Since 2004, The Peoples Bank has acted as presenting sponsor of Cruisin’ The Coast, the largest single tourism event on the Mississippi Gulf Coast. In 2010, some 5,000 cars registered for the event, lifting Cruisin’ to pre-Katrina levels of participation. Each Wednesday of the week-long event features the Biloxi Block party, where the focus and music stages are set up in front of the bank’s Main Branch.

During 2010, our bank subsidiary charged off $8,291,000 in loans, half of which related to three relationships in residential development. Meanwhile, we added $6,845,000 to our loan loss reserves, directly reducing our net income.

Adding further pressure to our earnings is the lowest interest rate environment in history. When higher-paying securities in our portfolio come due or are called, they are replaced with similar issues that bear unnaturally low interest rates. We hear complaints from our own customers every day about how little they earn on their savings, and I can personally assure you that your bank feels that same pain.

Meanwhile, the uncertain economic outlook has caused businesses in our area to pull back from expansion. Facing high unemployment rates and declining home values, it is no surprise that consumers are reluctant to borrow. As a result, our loan volume, which had remained relatively stable through the recession, declined 11.85% in 2010 from the balance at the end of 2009.

Fortunately, our historically conservative philosophy of maintaining a strong foundation of capital has served us well and continues to do so. At the end of 2010, our primary capital reserve ratio stood at 12.96%, well in excess of what regulators demand today and nearly a half percent higher than the year before.

This recession has claimed a number of banks. Beyond the regularly reported failures of the week are the collateral casualties of great banking franchises that are disappearing because they could no longer stand on their own. We have seen that sad tale across the country, and we are now seeing it right here on the Mississippi Gulf Coast.

The Peoples Bank will not be one of the financial institutions to evaporate into banking history. As my father said many times, banks do not get strong because they are old;

they get old because they are strong. The Peoples Bank is built to survive times like these. We will succeed when the tide changes. And the tide will change. One thing we know for sure about recessions is that they eventually end.

We have maintained a focus for some time on reducing operating expenses. Our non-interest expenses, which essentially represent our operating expenses, decreased slightly in 2010 compared to 2009, largely by realizing savings in several areas such as compensation and benefits, advertising, dues and training.

Our commitment to our stockholders, to our brand and to our community remains unshaken. Although the economic environment is as difficult as any of us has seen, we have maintained our support to our local business and consumer community.

For instance, we have continued our role as presenting sponsor of Cruisin’ the Coast, the largest single tourism event of the year that in 2010 climbed back to the participation levels enjoyed before Katrina.

During the spring, we also hosted our annual Shred Day, a unique event on the Coast that invites residents to bring sensitive financial documents to be professionally shredded to help prevent fraud and identity theft. The program has been met with such enthusiasm that we expanded it to a second location in 2010.

As we have for several years, our branches served as drop-off locations for the annual Coats for Kids campaign to benefit less fortunate youth in our community during the holiday season. Earlier in the year, we offered our branches as drop-off locations to supplement the efforts of local Goodwill Industries.

Our employees remain equally committed to supporting our community. They have maintained their program of raising funds for local charities which they select each

For many years, employees of The Peoples Bank have selected local charities to receive funds that the employees generate themselves through a variety of events. In addition, the bank makes a corporate donation to each of the selected charities. The current economic downturn has not diminished the commitment by The Peoples Bank or its employees. In late 2010, bank CEO Chevis Swetman and Gertrude Newman, right, chair of the employee Charity Committee, presented a $5,000 check to Cindy Hanson, president of the Gulf Coast Down Syndrome Society and member Boe Collins.

Several employees of The Peoples Bank regularly volunteer at Biloxi’s Loaves and Fishes program. From left, Toni Ganucheau, Cassandra Nelson, Jackie Henson and Lauri Wood prepare meals to be distributed to disadvantaged residents and senior citizens in the area.

year. And the bank has maintained our support of that program with corporate gifts to those charities to launch our employee campaign.

Meanwhile, our managers have continued to donate their time and talents to the local business community. Executive vice president Wes Fulmer served as chairman of the Coast Chamber of Commerce during 2010, and Waveland branch manager/vice president Basil Kennedy was named Citizen of the Year by the Hancock Chamber of Commerce. In addition, senior vice president Ann Guice was recognized by the Biloxi Sun Herald in its annual selection of Outstanding Community Leaders.

These and so many other activities to benefit our community represent the soul of our brand. As we move into 2011, we celebrate 115 years of service to the Gulf Coast. Our roots are here. Our leaders are here. And we are here.

Our existence and ultimate success would not be possible without a dedicated, committed group of directors, managers and employees. They have endured the pain of frozen compensation, tighter expense control, increased regulatory burden. Yet throughout, they maintain a positive attitude that together we will all come though this long and difficult period stronger than before.

I thank them all, as I thank you for your trust in our efforts to protect and increase the value of your investment in this old and strong institution.

Sincerely yours,

Chevis C. Swetman
Chairman of the board
President & Chief Executive Officer

Source: Wall Street Journal, January 31, 2011