SECURITIES AND EXCHANGE COMMISSION

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, 2005

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

(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 April 29, 2005, there were 15,000,000 shares of $1 par value common stock authorized, and 5,552,280 shares issued and outstanding.

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Table of Contents

PART I

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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.

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

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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.

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

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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.

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

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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.

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PEOPLES FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 2005 and 2004

1. The accompanying unaudited condensed consolidated financial statements have been prepared with the accounting policies in effect as of December 31, 2004 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 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.

2. The results of operations for the quarter ended March 31, 2005, are not necessarily indicative of the results to be expected for the full year. Per share data is based on the weighted average shares of common stock outstanding of 5,552,801 and 5,557,284 for the quarters ended March 31, 2005 and 2004, respectively.

3. At March 31, 2005 and 2004, the total recorded investment in impaired loans amounted to $5,817,000 and $7,241,000, respectively. The average recorded investment in impaired loans amounted to approximately $5,817,000 and $7,166,000 at March 31, 2005 and 2004, respectively. The amount of that recorded investment in impaired loans for which there is a related allowance for loan losses was $284,000 at March 31, 2005. The allowance for losses related to these loans amounted to approximately $3,000 at March 31, 2005. The amount of interest not accrued on these loans amounted to approximately $3,000 and $32,000 for the quarter ended March 31, 2005 and 2004, respectively. In compliance with a bankruptcy court order, interest in the amount of $56,000 and $50,000 has been received and recorded as interest income relating to one impaired loan, with an average balance of $5,532,796 and $5,696,000, for the quarters ended March 31, 2005 and 2004, respectively.

4. Transactions in the allowance for loan losses were as follows:

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5. The Company has defined cash and cash equivalents to include cash and due from banks. The Company paid $1,430,000 and $1,179,000 for the quarters ended March 31, 2005 and 2004, respectively, for interest on deposits and borrowings. Income tax payments of $793,000 were made during the quarter ended March 31, 2005. Loans transferred to other real estate amounted to $60,000 for the quarter ended March 31, 2004. The income tax effect on the accumulated other comprehensive income was ($745,000) and $436,000 at March 31, 2005 and 2004, respectively.

6. Securities with gross unrealized losses at March 31, 2005, aggregated by investment category and length of time that individual securities have been in a continuous loss position 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.

7. On April 29, 2005, a loan in the amount of $5,533,000, which had been classified as an impaired loan, paid off. As a result, the related allowance for loan losses of $650,000 has been reversed in these financial statements. During the second quarter of 2005, the Company will recognize interest income of approximately $900,000, which includes accrued interest previously charged-off and interest not accrued while this credit was on nonaccrual. A recovery of charged-off principal of $962,000 also relates to this event. The Company will continue to monitor its allowance for loan losses according to its policies and will record provisions as deemed necessary during the remaining quarters of 2005.

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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 March 31, 2005, March 31, 2004 and December 31, 2004, and the related condensed consolidated statements of income, shareholder’s equity, and cash flows for the three months ended March 31, 2005 and March 31, 2004. 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 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, 2004, 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 24, 2005, 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, 2004, 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.

May 6, 2005
Biloxi, Mississippi

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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 quarters ended March 31, 2005 and 2004. 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

During the first quarter of 2005, net income was $2,392,000, as compared with $1,072,000 for the first quarter of 2004. The Company realized extraordinary income of $459,000, net of taxes, as a result of the PULSE EFT Association Exchange. While this unusual, non-recurring gain is very positive, the Company continues to concentrate on its operating results. The economy of the Mississippi Gulf Coast, our trade area, continues to be robust, and this translates into opportunities for the Company. The first quarter of 2005 brought a temporary decline in loan volume, breaking a string of five consecutive quarters with a record growth in the loan portfolio. Management anticipates that loan volume will resume its prior trend in the remaining quarters of 2005. The quality of the loan portfolio is also strong and non-performing loans have improved, as discussed in Note 7, contributing to the reduction of the allowance for loan losses during the first quarter, through a reduction in the loan loss provision. The Company continues to closely monitor its interest rate risk activities, as it continues to manage pricing challenges in its competitive market.

