##### 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 March 31, 2006
 or
 o
    
    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)
  
   þ o
  o þ o
 o þ
    Page 1




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TABLE OF CONTENTS  PART IItem 2  Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4: Controls and ProceduresPART IIItem 4  Submission of Matters to a Vote of Security HoldersItem 5  Other InformationItem 6  Exhibits and Reports on Form 8-KSIGNATURESConsent of Independent Registered Public Accounting FirmCertification 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  
      March 31, December 31, and March 31,
    
    2006
    
    
    2005
    
    
    2005AssetsCash and due from banks
    
    $
    73,311,721
    
    
    $
    52,277,524
    
    
    $
    40,077,832Held to maturity securities, market value of
$209,672,000 - March 31, 2006;
$134,008,000 - December 31, 2005;
$6,467,000 - March 31, 2005
    
    
    209,973,869
    
    
    
    134,046,959
    
    
    
    6,360,990Available for sale securities, at market value
    
    
    204,959,326
    
    
    
    178,393,652
    
    
    
    219,288,050Federal Home Loan Bank stock, at cost
    
    
    1,089,800
    
    
    
    1,076,600
    
    
    
    1,410,500Federal funds sold
    
    
    23,870,000
    
    
    
    100,340,000
    
    
    
    23,370,000Loans
    
    
    354,706,547
    
    
    
    349,346,340
    
    
    
    323,074,684Less: Allowance for loan losses
    
    
    10,975,126
    
    
    
    10,966,022
    
    
    
    5,863,024Loans, net
    
    
    343,731,421
    
    
    
    338,380,318
    
    
    
    317,211,660Bank premises and equipment, net of
accumulated depreciation of
$18,420,000 -
March 31, 2006; $18,025,000 - December 31,
2005; and $17,604,000 - March 31, 2005
    
    
    19,453,383
    
    
    
    17,887,907
    
    
    
    17,997,662Other real estate
    
    
    100,046
    
    
    
    106,046
    
    
    
    168,025Accrued interest receivable
    
    
    4,358,496
    
    
    
    4,315,358
    
    
    
    2,789,580Other assets
    
    
    18,973,389
    
    
    
    18,500,668
    
    
    
    16,961,460Total
assets
    
    $
    899,821,451
    
    
    $
    845,325,032
    
    
    $
    645,635,759
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March 31, December 31, and March 31,
    
    2006
    
    
    2005
    
    
    2005Liabilities & Shareholders EquityLiabilities:Deposits:Demand, non-interest bearing
    
    $
    181,777,595
    
    
    $
    176,627,048
    
    
    $
    100,941,569Savings and demand, interest bearing
    
    
    328,235,756
    
    
    
    301,052,887
    
    
    
    210,313,052Time, $100,000 or more
    
    
    62,405,284
    
    
    
    51,292,708
    
    
    
    49,620,444Other time deposits
    
    
    65,540,357
    
    
    
    63,244,699
    
    
    
    65,902,392Total deposits
    
    
    637,958,992
    
    
    
    592,217,342
    
    
    
    426,777,457Federal funds purchased and securities
sold under agreements to
repurchase
    
    
    155,434,163
    
    
    
    149,267,750
    
    
    
    117,042,843Borrowings from Federal Home Loan Bank
    
    
    7,310,139
    
    
    
    7,352,005
    
    
    
    7,293,846Other liabilities
    
    
    9,314,809
    
    
    
    8,984,804
    
    
    
    7,830,752Total liabilities
    
    
    810,018,103
    
    
    
    757,821,901
    
    
    
    558,944,898Shareholders Equity:Common Stock, $1 par value, 15,000,000
shares authorized, 5,548,399, 5,549,128
and 5,552,379 shares issued and
outstanding at March 31, 2006, December
31, 2005 and March 31, 2005, respectively
    
    
    5,548,399
    
    
    
    5,549,128
    
    
    
    5,552,379Surplus
    
    
    65,780,254
    
    
    
    65,780,254
    
    
    
    65,780,254Undivided profits
    
    
    21,464,032
    
    
    
    18,942,855
    
    
    
    17,730,464Accumulated other comprehensive income
    
    
    (2,989,337
    )
    
    
    (2,769,106
    )
    
    
    (2,372,236
    )Total shareholders equity
    
    
    89,803,348
    
    
    
