
    
    
    
    
    Undivided
    
    Compensa-
    
    Comprehensive
    
    hensiveShares
    
    Stock
    
    Surplus
    
    Profits
    
    tion
    
    Income
    
    Income
    
    TotalBalance, January 1, 2004
    
    
    5,557,379
    
    
    $
    5,557,379
    
    
    $
    65,780,254
    
    
    $
    11,574,074
    
    
    $
    (94,899
    )
    
    $
    687,141
    
    
    
    
    
    
    $
    83,503,949Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,483,603
    
    
    
    
    
    
    
    
    
    
    $
    4,483,603
    
    
    
    4,483,603Net unrealized loss
on available for sale
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (677,984
    )
    
    
    (677,984
    )
    
    
    (677,984
    )Reclassification adjustment for
available for sale securities
sold or liquidated in current
year, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (106,695
    )
    
    
    (106,695
    )
    
    
    (106,695
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,698,924Allocation of ESOP
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94,899
    
    
    
    
    
    
    
    
    
    
    
    94,899Retirement of stock
    
    
    (1,960
    )
    
    
    (1,960
    )
    
    
    
    
    
    
    (32,022
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,982
    )Cash dividends,
($ .17 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (944,591
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (944,591
    )Balance, September
30, 2004
    
    
    5,555,419
    
    
    $
    5,555,419
    
    
    $
    65,780,254
    
    
    $
    15,081,064
    
    
    $
    
    
    
    $
    (97,538
    )
    
    
    
    
    
    $
    86,319,199
 See Report of Independent Registered Public Accounting Firm and Selected Notes
to Condensed Consolidated Financial Statements. Page 7 of 20




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##### Table of Contents



PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  For The Nine Months Ended September 30,
    
    2004
    
    2003Cash flows from operating activities:Net income
    
    $
    4,483,603
    
    
    $
    3,636,317Adjustments to reconcile net income to net cash
provided by operating activities:Loss on sale of available for sale securities
    
    
    129,950Gain on sales of other real estate
    
    
    (100,750
    )
    
    
    (218,170
    )Gain on sale of bank premises
    
    
    (1,270,697
    )
    
    
    (123,733
    )Depreciation and amortization
    
    
    1,052,000
    
    
    
    1,294,000Provision for losses on loans
    
    
    424,000
    
    
    
    383,044Provision for losses on other real estate
    
    
    178,130
    
    
    
    198,579Changes in assets and liabilities:Accrued interest receivable
    
    
    345,547
    
    
    
    (212,538
    )Other assets
    
    
    (2,819,466
    )
    
    
    (473,115
    )Other liabilities
    
    
    1,067,285
    
    
    
    500,738Net cash provided by operating activities
    
    
    3,489,602
    
    
    
    4,985,122Cash flows from investing activities:Proceeds from maturities and calls of held to
maturity securities
    
    
    1,408,622
    
    
    
    10,233,356Proceeds from maturities, sales and calls of
available for sale securities
    
    
    112,252,864
    
    
    
    108,203,468Investment in available for sale securities
    
    
    (116,758,457
    )
    
    
    (182,411,069
    )(Investment in) redemption of Federal Home Loan
Bank stock
    
    
    579,000
    
    
    
    (37,300
    )Loans, net
    
    
    (26,140,868
    )
    
    
    24,599,979Proceeds from sale of bank premises
    
    
    2,837,500
    
    
    
    479,673Acquisition of premises and equipment
    
    
    (1,287,764
    )
    
    
    (2,720,959
    )Proceeds from sales of other real estate
    
    
    1,074,000
    
    
    
    547,665Other assets
    
    
    (343,132
    )
    
    
    176,180Net cash used in investing activities
    
    $
    (26,378,235
    )
    
    $
    (40,929,007
    )
 Page 8 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited) For The Nine Months Ended September 30,
    
    2004
    
    2003Cash flows from financing activities:Demand and savings deposits, net increase
    
    $
    43,079,629
    
    
    $
    18,530,617Time deposits, net increase (decrease)
    
    
    2,369,544
    
    
    
    (19,857,182
    )Principal payments on notes
    
    
    (11,153
    )
    
    
    (33,451
    )Cash dividends
    
    
    (1,778,198
    )
    
