##### 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 June 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 InformationItem 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
 June 30, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Audited)Assets
    
    $
    43,112,297
    
    
    $
    29,155,294Cash and due from banksAvailable for sale securities
    
    
    341,083,476
    
    
    
    311,434,437Held to maturity securities, fair
value of $2,956,033 at June 30, 2010;
$3,340,974 at December 31, 2009
    
    
    2,813,459
    
    
    
    3,201,966Other investments
    
    
    4,020,754
    
    
    
    4,036,304Federal Home Loan Bank Stock, at cost
    
    
    3,370,800
    
    
    
    5,015,900Loans
    
    
    445,735,665
    
    
    
    464,976,291Less: Allowance for loan losses
    
    
    9,167,927
    
    
    
    7,827,806Loans, net
    
    
    436,567,738
    
    
    
    457,148,485Bank premises and equipment, net of
accumulated depreciation
    
    
    30,373,816
    
    
    
    31,418,884Other real estate
    
    
    1,396,913
    
    
    
    1,521,313Accrued interest receivable
    
    
    4,020,798
    
    
    
    4,646,752Cash surrender value of life insurance
    
    
    15,653,219
    
    
    
    15,329,394Prepaid FDIC assessments
    
    
    4,326,024
    
    
    
    4,958,309Other assets
    
    
    1,759,991
    
    
    
    1,139,861Total assets
    
    $
    888,499,285
    
    
    $
    869,006,899
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Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Condition (continued)
 June 30, 2010
    
    
    December 31, 2009(Unaudited)
    
    
    (Audited)Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    116,673,172
    
    
    $
    96,541,387Savings and demand, interest bearing
    
    
    206,496,989
    
    
    
    206,167,484Time, $100,000 or more
    
    
    145,870,422
    
    
    
    117,347,663Other time deposits
    
    
    50,514,505
    
    
    
    50,644,895Total deposits
    
    
    519,555,088
    
    
    
    470,701,429Federal funds purchased and securities sold under
agreements to repurchase
    
    
    170,872,263
    
    
    
    174,430,877Borrowings from Federal Home Loan Bank
    
    
    53,816,167
    
    
    
    104,270,452Other liabilities
    
    
    37,433,697
    
    
    
    16,016,204Total liabilities
    
    
    781,677,215
    
    
    
    765,418,962Shareholders Equity:Common stock, $1 par value, 15,000,000 shares
authorized, 5,151,697 shares issued and outstanding
at June 30, 2010 and December 31, 2009
    
    
    5,151,697
    
    
    
    5,151,697Surplus
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    34,604,196
    
    
    
    32,853,346Accumulated other comprehensive income (loss),
net of tax
    
    
    1,285,923
    
    
    
    (197,360
    )Total shareholders equity
    
    
    106,822,070
    
    
    
    103,587,937Total liabilities & shareholders equity
    
    $
    888,499,285
    
    
    $
    869,006,899
  3




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Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Interest income:Interest and fees on loans
    
    $
    4,893,342
    
    
    $
    5,086,063
    
    
    $
    9,880,468
    
    
    $
    10,204,455Interest and dividends on securities:U.S. Treasury
    
    
    131,216
    
    
    
    322,981
    
    
    
    325,478
    
    
    
    776,319U.S. Government agencies
    
    
    2,312,723
    
    
    
    2,494,405
    
    
    
    4,612,426
    
    
    
    4,769,764Mortgage-backed securities
    
    
    132,048
    
    
    
    387,501
    
    
    
    518,924
    
    
    
    791,654States and political subdivisions
    
    
    316,668
    
    
    
    301,314
    
    
    
    673,597
    
    
    
    612,423Other investments
    
    
    3,203
    
    
    
    1,953
    
    
    
    7,654
    
    
    
    6,894Interest on federal funds sold
    
    
    1,557
    
    
    
    544
    
    
    
    5,336
    
    
    
    1,437Total interest income
    
    
    7,790,757
    
    
    
    8,594,761
    
    
    
    16,023,883
    
    
    
    17,162,946Interest expense:Deposits
    
    
    849,297
    
    
    
    1,396,989
    
    
    
    1,666,786
    
    
    
    2,953,687Long-term borrowings
    
    
    109,559
    
    
    
    110,985
    
    
    
    246,204
    
    
    
