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PEOPLES FINANCIAL CORP /MS/ - Annual Report: 2003 (Form 10-K)

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
       OR


[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission File Number 0-30050

PEOPLES FINANCIAL CORPORATION


(Exact name of registrant as specified in its charter)
     
Mississippi   64-0709834

(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification number
     
Lameuse and Howard Avenues, Biloxi, Mississippi   39533

(Address of principal executive offices)   (Zip code)

228-435-5511


(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

     
  Name of Each Exchange on
Title of Each Class   Which Registered

 
None   None

Securities registered pursuant to Section 12 (g) of the Act:

Common, $1.00 Par Value


(Title of each class)

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. YES    [X]   NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.   [X]

 


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Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act.) YES [   ]   NO [X]

At June 30, 2003, the aggregate market value of the registrant’s voting stock held by non-affiliates was approximately $61,707,000.

On March 1, 2004, the registrant had outstanding 5,557,379 shares of common stock, par value of $1.00 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Annual Report to Stockholders for the year ended December 31, 2003 are incorporated by reference into Parts I, II and III of this report. Portions of the Registrant’s Definitive Proxy Statement issued in connection with the Annual Meeting of Shareholders to be held April 14, 2004, are incorporated by reference into Part III of this report.

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CONTENTS

             
           
  Business     4  
  Properties     27  
  Legal Proceedings     27  
  Submission of Matters to a Vote of Security Holders     27  
           
  Market for the Registrant’s Common Stock And Related Stockholder Matters     27  
  Selected Financial Data     27  
  Management’s Discussion and Analysis of Financial Condition And Results of Operations     27  
  Quantitative and Qualitative Disclosures About Market Risk     27  
  Financial Statements and Supplementary Data     28  
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     28  
  Controls and Procedures     28  
           
  Directors and Executive Officers of the Registrant     28  
  Executive Compensation     29  
  Security Ownership of Certain Beneficial Owners and Management     29  
  Certain Relationships and Related Transactions     29  
  Principal Accountant Fees and Services     29  
           
  Exhibits, Financial Statement Schedules and Reports On Form 8-K     30  
 Description of Automobile Plan
 Directors' Deferred Income Plan Agreements
 Executive Supplemental Income Plan Agreements
 Split Dollar Plan Agreements
 Annual Report to Shareholders - Year End 12/31/03
 Consent of Certified Public Accountants
 Certification of Chief Executive Officer
 Certification of Chief Financial Officer
 Certification of Chief Executive Officer
 Certification of Chief Financial Officer

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PART I

ITEM 1 - DESCRIPTION OF BUSINESS

THE REGISTRANT

Peoples Financial Corporation (the “Company”) was established as a one bank holding company on December 18, 1984. The Company is headquartered in Biloxi, Mississippi. At December 31, 2003, the Company operated in the state of Mississippi through its wholly-owned subsidiary, The Peoples Bank, Biloxi, Mississippi (“the Bank”). The Company is now engaged, through this subsidiary, in the banking business. The Bank is the Company’s principal asset and primary source of revenue.

NONBANK SUBSIDIARY

On August 22, 1985, PFC Service Corp. (“PFC”) was chartered and began operations as the second wholly-owned subsidiary of Peoples Financial Corporation on October 3, 1985. The purpose of PFC was principally the leasing of automobiles and equipment under direct financing and sales-type leases that expired in various periods through 1993. PFC is inactive at this time.

THE BANK SUBSIDIARY

The Company’s wholly-owned bank subsidiary is The Peoples Bank, which was originally chartered in 1896 in Biloxi, Mississippi. The Bank is a state chartered bank whose deposits are insured under the Federal Deposit Insurance Act. The Bank is not a member of the Federal Reserve System. The legal name of the Bank was changed to The Peoples Bank, Biloxi, Mississippi, during 1991.