    
    (1,448,587
    )Retirement of stock
    
    
    (33,982
    )
    
    
    (345,741
    )Federal funds purchased and securities sold under
agreements to repurchase
    
    
    3,182,238
    
    
    
    28,417,507Repayments to Federal Home Loan Bank
    
    
    (30,123,630
    )
    
    
    (40,067,360
    )Borrowings from Federal Home Loan Bank
    
    
    20,254,949
    
    
    
    40,546,069Net cash provided by financing activities
    
    
    36,939,397
    
    
    
    25,741,872Net increase (decrease) in cash and cash equivalents
    
    
    14,050,764
    
    
    
    (10,202,013
    )Cash and cash equivalents, beginning of period
    
    
    33,861,029
    
    
    
    39,654,247Cash and cash equivalents, end of period
    
    $
    47,911,793
    
    
    $
    29,452,234
 See Report of Independent Registered Public Accounting Firm and Selected
Notes to Condensed Consolidated Financial Statements. Page 9 of 20




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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2004 and 2003 1. The accompanying unaudited condensed consolidated financial statements have
been prepared with the accounting policies in effect as of December 31, 2003 as
set forth in the Notes to the Consolidated Financial Statements of Peoples
Financial Corporation and Subsidiaries (the Company). In the opinion of
Management, all adjustments necessary for a fair presentation of the condensed
consolidated financial statements have been included and are of a normal
recurring nature. The accompanying unaudited condensed consolidated financial
statements have been prepared also in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulations S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements include
information required for interim financial statements. 2. The results of operations for the nine months ended September 30, 2004 and
2003, are not necessarily indicative of the results to be expected for the full
year. 3. Per share data is based on the weighted average shares of common stock
outstanding of 5,556,530 and 5,564,641 for the nine months ended September 30,
2004 and 2003, respectively. 4. At September 30, 2004 and 2003, the total recorded investment in impaired
loans amounted to $8,173,000 and $6,962,000. The average recorded investment
in impaired loans amounted to approximately $6,605,000 and $6,947,000 at
September 30, 2004 and 2003, respectively. The amount of that recorded
investment in impaired loans for which there is a related allowance for loan
losses was $8,173,000 at September 30, 2004. The allowance for losses related
to these loans amounted to approximately $1,284,000 at September 30, 2004.
Interest not accrued on these loans amounted to $42,000 and $219,000 for the
nine months ended September 30, 2004 and 2003, respectively. In compliance
with a bankruptcy court order, interest in the amount of $136,000 has been
received and recorded as interest income relating to one impaired loan, with an
average balance of $5,736,000 for the nine months ended September 30, 2004. 5. Transactions in the allowance for loan losses were as follows: For the Nine Months
    
    For the Year Ended
    
    For the Nine MonthsEnded September 30,
    
    December 31,
    
    Ended September 30,2004
    
    2003
    
    2003Balance, beginning of
period
    
    $
    6,398,694
    
    
    $
    6,696,911
    
    
    $
    6,696,911Recoveries
    
    
    447,255
    
    
    
    599,783
    
    
    
    507,596Loans charged off
    
    
    (676,610
    )
    
    
    (1,345,000
    )
    
    
    (1,184,829
    )Provision for loan losses
    
    
    424,000
    
    
    
    447,000
    
    
    
    383,044Balance, end of period
    
    $
    6,593,339
    
    
    $
    6,398,694
    
    
    $
    6,402,722
 Page 10 of 20




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##### Table of Contents



6. The Company has defined cash and cash equivalents to include cash and due
from banks. The Company paid $3,600,000 and $4,636,000 for the nine months
ended September 30, 2004 and 2003, respectively, and $5,938,000 for the twelve
months ended December 31, 2003, for interest on deposits and borrowings.
Income tax payments totaled $1,564,000 and $1,832,000 for the nine months ended
September 30, 2004 and 2003, respectively, and $2,537,000 for the twelve months
ended December 31, 2003. Loans transferred to other real estate amounted to
$112,000 and $750,000 for the nine months ended September 30, 2004 and 2003,
respectively, and $978,000 for the twelve months ended December 31, 2003. 7. The income tax effect on the accumulated other comprehensive income was
($404,000)and ($625,000) at September 30, 2004 and 2003, respectively. 8. Information pertaining to securities with gross unrealized losses at
September 30, 2004, aggregated by investment category and length of time that
individual securities have been in a continuous loss position is as follows: Less Than Twelve Months
    