    271,777Federal funds purchased and securities
sold under agreements to repurchase
    
    
    276,351
    
    
    
    517,320
    
    
    
    562,741
    
    
    
    1,093,672Total interest expense
    
    
    1,235,207
    
    
    
    2,025,294
    
    
    
    2,475,731
    
    
    
    4,319,136Net interest income
    
    
    6,555,550
    
    
    
    6,569,467
    
    
    
    13,548,152
    
    
    
    12,843,810Provision for allowance for losses on loans
    
    
    1,585,000
    
    
    
    1,502,000
    
    
    
    2,735,000
    
    
    
    1,850,000Net interest income after provision for
allowance for losses on loans
    
    $
    4,970,550
    
    
    $
    5,067,467
    
    
    $
    10,813,152
    
    
    $
    10,993,810
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Peoples Financial Corporation and Subsidiaries  Consolidated Statements of Income (continued)
(Unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Non-interest income:Trust department income and fees
    
    $
    282,941
    
    
    $
    325,750
    
    
    $
    590,237
    
    
    $
    662,016Service charges on deposit accounts
    
    
    1,579,485
    
    
    
    1,702,090
    
    
    
    3,151,988
    
    
    
    3,365,397Gain on sales or calls of securities
    
    
    1,563,441
    
    
    
    2
    
    
    
    1,567,486
    
    
    
    136,799Other income
    
    
    258,660
    
    
    
    138,534
    
    
    
    507,949
    
    
    
    624,585Total non-interest income
    
    
    3,684,527
    
    
    
    2,166,376
    
    
    
    5,817,660
    
    
    
    4,788,797Non-interest expense:Salaries and employee benefits
    
    
    3,398,188
    
    
    
    3,694,321
    
    
    
    6,810,463
    
    
    
    7,074,699Net occupancy
    
    
    544,121
    
    
    
    641,242
    
    
    
    1,068,898
    
    
    
    1,193,103Equipment rentals, depreciation and maintenance
    
    
    951,312
    
    
    
    954,189
    
    
    
    1,886,765
    
    
    
    1,904,556FDIC assessments
    
    
    390,517
    
    
    
    544,516
    
    
    
    740,904
    
    
    
    624,439Other expense
    
    
    1,402,857
    
    
    
    1,248,868
    
    
    
    3,109,245
    
    
    
    2,842,136Total non-interest expense
    
    
    6,686,995
    
    
    
    7,083,136
    
    
    
    13,616,275
    
    
    
    13,638,933Income
before income taxes
    
    
    1,968,082
    
    
    
    150,707
    
    
    
    3,014,537
    
    
    
    2,143,674Income taxes
    
    
    522,000
    
    
    
    (50,000
    )
    
    
    697,000
    
    
    
    240,000Net income
    
    $
    1,446,082
    
    
    $
    200,707
    
    
    $
    2,317,537
    
    
    $
    1,903,674Basic and diluted earnings per share
    
    $
    .28
    
    
    $
    .04
    
    
    $
    .45
    
    
    $
    .37
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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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,317,537
    
    
    
    
    
    
    $
    2,317,537
    
    
    
    2,317,537Net unrealized gain on
available for sale
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,517,824
    
    
    
    2,517,824
    
    
    
    2,517,824Reclassification
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 gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,800,820Dividend declared,
($.11 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (566,687
    )
    
    
    
    
    
    
    
    
    
    
    (566,687
    )Balance, June 30, 2010
    
    
    5,151,697
    
    
    $
    5,151,697
    
    
    $
    65,780,254
    
    
    $
    34,604,196
    
    
    $
    1,285,923
    
    
    
    
    
    
    $
    106,822,070
 Note: Balances as of January 1, 2010 were audited.
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Peoples Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 Six Months Ended June 30,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    2,317,537
    
    
    $
    1,903,674Adjustment to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    1,218,000
    
    
    
    1,212,000Provision for allowance for loan losses
    
    
    2,735,000
    
    
    
    1,850,000Loss on writedown of other real estate
    
    
    77,350Loss on sales of other real estate
    
    
    39,350(Gain) loss on other investments
    
    
    15,550
    
    
    
    (110,338
    )Gain on sales and calls of securities
    
    
    (1,567,486
    )
    
    
    (136,799
    )Loss on impairment of equity securities
    
    
    
    
    