The Bank currently offers a variety of loan and deposit services to individuals and small to middle market businesses within its trade area. Deposit services include interest bearing and non-interest bearing checking accounts, savings accounts, certificates of deposit, and IRA accounts. The Bank also offers a non-deposit funds management account, which is not insured by the FDIC. Loan services include business, real estate, construction, personal and installment loans, with an emphasis on commercial lending. The Bank also offers a variety of other functions including collection services, asset management and trust services, wire services, safe deposit box facilities, night drop facilities, cash management, automated teller machines and Internet, or home, banking.

The Bank has a large number of customers acquired over a period of many years and is not dependent upon a single customer or upon a few customers. The Bank also provides services to customers representing a wide variety of industries including seafood, retail, hospitality, gaming and construction. While the Company has pursued external growth strategies on a limited basis, its primary focus has been on internal growth by the Bank through the establishment of new branch locations and an emphasis on strong customer relationships.

The Main Office, operations center and asset management and trust services of the Bank are located in downtown Biloxi, MS. At December 31, 2003, the Bank also had fifteen (15) branches located

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throughout Harrison, Hancock, Jackson and Stone Counties. The Bank has automated teller machines (“ATM”) at its Main Office, all branch locations and at numerous non-proprietary locations.

At December 31, 2003, the Bank employed 207 full-time employees and 17 part-time employees.

COMPETITION

The Bank is in direct competition with numerous local and regional commercial banks as well as other non-bank institutions. Interest rates paid and charged on deposits and loans are the primary competitive factors within the Bank’s trade area. The Bank also competes for deposits and loans with insurance companies, finance companies and automobile finance companies. Recent legislation may further impact the competitors in this trade area. The Bank intends to continue its strategy of being a local, community bank offering traditional bank services and providing quality service in its local trade area.

ASSET MANAGEMENT AND TRUST SERVICES

The Bank’s Asset Management and Trust Services Department offers personal trust, agencies and estate services including living and testamentary trusts, executorships, guardianships, and conservatorships. Benefit accounts maintained by the Department primarily include self-directed individual retirement accounts. Escrow management, stock transfer and bond paying agency accounts are available to corporate customers.

MISCELLANEOUS

The Bank holds no patents, licenses (other than licenses required to be obtained from appropriate bank regulatory agencies), franchises or concessions. During 1994, the Bank obtained the rights to the registered trademark, “The Mint”. There has been no significant change in the kind of services offered by the Bank during the last three fiscal years.

The Bank has not engaged in any research activities relating to the development of new services or the improvement of existing services except in the normal course of its business activities. The Bank presently has no plans for any new line of business requiring the investment of a material amount of total assets.

Most of the Bank’s business originates from within Harrison, Hancock, Stone and Jackson Counties in Mississippi; however, some business is obtained from Claiborne County, Pearl River County and the other counties in southern Mississippi. There has been no material effect upon the Bank’s capital expenditures, earnings or competitive position as a result of federal, state or local environmental regulations.

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REGULATION AND SUPERVISION

The Company is required to file certain reports with, and otherwise comply with the rules and regulations of, the Securities and Exchange Commission under federal securities laws.

The Company is a registered one bank holding company under the Bank Holding Company Act. As such, the Company is required to file periodic reports and such additional information as the Federal Reserve may require. The Federal Reserve Board may also make examinations of the Company and its subsidiaries. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire substantially all the assets of any bank or ownership or control of any voting shares of any bank if, after the acquisition, it would own or control, directly or indirectly, more than 5 percent of the voting shares of the bank.

A bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of, voting shares of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve to be so closely related to banking or the managing or controlling of banks as to be a proper incident thereto. Some of the activities the Federal Reserve Board has determined by regulation to be closely related to banking are the making and servicing of loans, performing certain bookkeeping or data processing services, acting as fiduciary or investment or financial advisor, making equity or debt investments in corporations or projects designed primarily to promote community welfare, leasing transactions if the functional equivalent of an extension of credit and mortgage banking or brokerage.