    87,503,131
    
    
    
    86,690,861Total liabilities and shareholders equity
    
    $
    899,821,451
    
    
    $
    845,325,032
    
    
    $
    645,635,759
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For the Quarters Ended March 31,
    
    2006
    
    
    2005Interest income:Interest and fees on loans
    
    $
    6,183,077
    
    
    $
    5,011,680Interest and dividends on investments:U. S. Treasury
    
    
    1,828,082
    
    
    
    414,999U. S. Government agencies and corporations
    
    
    1,758,533
    
    
    
    946,050States and political subdivisions
    
    
    208,601
    
    
    
    198,240Other investments
    
    
    85,974
    
    
    
    70,842Interest on federal funds sold
    
    
    440,490
    
    
    
    86,488Total interest income
    
    
    10,504,757
    
    
    
    6,728,299Interest expense:Time deposits of $100,000 or more
    
    
    483,825
    
    
    
    237,667Other deposits
    
    
    1,734,445
    
    
    
    817,870Borrowings from Federal Home Loan Bank
    
    
    115,866
    
    
    
    103,394Federal funds purchased and securities sold under
agreements to repurchase
    
    
    663,245
    
    
    
    316,135Total interest expense
    
    
    2,997,381
    
    
    
    1,475,066Net interest income
    
    
    7,507,376
    
    
    
    5,253,233Provision for losses on loans
    
    
    35,000
    
    
    
    (678,975
    )Net interest income after provision for losses on loans
    
    $
    7,472,376
    
    
    $
    5,932,208
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For the Quarters Ended March 31,
    
    2006
    
    
    2005Other operating income:Trust department income and fees
    
    $
    356,017
    
    
    $
    343,525Service charges on deposit accounts
    
    
    1,060,487
    
    
    
    1,276,411Other service charges, commissions and fees
    
    
    74,507
    
    
    
    73,384Other income
    
    
    179,529
    
    
    
    243,228Total other operating income
    
    
    1,670,540
    
    
    
    1,936,548Other operating expense:Salaries and employee benefits
    
    
    3,033,019
    
    
    
    2,837,957Net occupancy
    
    
    343,002
    
    
    
    346,519Equipment rentals, depreciation and maintenance
    
    
    661,205
    
    
    
    664,494Other expense
    
    
    1,282,248
    
    
    
    1,314,864Total other operating expense
    
    
    5,319,474
    
    
    
    5,163,834Income before income taxes and extraordinary gain
    
    
    3,823,442
    
    
    
    2,704,922Income taxes
    
    
    1,289,992
    
    
    
    771,480Income before extraordinary gain
    
    
    2,533,450
    
    
    
    1,933,442Extraordinary gain, net of income taxes
    
    
    
    
    
    
    459,000Net income
    
    $
    2,533,450
    
    
    $
    2,392,442
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Accumu-# of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    lated OtherCommon
    
    
    Common
    
    
    
    
    
    
    Undivided
    
    
    Comprehensive
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Surplus
    
    
    Profits
    
    
    Income
    
    
    Income
    
    
    TotalBalance, January 1,
2005
    
    
    5,555,419
    
    
    $
    5,555,419
    
    
    $
    65,780,254
    
    
    $
    15,391,524
    
    
    $
    (925,764
    )
    

    
    
    
    
    $
    85,801,433Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,392,442
    
    
    
    
    
    
    $
    2,392,442
    
    
    
    2,392,442Net unrealized
loss on available
for sale
securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,446,472
    )
    
    
    (1,446,472
    )
    
    
    (1,446,472
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    945,970Retirement of
common stock
    
    
    (3,040
    )
    
    
    (3,040
    )
    
    
    
    
    
    
    (53,502
    )
    
    
    
    
    
    
    
    
    
    
    (56,542
    )Balance, March 31,
2005
    
    
    5,552,379
    
    
    $
    5,552,379
    
    
    $
    65,780,254
    
    
    $
    17,730,464
    
    
    $
    (2,372,236
    )
    

    
    
    
    
    $
    86,690,861
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Accumu-# of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    lated OtherCommon
    
    
    Common
    
    
    
    
    