    
    149,517Change in accrued interest receivable
    
    
    625,954
    
    
    
    450,450Change in other assets
    
    
    15,556
    
    
    
    100,299Change in other liabilities
    
    
    20,596,976
    
    
    
    1,504,614Net cash provided by operating activities
    
    
    26,073,787
    
    
    
    6,923,417Cash
flows from investing activities:Proceeds from maturities, sales and calls of available for
sale securities
    
    
    147,206,124
    
    
    
    145,473,727Investment in available for sale securities
    
    
    (173,037,295
    )
    
    
    (190,412,284
    )Proceeds from maturities of held to maturity securities
    
    
    389,920
    
    
    
    195,000Investment in held to maturity securities
    
    
    (1,413
    )
    
    
    (1,352
    )(Investment in) redemption of Federal Home Loan Bank Stock
    
    
    1,645,100
    
    
    
    (1,452,200
    )Proceeds from sales of other real estate
    
    
    807,500
    
    
    
    326,076Loans, net change
    
    
    17,045,947
    
    
    
    (5,337,134
    )Acquisition of premises and equipment
    
    
    (172,932
    )
    
    
    (261,131
    )Other assets
    
    
    (325,325
    )
    
    
    (339,903
    )Net cash used in investing activities
    
    $
    (6,442,374
    )
    
    $
    (51,809,201
    )
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Peoples Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)
(Unaudited)
 Six Months Ended June 30,2010
    
    
    2009Cash flows from financing activities:Demand and savings deposits, net change
    
    $
    20,461,290
    
    
    $
    (40,653,986
    )Time deposits, net change
    
    
    28,392,369
    
    
    
    48,472,013Cash dividends
    
    
    (515,170
    )
    
    
    (1,583,780
    )Retirement of common stock
    
    
    
    
    
    
    (2,366,559
    )Borrowings from Federal Home Loan Bank
    
    
    390,669,662
    
    
    
    136,000,000Repayments to Federal Home Loan Bank
    
    
    (441,123,947
    )
    
    
    (100,080,551
    )Federal funds purchased and securities sold
under agreements to repurchase, net change
    
    
    (3,558,614
    )
    
    
    10,361,740Net cash provided by (used in) financing activities
    
    
    (5,674,410
    )
    
    
    50,148,877Net increase in cash and cash equivalents
    
    
    13,957,003
    
    
    
    5,263,093Cash and cash equivalents, beginning of year
    
    
    29,155,294
    
    
    
    34,019,590Cash and cash equivalents, end of year
    
    $
    43,112,297
    
    
    $
    39,282,683
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Gross
    
    Grossunrealized
    
    unrealized
    
    EstimatedJune 30, 2010
    
    Amortized cost
    
    gains
    
    losses
    
    fair valueAvailable for sale securities:Debt securities:U.S. Treasury
    
    $
    62,980,917
    
    
    $
    110,221
    
    
    $
    (58
    )
    
    $
    63,091,080U.S. Government agencies
    
    
    235,197,987
    
    
    
    2,197,267
    
    
    
    
    
    
    
    237,395,254States and political subdivisions
    
    
    39,006,292
    
    
    
    1,208,332
    
    
    
    (267,465
    )
    
    
    39,947,159Total debt securities
    
    
    337,185,196
    
    
    
    3,515,820
    
    
    
    (267,523
    )
    
    
    340,433,493Equity securities
    
    
    649,983
    
    
    
    
    
    
    
    
    
    
    
    649,983Total available for sale securities
    
    $
    337,835,179
    
    
    $
    3,515,820
    
    
    $
    (267,523
    )
    
    $
    341,083,476Held to maturity securities:States and political subdivisions
    
    $
    2,813,459
    
    
    $
    142,574
    
    
    $
    
    
    
    $
    2,956,033Total held to maturity securities
    
    $
    2,813,459
    
    
    $
    142,574
    
    
    $
    
    
    
    $
    2,956,033
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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
   Fair Value Measurement UsingTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3June 30, 2010
    
    $
    341,083,476
    
    
    
    
    
    
    $
    341,083,476December 31, 2009
    
    
    311,434,437
    
    
    
    
    
    
    
    311,434,437
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EstimatedAmortized cost
    
    fair valueAvailable for sale securities:Due in one year or less
    
    $
    63,698,272
    
    
    $
    63,754,739Due after one year through five years
    
    
    64,964,724
    
    
    