    Over Twelve Months
    
    TotalGross Unrealized
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    Gross UnrealizedFair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU. S. Treasury
    
    $
    37,873
    
    
    $
    (57
    )
    
    $
    989
    
    
    $
    (29
    )
    
    $
    38,862
    
    
    $
    (86
    )U. S. Government Agencies
    
    
    32,573
    
    
    
    (321
    )
    
    
    11,796
    
    
    
    (287
    )
    
    
    44,369
    
    
    
    (608
    )States and
political
subdivisions
    
    
    3,735
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    3,735
    
    
    
    (74
    )Total
    
    $
    74,181
    
    
    $
    (452
    )
    
    $
    12,785
    
    
    $
    (316
    )
    
    $
    86,966
    
    
    $
    (768
    )
 Management evaluates securities for other-than-temporary impairment on a
monthly basis. Consideration is given to the length of time and the extent to
which the fair value has been less than cost, the fact that the Companys
securities are primarily issued by U. S. Treasury and U. S. Government Agencies, the
cause of the decline in value, the intent and ability of the Company to hold
these securities until maturity and that the Company has traditionally held
virtually all of its securities, including those classified as available for
sale, until maturity. Any sales of available for sale securities, which have been infrequent and immaterial, have been for liquidity purposes. As a result of this evaluation, the Company has
determined that the declines summarized in the table above are not deemed to be
other than temporary. Page 11 of 20




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##### Table of Contents



Report of Independent Registered Public Accounting Firm Board of Directors
Peoples Financial Corporation
Biloxi, Mississippi We have reviewed the accompanying condensed consolidated balance sheets of
Peoples Financial Corporation as of September 30, 2004, September 30, 2003 and
December 31, 2003, and the related condensed consolidated statements of income,
shareholders equity, and cash flows for the nine months ended September 30,
2004 and September 30, 2003. These financial statements are the responsibility
of the Companys management. We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements in order for them to
be in conformity with United States generally accepted accounting principles
for interim financial statements. We have previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Peoples Financial Corporation as of December 31, 2003, and the related
consolidated statements of income, shareholders equity and cash flows for the
year then ended (not presented herein); and in our report dated January 21,
2004, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2003, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived. /s/ Piltz, Williams, LaRosa & Co. PILTZ, WILLIAMS, LAROSA & CO. November 10, 2004
Biloxi, Mississippi Page 12 of 20




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##### Table of Contents



Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations The following presents Managements discussion and analysis of the consolidated
financial condition and results of operations of Peoples Financial Corporation
and Subsidiaries (the Company) for the nine months ended September 30, 2004 and
2003. These comments highlight the significant events and should be considered
in combination with the Condensed Consolidated Financial Statements included in
this report on Form 10-Q. Forward-Looking Information Congress passed the Private Securities Litigation Act of 1995 in an effort to
encourage corporations to provide information about a companys anticipated
future financial performance. This act provides a safe harbor for such
disclosure which protects the companies from unwarranted litigation if actual
results are different from management expectations. This report contains
forward-looking statements and reflects industry conditions, company
performance and financial results. These forward-looking statements are
subject to a number of factors and uncertainties which could cause the
Companys actual results and experience to differ from the anticipated results
and expectations expressed in such forward-looking statements. Overview Net income for the nine months ended September 30, 2004, was $4,484,000 as
compared with $3,636,000 for the nine months ended September 30, 2003. This
increase is largely attributable to the gain on the sale of bank premises of
$838,000, net of taxes, in 2004. Managing the interest margin in its trade
areas extremely competitive environment continues to be a priority for the
Company. A strong increase in loan volume of 13% at September 30, 2004, as
compared with September 30, 2003, is the result of the improvement in the local
economy. The following schedule compares financial highlights for the nine months ended
September 30, 2004 and 2003: For the nine months ended September 30,
    