A bank holding company and its subsidiaries are also prohibited from acquiring any voting shares of or interest in, any banks located outside the state in which the operations of the bank holding company’s subsidiaries are located, unless the acquisition is specially authorized by the statute of the state in which the target is located. Mississippi has enacted legislation which authorizes interstate acquisitions of banking organizations by bank holding companies outside of Mississippi, and also interstate branching transactions, subject to certain conditions and restrictions.

The Bank is subject to the regulation of and examination by the Mississippi Department of Banking and Consumer Finance (“Department of Banking”) and the Federal Deposit Insurance Corporation (“FDIC”). Areas subject to regulation include reserves, investments, loans, mergers, branching, issuance of securities, payment of dividends, capital adequacy, management practices and all other aspects of banking operations. In addition to regular examinations, the Bank must furnish periodic reports to its regulatory authorities containing a full and accurate statement of affairs. The Bank is subject to deposit insurance assessments by the FDIC and the Department of Banking.

The earnings of commercial banks and bank holding companies are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. In particular, the Federal Reserve Board regulates money and credit conditions, and interest rates, primarily through open market operations in U. S. Government securities, varying the discount rate of member and nonmember bank borrowing, setting reserve requirements against bank deposits and regulating interest rates payable by banks on certain deposits. These policies influence to a varying extent the overall growth and distribution of bank loans,

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investments and deposits and the interest rates charged on loans. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

RECENT REGULATION AND SUPERVISION LEGISLATION

During 1999, the Gramm-Leach-Bliley Act (the “Act”) was signed into law. The Act allows bank holding companies to engage in a wider range of financial activities. In order to engage in such activities, which, among others, include underwriting and selling insurance, providing financial, investment or economic advisory services, and underwriting, dealing in or making a market in, services, a bank holding company must elect to become a financial holding company. The Act also authorized the establishment of financial subsidiaries in order to engage in such financial activities, with certain limitations.

The Act also contains a number of other provisions affecting the Company’s operations . One of the most important of these provisions relates to the issue of privacy. Federal banking regulators were authorized by the Act to adopt rules designed to protect the financial privacy of consumers. These rules implemented notice requirements and restrictions on a financial institution’s ability to disclose nonpublic personal information about consumers to non-affiliated third parties.

As of the date of this Form 10-K, the Company has not taken any action to adopt either the financial holding company or the financial subsidiary structures that were authorized by the Act.

SUPPLEMENTAL STATISTICAL INFORMATION

Schedules I-A through VII present certain statistical information regarding the Company. This information is not audited and should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements found at pages 10 - 29 of the 2003 Annual Report to Shareholders.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND INTEREST RATES AND DIFFERENTIALS

Net Interest Income, the difference between Interest Income and Interest Expense, is the most significant component of the Company’s earnings. For interest analytical purposes, Management adjusts Net Interest Income to a “taxable equivalent” basis using a 34% Federal Income Tax rate on tax-exempt items (primarily interest on municipal securities).

Another significant statistic in the analysis of Net Interest Income is the effective interest differential, also called the net yield on earning assets. The net yield is the difference between the rate of interest earned on earning assets and the effective rate paid for all funds, non-interest bearing as well as interest bearing. Since a portion of the Bank’s deposits do not bear interest, such as demand deposits, the rate paid for all funds is lower than the rate on interest bearing liabilities alone.

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Recognizing the importance of interest differential to total earnings, Management places great emphasis on managing interest rate spreads. Although interest differential is affected by national, regional and area economic conditions, including the level of credit demand and interest rates, there are significant opportunities to influence interest differential through appropriate loan and investment policies which are designed to maximize the interest differential while maintaining sufficient liquidity and availability of “incremental funds” for purposes of meeting existing commitments and investment in lending and investment opportunities that may arise.

The information included in Schedule I-F presents the change in interest income and interest expense along with the reason(s) for these changes. The change attributable to volume is computed as the change in volume times the old rate. The change attributable to rate is computed as the change in rate times the old volume. The change in rate/volume is computed as the change in rate times the change in volume.