    65,940,252Due after five years through ten years
    
    
    81,332,261
    
    
    
    82,713,623Due after ten years
    
    
    127,189,939
    
    
    
    128,024,879Totals
    
    $
    337,185,196
    
    
    $
    340,433,493Held to maturity securities:Due in one year or less
    
    $
    210,000
    
    
    $
    214,396Due after one year through five years
    
    
    1,606,493
    
    
    
    1,705,043Due after five years through ten years
    
    
    996,966
    
    
    
    1,036,594Totals
    
    $
    2,813,459
    
    
    $
    2,956,033
  Less Than Twelve Months
    
    Over Twelve Months
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedJune 30, 2010
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    LossU.S. Treasury
    
    $
    9,999,450
    
    
    $
    58
    
    
    $
    
    
    
    $
    
    
    
    $
    9,999,450
    
    
    $
    58States and
political
subdivisions
    
    
    5,574,761
    
    
    
    175,343
    
    
    
    1,851,672
    
    
    
    92,122
    
    
    
    7,426,433
    
    
    
    267,465TOTAL
    
    $
    15,574,211
    
    
    $
    175,401
    
    
    $
    1,851,672
    
    
    $
    92,122
    
    
    $
    17,425,883
    
    
    $
    267,523
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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
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Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3June 30, 2010
    
    $
    23,299,852
    
    
    $
    
    
    
    $
    12,945,969
    
    
    $
    10,353,883December 31, 2009
    
    
    20,110,334
    
    
    
    
    
    
    
    20,110,334
  For the sixmonths endedJune 30, 2010Fair value, beginning of period
    
    $Net gains
    
    
    10,353,883Fair value, end of period
    
    $
    10,353,883
  14




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##### Table of Contents



Total
    
    Level 1
    
    Level 2
    

Level 3June 30, 2010
    
    $
    1,396,913
    
    
    $
    
    
    
    $
    1,396,913
    
    
    $December 31, 2009
    
    
    1,521,313
    
    
    
    
    
    
    
    1,521,313
   Three Months Ended June 30,
    
    Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Balance, beginning of period
    
    $
    8,278,805
    
    
    $
    11,372,866
    
    
    $
    7,827,806
    
    
    $
    11,113,575Recoveries
    
    
    18,584
    
    
    
    224,212
    
    
    
    74,201
    
    
    
    329,634Loans charged off
    
    
    (714,462
    )
    
    
    (3,301,197
    )
    
    
    (1,469,080
    )
    
    
    (3,495,328
    )Provision for allowance for loan losses
    
    
    1,585,000
    
    
    
    1,502,000
    
    
    
    2,735,000
    
    
    
    1,850,000Balance, end of period
    
    $
    9,167,927
    
    
    $
    9,797,881
    
    
    $
    9,167,927
    
    
    $
    9,797,881
     15




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##### Table of Contents



June 30, 2010
    
    December 31, 2009Carrying Amount
    
    Fair Value
    
    Carrying Amount
    
    Fair ValueFinancial Assets:Cash and due from banks
    
    $
    43,112,297
    
    
    $
    43,112,297
    
    
    $
    29,155,294
    
    
    $
    29,155,294Available for sale securities
    
    
    341,083,476
    
    
    
    341,083,476
    
    
    
    311,434,437
    
    
    
    311,434,437Held to maturity securities
    
    
    2,813,459
    
    
    
    2,956,033
    
    
    
    3,201,966
    
    
    
    3,340,974Other investments
    
    
    4,020,754
    
    
    
    4,020,754
    
    
    
    4,036,304
    
    
    
    4,036,304Federal Home Loan Bank stock
    
    
    3,370,800
    
    
    
    3,370,800
    
    
    
    5,015,900
    
    
    
    5,015,900Loans, net
    
    
    436,567,738
    
    
    
    439,954,148
    
    
    
    457,148,485
    
    
    
    460,587,836Cash surrender value
    
    
    15,653,219
    
    
    
    15,653,219
    
    
    
    15,329,394
    
    
    
    15,329,394Financial Liabilities:Deposits:Non-interest bearing
    
    
    116,673,172
    
    
    
    116,673,172
    
    
    
    96,541,387
    
    
    