    2004
    
    2003Net income per share
    
    $
    0.81
    
    
    $
    0.65Book value per share
    
    $
    15.54
    
    
    $
    14.94Return on average total assets
    
    
    .99
    %
    
    
    .85
    %Return on average shareholders equity
    
    
    7.04
    %
    
    
    5.88
    %Allowance for loan losses as a % of loans,
net of unearned discount
    
    
    2.04
    %
    
    
    2.24
    %
 Page 13 of 20




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##### Table of Contents



Financial Condition Held to Maturity Securities Held to maturity securities decreased $4,410,000 at September 30, 2004, as
compared with September 30, 2003, as a result of the management of the
Companys liquidity position. Funds available from the maturity of these
securities were generally used to fund the increase in the loan portfolio.
Gross unrealized gains for held to maturity securities were $134,000 and
$504,000 at September 30, 2004 and 2003, respectively. The following schedule
reflects the mix of the held to maturity investment portfolio at September 30,
2004 and 2003: September 30,
    
    2004
    
    2003Amount
    
    %
    
    Amount
    
    %U. S. Treasury securities
    
    $
    
    
    
    
    
    
    
    $
    999,645
    
    
    
    14
    %U. S. Government agencies
    
    
    
    
    
    
    
    
    
    
    3,000,000
    
    
    
    40
    %States and political
subdivisions
    
    
    2,944,232
    
    
    
    100
    %
    
    
    3,354,689
    
    
    
    46
    %Totals
    
    $
    2,944,232
    
    
    
    100
    %
    
    $
    7,354,334
    
    
    
    100
    %
 Available for Sale Securities Available for sale securities decreased $13,157,000 at September 30, 2004, as
compared with September 30, 2003, as the result of the management of the
Companys liquidity position, as discussed above. Gross unrealized gains were
$927,000 and $2,361,000 at September 30, 2004 and 2003, respectively, and gross
unrealized losses were $1,083,000 and $1,189,000 at September 30, 2004 and
2003, respectively. The following schedule reflects the mix of available for
sale securities at September 30, 2004 and 2003: September 30,
    
    2004
    
    2003Amount
    
    %
    
    Amount
    
    %U. S. Treasury securities
    
    $
    72,083,380
    
    
    
    34
    %
    
    $
    55,514,592
    
    
    
    25
    %U. S. Government agencies
    
    
    121,455,358
    
    
    
    58
    %
    
    
    157,581,451
    
    
    
    70
    %States and political
subdivisions
    
    
    13,571,474
    
    
    
    6
    %
    
    
    6,385,248
    
    
    
    3
    %Other securities
    
    
    3,576,624
    
    
    
    2
    %
    
    
    4,362,351
    
    
    
    2
    %Totals
    
    $
    210,686,836
    
    
    
    100
    %
    
    $
    223,843,642
    
    
    
    100
    %
 Page 14 of 20




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Federal Home Loan Bank Stock The Companys investment in Federal Home Loan Bank (FHLB) Stock decreased
$569,000 at September 30, 2004, as compared with September 30, 2003, due to the
redemption of stock by the FHLB. Loans Loans increased $37,453,000 at September 30, 2004, as compared with September
30, 2003. During the fourth quarter of 2003 and continuing through September
30, 2004, the local economy has stabilized which has resulted in increased loan
demand. The Company expects that this demand will continue into the fourth
quarter of 2004. This demand has primarily been funded through the maturity of
investment securities. Bank Premises and Equipment Bank premises and equipment decreased $1,509,000 at September 2004, as compared
with September 30, 2003, primarily due to the sale of two parcels of bank
premises during 2004. Other Real Estate Other real estate decreased $1,082,000 at September 30, 2004, as compared with
September 30, 2003, due to the sale of several parcels of other real estate
during the twelve months ended September 30, 2004. Other Assets Other assets increased $3,122,000 at September 30, 2004, as compared with
September 30, 2003, primarily due to an increase in deferred income taxes of
$250,000, which was the result of unrealized losses on available for sale
securities, and a receivable of $2,500,000 relating to the sale of bank
premises structured as a like-kind exchange under Section 1031 of the Internal
Revenue Code. Deposits Total deposits increased $31,159,000 at September 30, 2004, as compared with
September 30, 2003. Significant increases or decreases in total deposits
and/or significant fluctuations among the different types of deposits from
quarter to quarter are anticipated by Management as customers in the casino
industry and county and municipal areas reallocate their resources
periodically. As discussed above, the Company has managed its funds including
planning the timing and classification of investment maturities and using other
funding sources and their maturity so as to achieve appropriate liquidity. Notes Payable Notes payable decreased $261,000 at September 30, 2004, compared with September
30, 2003, as a result of the maturity and/or early payoff of Company debt. Other Liabilities Other liabilities increased $678,000 at September 30, 2004, as compared with
September 30, 2003,primarily due to the impact of increasing health care costs
on the liability for post-retirement health benefits. Page 15 of 20