SUMMARY OF LOAN LOSS EXPERIENCE

In the normal course of business, the Bank assumes risks in extending credit. The Bank manages these risks through its lending policies, loan review procedures and the diversification of its loan portfolio. Although it is not possible to predict loan losses with complete accuracy, Management constantly reviews the characteristics of the loan portfolio to determine its overall risk profile and quality.

Constant attention to the quality of the loan portfolio is achieved by the loan review process. Throughout this ongoing process, Management is advised of the condition of individual loans and of the quality profile of the entire loan portfolio. Any loan or portion thereof which is classified “loss” by regulatory examiners or which is determined by Management to be uncollectible because of such factors as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged-off.

Provisions are charged to operating expense based upon historical loss experience, and additional amounts are provided when, in the opinion of Management, such provisions are not adequate based upon the current factors affecting loan collectibility.

The allocation of the allowance for loan losses by loan category is based on the factors mentioned in the preceding paragraphs. Accordingly, since all of these factors are subject to change, the allocation is not necessarily indicative of the breakdown of future losses.

The comments concerning the provision for loan losses and the allowance for loan losses presented in “Management’s Discussion and Analysis” at pages 5 - 9 of the 2003 Annual Report to Shareholders are incorporated herein by reference.

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RETURN ON EQUITY AND ASSETS

The information under the captions “Five-Year Comparative Summary of Selected Financial Information” on page 31 and “Management’s Discussion and Analysis” on pages 5 - 9 of the 2003 Annual Report are incorporated herein by reference.

DIVIDEND PAYOUT

                         
    Years Ended December 31,
    2003
  2002
  2001
Dividend payout ratio
    32.22 %     42.11 %     33.80 %
 
   
 
     
 
     
 
 

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SCHEDULE I-A

Distribution of Average Assets, Liabilities and Shareholders’ Equity for the Periods Indicated (2)

                         
Years Ended December 31, (In thousands)
  2003
  2002
  2001
ASSETS:
                       
Cash and due from financial institutions
  $ 34,423     $ 34,560     $ 33,948  
Available for sale securities:
                       
Taxable securities
    189,053       141,296       86,590  
Non-taxable securities
    5,359       2,054       3,628  
Other securities
    6,454       6,511       6,747  
Held to maturity securities:
                       
Taxable securities
    6,629       19,079       65,783  
Non-taxable securities
    3,619       5,058       5,829  
Net loans (1)
    287,504       319,023       353,316  
Federal funds sold
    5,685       11,677       5,595  
Other assets
    35,522       30,696       30,498  
 
   
 
     
 
     
 
 
TOTAL ASSETS
  $ 574,248     $ 569,954     $ 591,934  
 
   
 
     
 
     
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY:
                       
Non-interest bearing deposits
  $ 119,038     $ 77,254     $ 69,375  
Interest bearing deposits
    267,017       325,135       363,950  
 
   
 
     
 
     
 
 
Total deposits
    386,055       402,389       433,325  
Federal funds purchased and securities sold under agreements to repurchase
    87,912       74,580       66,606  
Other liabilities
    17,793       12,631       13,560  
 
   
 
     
 
     
 
 
Total liabilities
    491,760       489,600       513,491  
Shareholders’ equity
    82,488       80,354       78,443  
 
   
 
     
 
     
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 574,248     $ 569,954     $ 591,934  
 
   
 
     
 
     
 
 

(1)   Gross loans and discounts, net of unearned income and allowance for loan losses.

(2)   All averages are computed on a daily basis with the exception of deposits, which were computed on a monthly basis. Daily averages were not available for deposits.