    
    Undivided
    
    
    Comprehensive
    
    
    ComprehensiveShares
    
    
    Stock
    
    
    Surplus
    
    
    Profits
    
    
    Income
    
    
    Income
    
    
    TotalBalance, January 1,
2006
    
    
    5,549,128
    
    
    $
    5,549,128
    
    
    $
    65,780,254
    
    
    $
    18,942,855
    
    
    $
    (2,769,106
    )
    
    
    
    
    
    $
    87,503,131Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,533,450
    
    
    
    
    
    
    $
    2,533,450
    
    
    
    2,533,450Net unrealized loss
on available for
sale securities,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (220,231
    )
    
    
    (220,231
    )
    
    
    (220,231
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,313,219Retirement of
common stock
    
    
    (729
    )
    
    
    (729
    )
    
    
    
    
    
    
    (12,273
    )
    
    
    
    
    
    
    
    
    
    
    (13,002
    )Balance, March 31,
2006
    
    
    5,548,399
    
    
    $
    5,548,399
    
    
    $
    65,780,254
    
    
    $
    21,464,032
    
    
    $
    (2,989,337
    )
    
    
    
    
    
    $
    89,803,348
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For the Quarters Ended March 31,
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    2,533,450
    
    
    $
    2,392,442Adjustments to reconcile net income to net
cash provided by operating
activities:Depreciation
    
    
    369,000
    
    
    
    429,429Provision for losses on loans
    
    
    35,000
    
    
    
    (678,975
    )Changes in assets and liabilities:Accrued interest receivable
    
    
    (43,138
    )
    
    
    (44,345
    )Other assets
    
    
    (241,443
    )
    
    
    (384,129
    )Other liabilities
    
    
    1,439,831
    
    
    
    310,875Net cash provided by operating activities
    
    
    4,092,700
    
    
    
    2,025,297Cash flows from investing activities:Proceeds from maturities and calls of held
to maturity securities
    
    
    62,000,000
    
    
    
    226,385Proceeds from maturities, sales and calls of
available for sale securities
    
    
    3,100,292
    
    
    
    39,000,000Investment in held to maturity securities
    
    
    (137,926,910
    )Investment in available for sale securities
    
    
    (29,999,197
    )
    
    
    (87,449,714
    )Investment in Federal Home Loan Bank
    
    
    (13,200
    )
    
    
    (8,600
    )Proceeds from sales of other real estate
    
    
    6,000Loans, net (increase) decrease
    
    
    (5,386,103
    )
    
    
    11,090,825Acquisition of premises and equipment
    
    
    (1,934,476
    )
    
    
    (408,587
    )Federal funds sold
    
    
    76,470,000
    
    
    
    (23,370,000
    )Other assets
    
    
    (118,278
    )
    
    
    (137,164
    )Net cash used in investing activities
    
    $
    (33,801,872
    )
    
    $
    (61,056,855
    )
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For the Quarters Ended March 31,
    
    2006
    
    
    2005Cash flows from financing activities:Demand and savings deposits, net increase
    
    $
    32,333,416
    
    
    $
    41,261,095Time deposits, net increase (decrease)
    
    
    13,408,234
    
    
    
    (3,675,168
    )Principal payments on notes
    
    
    
    
    
    
    (1,239
    )Borrowings from Federal Home Loan Bank
    
    
    4,600,000
    
    
    
    127,160Repayments to Federal Home Loan Bank
    
    
    (4,641,866
    )
    
    
    (36,284
    )Retirement of common stock
    
    
    (13,002
    )
    
    
    (56,941
    )Cash dividends
    
    
    (1,109,826
    )
    
    
    (999,576
    )Federal funds purchased and securities sold
under agreements to
repurchase, net increase
    
    
    6,166,413
    
    
    
    29,765,718Net cash provided by financing activities
    
    
    50,743,369
    
    
    
    66,384,765Net increase in cash and cash equivalents
    
    
    21,034,197
    
    
    
    7,353,207Cash and cash equivalents, beginning of period
    
    
    52,277,524
    
    
    
    32,724,625Cash and cash equivalents, end of period
    
    $
    73,311,721
    
    
    $
    40,077,832
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For the Quarter
    
    
    For the Year
    
    
    For the QuarterEnded March 31,
    
    
    Ended December
    
    
    Ended March 31,2006
    
    
    31, 2005
    
    
    2005Balance, beginning of
period
    
    $
    10,966,022
    
    
    $
    6,569,614
    
    
    $
    6,569,614Provision for loan losses
    
    
    35,000
    
    
    