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Shareholders Equity and Capital Adequacy Strength, security and stability have been the hallmark of the Company since
its founding in 1985 and of its bank subsidiary since its founding in 1896. A
strong capital foundation is fundamental to the continuing prosperity of the
Company and the security of its customers and shareholders. One measure of capital adequacy is the primary capital ratio which was 15.42%
at September 30,
2004 as compared with 15.67% at September 30, 2003. These ratios are well
above the regulatory minimum of 6.00%. Management continues to emphasize the
importance of maintaining the appropriate capital levels of the Company. RESULTS OF OPERATIONS Net Interest Income Net interest income, the amount by which interest income on loans, investments
and other interest earning assets exceeds interest expense on deposits and
other borrowed funds, is the single largest component of the Companys income.
Managements objective is to provide the largest possible amount of income
while balancing interest rate, credit, liquidity and capital risk. The
following schedule summarizes net interest earnings and net yield on interest
earning assets: Net Interest Earnings and Net Yield on Interest Earning Assets Nine Months Ended September 30, (Inthousands, except percentages)
    
    2004
    
    2003Total interest income (1)
    
    $
    18,105
    
    
    $
    19,055Total interest expense
    
    
    3,694
    
    
    
    4,600Net interest earnings
    
    $
    14,411
    
    
    $
    14,455Net yield on interest earning assets
    
    
    3.67
    %
    
    
    3.83
    %
 (1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2004 and 2003. The schedule on page 17 provides an analysis of the change in total interest
income and total interest expense for the nine months ended September 30, 2004
and 2003. Page 16 of 20




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##### Table of Contents



Analysis of Changes in
Interest Income and Interest Expense
(In Thousands) For the Nine Months
    
    For the Nine Months
    
    
    
    
    
    Attributable To:Ended September 30,
    
    Ended September 30,2004
    
    2003
    
    Increase (Decrease)
    
    Volume
    
    Rate
    
    Rate/ VolumeINTEREST
INCOME: (1)Loans (2)
    
    $
    12,568
    
    
    $
    13,119
    
    
    $
    (551
    )
    
    $
    706
    
    
    $
    (1,193
    )
    
    $
    (64
    )Federal funds sold
    
    
    56
    
    
    
    59
    
    
    
    (3
    )
    
    
    124
    
    
    
    (41
    )
    
    
    (86
    )Held to maturity:Taxable securities
    
    
    19
    
    
    
    287
    
    
    
    (268
    )
    
    
    (270
    )
    
    
    28
    
    
    
    (26
    )Non-taxable
securities
    
    
    183
    
    
    
    226
    
    
    
    (43
    )
    
    
    (39
    )
    
    
    (5
    )
    
    
    1Available for sale:Taxable securities
    
    
    4,731
    
    
    
    4,987
    
    
    
    (256
    )
    
    
    134
    
    
    
    (380
    )
    
    
    (10
    )Non-taxable
securities
    
    
    370
    
    
    
    183
    
    
    
    187
    
    
    
    156
    
    
    
    17
    
    
    
    14Other securities
    
    
    178
    
    
    
    194
    
    
    
    (16
    )
    
    
    (21
    )
    
    
    6
    
    
    
    (1
    )Total
    
    $
    18,105
    
    
    $
    19,055
    
    
    $
    (950
    )
    
    $
    790
    
    
    $
    (1,568
    )
    
    $
    (172
    )INTEREST EXPENSE:Savings and
negotiable interest
bearing deposits
    
    $
    1,065
    
    
    $
    1,180
    
    
    $
    (115
    )
    
    $
    670
    
    
    $
    (501
    )
    
    $
    (284
    )Time deposits
    
    
    1,549
    
    
    