The following schedule compares financial highlights for the quarters ended March 31, 2005 and 2004:

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Financial Condition

Held to Maturity Securities

Held to maturity securities increased $2,110,000 at March 31, 2005, compared with March 31, 2004, as a result of the management of the Company’s liquidity position. Gross unrealized gains for held to maturity securities were $132,000 and $180,000 at March 31, 2005 and 2004, respectively. Gross unrealized losses for held to maturity securities were $26,000 at March 31, 2005. The following schedule reflects the mix of the held to maturity investment portfolio at March 31, 2005 and 2004:

Available for Sale Securities

Available for sale securities increased $6,256,000 at March 31, 2005, compared with March 31, 2004, in the management of the Company’s liquidity position. Gross unrealized gains were $222,000 and $2,693,000 and gross unrealized losses were $3,822,000 and $392,000 at March 31, 2005 and 2004, respectively. The following schedule reflects the mix of available for sale securities at March 31, 2005 and 2004:

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Federal Funds Sold

Federal funds sold were $3,900,000 at March 31, 2005, as a direct result of the management of the bank subsidiary’s liquidity position.

Loans

Loans increased $13,792,000 at March 31, 2005, as compared with March 31, 2004. During the fourth quarter of 2003 and continuing in 2004 and into 2005, the local economy has stabilized which has resulted in an overall increase in loan demand. The Company expects that this demand will continue in the remaining quarters of 2005.

Other Real Estate

Other real estate decreased $1,047,000 at March 31, 2005, as compared with March 31, 2004, primarily due to sale of ORE inventory and a reduction in property taken into ORE in recent quarters.

Other Assets

Other assets increased $3,310,000 at March 31, 2005, as compared with March 31, 2004, as a result of deferred taxes on unrealized losses on available for sale securities.

Deposits

Total deposits increased $20,095,000 at March 31, 2005, as compared with March 31, 2004. 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.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase

Federal funds purchased and securities sold under agreements to repurchase increased $23,749,000 at March 31, 2005, as compared with March 31, 2004, as the result of the reallocation of funds by certain customers between deposit products and non-deposit products.

Borrowings from Federal Home Loan Bank

The Company acquired funds from the Federal Home Loan Bank in the management of its liquidity position.

Notes Payable

Notes payable decreased at March 31, 2005, as compared with March 31, 2004, as a result of the maturity and/or early payoff of Company debt.

Other Liabilities

Other liabilities increased $1,022,000 at March 31, 2005, as compared with March 31, 2004, as a result of the impact of increasing health care costs on the liability for post-retirement health benefits during 2004, and an increase in the liabilities related to deferred compensation benefits for officers of the bank subsidiary.

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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 15.01% at March 31, 2005, as compared with 15.69% at March 31, 2004. 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

The schedule on page 17 provides an analysis of the change in total interest income and total interest expense for the quarters ended March 31, 2005 and 2004. Changes in interest income are generally attributable to positive changes in interest rates and volume related to interest-earning assets, particularly loans. Changes in interest expense, were impacted by the increase in the cost of funds during the last three quarters.

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

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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 are 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 recorded a negative provision during the first quarter of 2005. The Company expects to record provisions during the remaining quarters of 2005, as deemed necessary, based on its analyses. See Note 7 for a discussion of the effect of the payoff of a loan previously classified as impaired.

Service Charges on Deposit Accounts

Service charges on deposit accounts decreased $322,000 for the quarter ended March 31, 2005, as compared with the quarter ended March 31, 2004, as a result of a decrease in fee income from off- site ATMs no longer under contract with the Company.

Other Income

Other income decreased $83,000 for the quarter ended March 31, 2005, as compared with the quarter ended March 31, 2004, as result of gains on the sale or call of available for sale securities during the first quarter of 2004.

Other Expense

Other expense decreased $302,000 for the quarter ended March 31, 2005, as compared with the quarter ended March 31, 2004, as a result of a decrease in expenses for off-site ATMs no longer under contract with the Company.

Extraordinary Gain

An extraordinary gain of $459,000, net of taxes, was recorded as a result of the PULSE EFT Association Exchange.

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 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 2005, as necessary.

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Item 4: Controls and Procedures

As of March 31, 2005, an evaluation was performed under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the period ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

Item 4 — Submission of Matters to a Vote of Security Holders

(a) The Annual Meeting of Shareholders of the Company was held on April 13, 2005.

(b) The following five directors were elected at the meeting to hold office for a term of one year:

Of the 5,552,859 shares outstanding and eligible to vote on April 13, shares not voted amounted to 690,426.274.

Item 5 — Other Information

None.

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Item 6 — Exhibits and Reports on Form 8-K

(a) Exhibits

(b) Reports on Form 8-K

A Form 8-K was filed on January 12, 2005, March 10, 2005, April 11, 2005 and May 12, 2005.

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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)

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