SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

       For the quarterly period ended September 30, 2004

               Commission File Number  0 - 30050

PEOPLES FINANCIAL CORPORATION

(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.

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

Table of Contents

PART I
FINANCIAL INFORMATION
PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES

Page 2 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)

See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed Consolidated Financial Statements.

Page 3 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Page 4 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)

See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed Consolidated Financial Statements.

Page 5 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)

Page 6 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)
(Unaudited)

See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed Consolidated Financial Statements.

Page 7 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Page 8 of 20

PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

See Report of Independent Registered Public Accounting Firm and Selected Notes to Condensed Consolidated Financial Statements.

Page 9 of 20

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:

Page 10 of 20

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:

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

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

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:

Page 13 of 20

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:

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:

Page 14 of 20

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

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

(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

Analysis of Changes in Interest Income and Interest Expense
(In Thousands)

(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

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

PART II

OTHER INFORMATION

Item 5 — Other Information

None.

Item 6 — Exhibits and Reports on Form 8-K

(a) Exhibits

(b) Reports on Form 8-K

A Form 8-K was filed by the Company on October 18,2004.

Page 19 of 20

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.

Page 20 of 20