    2,364
    
    
    
    (815
    )
    
    
    (241
    )
    
    
    (639
    )
    
    
    65Borrowings from FHLB
    
    
    334
    
    
    
    321
    
    
    
    13
    
    
    
    (5
    )
    
    
    19
    
    
    
    (1
    )Federal funds
purchased and
securities sold
under agreements to
repurchase
    
    
    746
    
    
    
    729
    
    
    
    17
    
    
    
    101
    
    
    
    (74
    )
    
    
    (10
    )Mortgage
indebtedness
    
    
    
    
    
    
    6
    
    
    
    (6
    )
    
    
    (6
    )Total
    
    $
    3,694
    
    
    $
    4,600
    
    
    $
    (906
    )
    
    $
    519
    
    
    $
    (1,195
    )
    
    $
    (230
    )
 (1) All interest earned is reported on a taxable equivalent basis using a tax
rate of 34% in 2004 and 2003. (2) Loan fees are included in these figures. Includes nonaccrual loans. Page 17 of 20




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##### Table of Contents



Provision for Loan Losses Management continuously monitors the Companys relationships with its loan
customers, especially those in concentrated industries such as gaming and
hotel/motel, and their direct and indirect impact on its operations. A
thorough analysis of current economic conditions and the quality of the loan
portfolio is conducted on a quarterly basis. These analyses are utilized in
the computation of the adequacy of the allowance for loan losses. Based on
these analyses, the Company provided $424,000 and $383,000 during the nine
months ended September 30, 2004 and 2003, respectively, for loan losses. The
provision in 2004 is primarily due to the increase in loans during the same
period. The Company expects to provide for its loan loss provision on a
monthly basis during the remaining quarter in 2004 at a similar level, as
deemed necessary, based on its analyses. Service Charges on Deposit Accounts Service charges on deposit accounts decreased $725,000 for the nine months
ended September 30, 2004, as compared with the nine months ended September 30,
2003, primarily due to the decrease in fee income from off-site ATMS no longer
under contract with the Company. Gain On Sale of Bank Premises The Company realized a gain of $1,271,000 for the nine months ended September
30, 2004, from the sale of bank premises. Other Expense Other expense decreased $832,000 for the nine months ended September 30, 2004,
as compared with the nine months ended September 30, 2003, as a result of a
decrease in expenses for off-site ATMs no longer under contract with the
Company. LIQUIDITY Liquidity represents the Companys ability to adequately provide funds to
satisfy demands from depositors, borrowers and other commitments by either
converting assets to cash or accessing new or existing sources of funds.
Management monitors these funds requirements in such a manner as to satisfy
these demands and provide the maximum earnings on its earning assets.
Deposits, payments of principal and interest on loans, proceeds from maturities
of investment securities and earnings on investment securities are the
principal sources of funds for the Company. As discussed previously, the
Company has utilized non-traditional sources of funds including brokered
certificates of deposit and borrowings from the Federal Home Loan Bank. These
additional sources have allowed the Company to satisfy its liquidity needs.
The Company will continue to utilize these sources of funds throughout 2004, as
necessary. 
 Item 4: Controls and Procedures Based on their evaluation, as of September 30, 2004, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(c) and
internal control over financial reporting (as defined in Exchange Act Rules 13a
- 15(f) and 15d  15(f)) are effective. During the period ending September 30,
2004, there were no changes in internal controls over financial reporting that
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. Page 18 of 20




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##### Table of Contents



PART II OTHER INFORMATION 
 Item 5  Other Information None. 
 Item 6  Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 23
    
    Consent of Certified Public AccountantsExhibit 31.1
    
    Certification of Chief Executive
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certification Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. ss.1350Exhibit 32.2
    
    Certification of Chief Financial Officer Pursuant to 18
U.S.C. ss. 1350.
 (b) Reports on Form 8-K A Form 8-K was filed by the Company on October 18,2004. Page 19 of 20




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##### Table of Contents



SIGNATURES Pursuant to the requirement of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized. PEOPLES FINANCIAL CORPORATION(Registrant)Date:
    
    November 10, 2004By:
    
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive OfficerDate:
    
    November 10, 2004By:
    
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller(principal financial and accounting officer)
 Page 20 of 20