    96,541,387Interest bearing
    
    
    402,881,916
    
    
    
    403,150,698
    
    
    
    374,160,042
    
    
    
    375,051,835Total deposits
    
    
    519,555,088
    
    
    
    519,823,870
    
    
    
    470,701,429
    
    
    
    471,593,222Federal funds purchased and
securities sold under agreements
to repurchase
    
    
    170,872,263
    
    
    
    170,872,263
    
    
    
    174,430,877
    
    
    
    174,430,877Borrowings from Federal Home Loan
Bank
    
    
    53,816,167
    
    
    
    55,805,381
    
    
    
    104,270,452
    
    
    
    105,815,000
    16




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17




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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
  18




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OVERVIEW
   
 19




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##### Table of Contents



RESULTS OF OPERATIONS
 Net Interest Income
  Quarter Ended June 30, 2010 as Compared with Quarter Ended June 30, 2009
  20




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##### Table of Contents



Six Months Ended June 30, 2010 as Compared with Six Months Ended June 30, 2009
      21




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##### Table of Contents



Three Months Ended June 30, 2010
    
    Three Months Ended June 30, 2009Average Balance
    
    Interest Earned/Paid
    
    Rate
    
    Average Balance
    
    Interest Earned/Paid
    
    RateLoans (2)(3)
    
    $
    445,601
    
    
    $
    4,893
    
    
    
    4.39
    %
    
    $
    473,432
    
    
    $
    5,086
    
    
    
    4.30
    %Federal Funds Sold
    
    
    2,670
    
    
    
    2
    
    
    
    0.30
    %
    
    
    934
    
    
    
    1
    
    
    
    0.42
    %HTM:Non taxable (1)
    
    
    3,025
    
    
    
    36
    
    
    
    4.76
    %
    
    
    3,264
    
    
    
    43
    
    
    
    5.27
    %ATS:Taxable
    
    
    267,579
    
    
    
    2,576
    
    
    
    3.85
    %
    
    
    328,065
    
    
    
    3,205
    
    
    
    3.91
    %Non taxable (1)
    
    
    40,340
    
    
    
    444
    
    
    
    4.40
    %
    
    
    33,692
    
    
    
    414
    
    
    
    4.92
    %Other
    
    
    4,601
    
    
    
    3
    
    
    
    0.26
    %
    
    
    2,393
    
    
    
    2
    
    
    
    0.33
    %Total
    
    $
    763,816
    
    
    $
    7,954
    
    
    
    4.17
    %
    
    $
    841,780
    
    
    $
    8,751
    
    
    
    4.16
    %Savings & interest-bearing
DDA
    
    $
    223,111
    
    
    $
    289
    
    
    
    0.52
    %
    
    $
    238,775
    
    
    $
    541
    
    
    
    0.91
    %CDs
    
    
    197,044
    
    
    
    560
    
    
    
    1.14
    %
    
    
    217,051
    
    
    
    856
    
    
    
    1.58
    %Federal funds purchased
    
    
    155,629
    
    
    
    276
    
    
    
    0.71
    %
    
    
    230,600
    
    
    
    517
    
    
    
    0.90
    %FHLB advances
    
    
    51,330
    
    
    
    110
    
    
    
    0.86
    %
    
    
    16,562
    
    
    
    111
    
    
    
    2.68
    %Total
    
    $
    627,114
    
    
    $
    1,235
    
    
    
    0.79
    %
    
    $
    702,988
    
    
    $
    2,025
    
    
    
    1.15
    %Net tax-equivalent yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.52
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %
 
 (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 $114,847 and $135,074 for 2010 and 2009, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 22




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##### Table of Contents



Six Months Ended June 30, 2010
    

Six Months Ended June 30, 2009Average Balance
    
    Interest Earned/Paid
    
    Rate
    
    Average Balance
    
    Interest Earned/Paid
    
    RateLoans (2)(3)
    
    $
    450,712
    
    
    $
    9,880
    
    
    
    4.38
    %
    
    $
    471,986
    
    
    $
    10,204
    
    
    
    4.32
    %Federal Funds Sold
    
    
    4,222
    
    
    
    5
    
    
    
    0.24
    %
    
    
    1,136
    
    
    
    1
    
    
    
    0.18
    %HTM:Non taxable (1)
    
    
    3,113
    
    
    