    3,614,000
    
    
    
    (678,975
    )Recoveries
    
    
    122,250
    
    
    
    1,344,000
    
    
    
    74,526Loans charged off
    
    
    (148,146
    )
    
    
    (561,592
    )
    
    
    (102,141
    )Balance, end of period
    
    $
    10,975,126
    
    
    $
    10,966,022
    
    
    $
    5,863,024
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Less Than TwelveMonths
    
    
    Over Twelve Months
    
    
    TotalGross
    
    
    
    
    
    

    Gross
    
    
    
    
    
    
    GrossUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss
    
    
    Value
    
    
    LossU. S. Treasury
    
    $
    157,410
    
    
    $
    382
    
    
    $
    22,564
    
    
    $
    413
    
    
    $
    179,974
    
    
    $
    795U. S. Govt. Agencies
    
    
    127,089
    
    
    
    887
    
    
    
    75,191
    
    
    
    2,286
    
    
    
    202,280
    
    
    
    3,173States and
political
subdivisions
    
    
    6,297
    
    
    
    64
    
    
    
    5,717
    
    
    
    219
    
    
    
    12,014
    
    
    
    283FHLMC preferred
stock
    
    
    
    
    
    
    
    
    
    
    2,276
    
    
    
    799
    
    
    
    2,276
    
    
    
    799Total
    
    $
    290,796
    
    
    $
    1,333
    
    
    $
    105,748
    
    
    $
    3,717
    
    
    $
    396,544
    
    
    $
    5,050
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Page 13




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Forward-Looking Information
  Overview
    For the quarters ended March 31,
    
    2006
    
    
    2005Net income per share
    
    $
    .46
    
    
    $
    .43Book value per share
    
    $
    16.19
    
    
    $
    15.61Return on average total assets
    
    
    1.15
    %
    
    
    1.55
    %Return on average shareholders equity
    
    
    8.85
    %
    
    
    11.12
    %Allowance for loan losses as a % of
loans, net of unearned
discount
    
    
    3.09
    %
    
    
    1.81
    %
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Financial Condition
 Held to Maturity Securities
  March 31,
    2006
    

    
    2005Amount
    
    

    
    %
    
    Amount
    
    
    
    %U. S. Treasury
    
    $
    134,819,398
    
    
    
    64
    %
    
    $U. S. Government agencies
    
    
    69,000,000
    
    
    
    33
    %State and political
subdivisions
    
    
    6,154,471
    
    
    
    3
    %
    
    
    6,360,990
    
    
    
    100
    %Totals
    
    $
    209,973,869
    
    
    
    100
    %
    
    $
    6,360,990
    
    
    
    100
    %
 Available for Sale Securities
  March 31,
    2006
    
    
    
    
    
    2005Amount
    
    

    
    %
    
    Amount
    
    

    
    %U. S. Treasury
    
    $
    47,320,217
    
    
    
    23
    %
    
    $
    88,118,024
    
    
    
    40
    %U. S. Government agencies
    
    
    140,451,521
    
    
    
    69
    %
    
    
    114,165,651
    
    
    
    52
    %State and political
subdivisions
    
    
    14,095,381
    
    
    
    7
    %
    
    
    13,909,480
    
    
    
    6
    %Other securities
    
    
    3,092,207
    
    
    
    1
    %
    
    
    3,094,895
    
    
    
    2
    %Totals
    
    $
    204,959,326
    
    
    
    100
    %
    
    $
    219,288,050
    
    
    
    100
    %
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Federal Funds Sold
  Loans
  Bank Premises and Equipment
  Deposits
  Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
  Other Liabilities
  Page 16




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Shareholders Equity and Capital Adequacy
  RESULTS OF OPERATIONS
 Net Interest Income
   Quarters Ended March 31, (Inthousands, except percentages)
    
    2006
    
    
    2005Total interest income (1)
    
    $
    10,612
    
    
    $
    6,830Total interest expense
    
    
    2,997
    
    
    
    1,475Net interest earnings
    
    $
    7,615
    
    
    $
    5,355Net yield on interest earning assets
    
    
    4.01
    %
    
    
    3.97
    %
 
 (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2006 and 2005.  Page 17




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Attributable To:For the
    
    
    For theQuarter
    
    
    QuarterEnded
    
    
    EndedMarch 31,
    
    
    March 31,
    
    
    Increase
    
    
    
    
    
    
    
    
    
    
    Rate/2006
    
    
    2005
    
    
    (Decrease)
    
    
    Volume
    
    
    Rate
    
    
    VolumeINTEREST INCOME: (1)Loans (2) (3)
    
    $
    6,183
    
    
    $
    5,012
    
    
    $
    1,171
    
    
    $
    196
    
    
    $
    939
    
    
    $
    36Federal funds sold
    
    
    440
    
    
    
    86
    
    
    
    354
    
    
    
    163
    
    
    
    66
    
    
    
    125Held to maturity:Taxable
    
    
    1,953
    
    
    
    
    
    
    
    1,953
    
    
    
    1,953Non-taxable
    
    
    110
    
    
    
    98
    
    
    
    12
    
    
    
    (5
    )
    
    
    18
    
    
    
    (1
    )Available for sale:Taxable
    
    
    1,634
    
    
    
    1,361
    
    
    
    273
    
    
    
    29
    
    
    
    239
    
    
    
    5Non-taxable
    
    
    206
    
    
    
    202
    
    
    
    4
    
    
    
    10
    
    
    
    (5
    )
    
    
    (1
    )Other
    
    
    86
    
    
    
    71
    
    
    
    15
    
    
    
    (9
    )
    
    
    27
    
    
    
    (3
    )Total
    
    $
    10,612
    
    
    $
    6,830
    
    
    $
    3,782
    
    
    $
    2,337
    
    
    $
    1,284
    
    
    $
    161INTEREST EXPENSE:Savings and
demand,
interest
bearing
    
    $
    1,262
    
    
    $
    445
    
    
    $
    817
    
    
    $
    257
    
    
    $
    355
    
    
    $
    205Time deposits
    
    
    956
    
    
    
    611
    
    
    
    345
    
    
    
    27
    
    
    
    304
    
    
    
    14Federal funds
purchased and
securities sold
under agreements to
repurchase
    
    
    663
    
    
    
    316
    
    
    
    347
    
    
    
    100
    
    
    
    187
    
    
    
    60Borrowings from FHLB
    
    
    116
    
    
    
    103
    
    
    
    13
    
    
    
    12
    
    
    
    1Total
    
    $
    2,997
    
    
    $
    1,475
    
    
    $
    1,522
    
    
    $
    396
    
    
    $
    847
    
    
    $
    279
 
 (1)
    
    All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2006 and 2005.(2)
    
    Loan fees are included in these figures.(3)
    
    Includes nonaccrual loans. Page 18




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##### Table of Contents



Provision for Loan Losses
  Service Charges on Deposit Accounts
  Salaries and Employee Benefits
  Extraordinary Gain
  LIQUIDITY
  Page 19




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##### Table of Contents



Item 4: Controls and Procedures
   
 
 
  (
  Approve
    
    
    DisapproveDrew Allen
    
    
    4,256,879.000
    
    
    
    226,338.000Rex E. Kelly
    
    
    4,251,541.000
    
    
    
    226,338.000Dan Magruder
    
    
    4,256,879.000
    
    
    
    226,338.000Lyle M. Page
    
    
    4,256,962.000
    
    
    
    226,338.000Chevis C. Swetman
    
    
    4,256,962.000
    
    
    
    226,338.000
  
   Page 20




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##### Table of Contents



President and CEO
    
    Chevis C. SwetmanExecutive Vice President
    
    A. Wes FulmerFirst Vice President
    
    Thomas J. SlimanSecond Vice President
    
    Jeannette E. RomeroVice President
    
    Robert M. TuceiVice President and Secretary
    
    Ann F. GuiceChief Financial Officer
    
    Lauri A. Wood
 
   Exhibit 23:
    
    Consent of Independent Registered Public Accounting FirmExhibit 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 2002
 Page 21




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##### Table of Contents



Exhibit 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
   Page 22




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##### Table of Contents



PEOPLES FINANCIAL CORPORATION(Registrant)Date: May 5,
2006By:
    
    /s/ Chevis C. SwetmanChevis C. SwetmanChairman, President and Chief Executive OfficerDate: May 5,
2006By:
    
    /s/ Lauri A. WoodLauri A. WoodChief Financial Officer and Controller(principal financial and accounting officer)
 Page 23