    80
    
    
    
    5.14
    %
    
    
    3,329
    
    
    
    89
    
    
    
    5.35
    %AFS:Taxable
    
    
    267,586
    
    
    
    5,457
    
    
    
    4.08
    %
    
    
    317,464
    
    
    
    6,338
    
    
    
    3.99
    %Non taxable (1)
    
    
    40,353
    
    
    
    941
    
    
    
    4.66
    %
    
    
    33,033
    
    
    
    839
    
    
    
    5.08
    %Other
    
    
    5,131
    
    
    
    8
    
    
    
    0.31
    %
    
    
    2,636
    
    
    
    7
    
    
    
    0.53
    %Total
    
    $
    771,117
    
    
    $
    16,371
    
    
    
    4.25
    %
    
    $
    829,584
    
    
    $
    17,478
    
    
    
    4.21
    %Savings &
interest-bearing
DDA
    
    $
    223,047
    
    
    $
    578
    
    
    
    0.52
    %
    
    $
    241,524
    
    
    $
    1,236
    
    
    
    1.02
    %CDs
    
    
    187,331
    
    
    
    1,089
    
    
    
    1.16
    %
    
    
    196,453
    
    
    
    1,717
    
    
    
    1.75
    %Federal funds
purchased
    
    
    163,178
    
    
    
    563
    
    
    
    0.69
    %
    
    
    228,985
    
    
    
    1,094
    
    
    
    0.96
    %FHLB advances
    
    
    63,552
    
    
    
    246
    
    
    
    0.77
    %
    
    
    22,652
    
    
    
    272
    
    
    
    2.40
    %Total
    
    $
    637,108
    
    
    $
    2,476
    
    
    
    0.78
    %
    
    $
    689,614
    
    
    $
    4,319
    
    
    
    1.25
    %Net tax-equivalent yield
on earning
assets
    
    
    
    
    
    
    
    
    
    
    3.60
    %
    
    
    
    
    
    
    
    
    
    
    3.17
    %
 
 (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 $315,602 and $287,216 for 2010 and 2009, respectively, are included in these
figures.(3)
    
    Includes nonaccrual loans. 23




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Provision for Loan Losses
    Non-interest income
  24




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##### Table of Contents



Non-interest expense
   25




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##### Table of Contents



Income Taxes
   FINANCIAL CONDITION
   26




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##### Table of Contents



June 30, 2010
    
    December 31, 2009Available for sale securities:U.S. Treasury
    
    $
    63,091,080
    
    
    $
    24,740,140U.S. Government agencies
    
    
    237,395,254
    
    
    
    214,578,196Mortgage-backed securities
    
    
    
    
    
    
    31,262,670States and political subdivisions
    
    
    39,947,159
    
    
    
    40,203,448Equity securities
    
    
    649,983
    
    
    
    649,983Total available for sale securities
    
    $
    341,083,476
    
    
    $
    311,434,437
  June 30, 2010
    
    December 31, 2009Real estate, construction
    
    $
    91,183,386
    
    
    $
    94,460,479Real estate, mortgage
    
    
    294,593,546
    
    
    
    299,402,982Loans to finance agricultural production
    
    
    
    
    
    
    1,754,796Commercial and industrial loans
    
    
    45,994,996
    
    
    
    52,250,231Loans to individuals for household, family and
other consumer expenditures
    
    
    8,317,705
    
    
    
    9,049,394Obligations of states and political subdivisions
    
    
    5,141,529
    
    
    
    7,890,584All other loans
    
    
    504,503
    
    
    
    167,825Total
    
    $
    445,735,665
    
    
    $
    464,976,291
     27




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##### Table of Contents



SHAREHOLDERS EQUITY AND CAPITAL ADEQUACY
  LIQUIDITY
    28




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##### Table of Contents



REGULATORY MATTERS
    
 Item 4: Controls and Procedures
   29




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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 l8 U.S.C. ss. 1350Exhibit 32.2:
    
    Certification of Chief
Financial Officer Pursuant
to l8 U.S.C. ss. 1350
   30




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##### Table of Contents



PEOPLES FINANCIAL CORPORATION
(Registrant)
Date: August 9, 2010By:

/s/
Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive Officer
(principal executive officer)Date: August 9, 2010By:
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller
(principal financial and accounting officer) 31