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SCHEDULE I-B
Average (2) Amount Outstanding for Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated

                         
Years Ended December 31, (In thousands)
  2003
  2002
  2001
INTEREST EARNING ASSETS:
                       
Loans (1)
  $ 293,708     $ 324,757     $ 358,291  
Federal funds sold
    5,685       11,677       5,595  
Available for sale securities:
                       
Taxable securities
    189,053       141,296       86,590  
Non-taxable securities
    5,359       2,054       3,628  
Other securities
    6,454       6,511       6,747  
Held to maturity securities:
                       
Taxable securities
    6,629       19,079       65,783  
Non-taxable securities
    3,619       5,058       5,829  
 
   
 
     
 
     
 
 
TOTAL INTEREST EARNING ASSETS
  $ 510,507     $ 510,432     $ 532,463  
 
   
 
     
 
     
 
 
INTEREST BEARING LIABILITIES:
                       
Savings and negotiable interest bearing deposits
  $ 129,799     $ 153,867     $ 144,780  
Time deposits
    137,218       171,268       219,170  
Federal funds purchased and securities sold under agreements to repurchase
    87,912       74,580       66,606  
Other borrowed funds
    10,749       6,004       7,152  
 
   
 
     
 
     
 
 
TOTAL INTEREST BEARING LIABILITIES
  $ 365,678     $ 405,719     $ 437,708  
 
   
 
     
 
     
 
 

(1) Net of unearned income. Includes nonaccrual loans.

(2) All averages are computed on a daily basis with the exception of deposits, which were computed on a monthly basis. Daily averages were not available for deposits.

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SCHEDULE I-C
Interest Earned or Paid on the Major Categories of Interest Earning Assets
and Interest Bearing Liabilities for the Periods Indicated

                         
Years Ended December 31, (In thousands)
  2003
  2002
  2001
INTEREST EARNED ON:
                       
Loans (2)
  $ 17,182     $ 20,061     $ 28,174  
Federal funds sold
    62       196       204  
Available for sale securities:
                       
Taxable securities
    6,893       5,658       4,407  
Non-taxable securities
    268       113       243  
Other securities
    249       257       446  
Held to maturity securities:
                       
Taxable securities
    311       900       3,540  
Non-taxable securities
    290       420       536  
 
   
 
     
 
     
 
 
TOTAL INTEREST EARNED (1)
  $ 25,255     $ 27,605     $ 37,550  
 
   
 
     
 
     
 
 
INTEREST PAID ON:
                       
Savings and negotiable interest bearing deposits
  $ 1,489     $ 2,398     $ 3,990  
Time deposits
    2,896       5,654       11,707  
Federal funds purchased and securities sold under agreements to repurchase
    998       1,180       2,220  
Other borrowed funds
    456       384       437  
 
   
 
     
 
     
 
 
TOTAL INTEREST PAID
  $ 5,839     $ 9,616     $ 18,354  
 
   
 
     
 
     
 
 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2003, 2002 and 2001.

(2) Loan fees of $547, $521 and $386 for 2003, 2002 and 2001, respectively, are included in these figures.

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SCHEDULE I-D
Average Interest Rate Earned or Paid for Major Categories of
Interest Earning Assets and Interest Bearing Liabilities for the Periods Indicated

                         
Years Ended December 31, (In thousands)
  2003
  2002
  2001
AVERAGE RATE EARNED ON:
                       
Loans
    5.85 %     6.18 %     7.86 %
Federal funds sold
    1.09       1.68       3.65  
Available for sale securities:
                       
Taxable securities
    3.65       4.00       5.09  
Non-taxable securities
    5.00       5.50       6.70  
Other securities
    3.86       3.95       6.61  
Held to maturity securities:
                       
Taxable securities
    4.69       4.72       5.38  
Non-taxable securities
    8.01       8.30       9.20  
 
   
 
     
 
     
 
 
TOTAL (weighted average rate) (1)
    4.95 %     5.41 %     7.05 %
 
   
 
     
 
     
 
 
AVERAGE RATE PAID ON:
                       
Savings and negotiable interest bearing deposits
    1.15 %     1.56 %     2.76 %
Time deposits
    2.11       3.30       5.34  
Federal funds purchased and securities sold under agreements to repurchase
    1.14       1.58       3.33  
Other borrowed funds
    4.24       6.40       6.11  
 
   
 
     
 
     
 
 
TOTAL (weighted average rate)
    1.60 %     2.37 %     4.19 %
 
   
 
     
 
     
 
 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2003, 2002 and 2001.

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SCHEDULE I-E
Net Interest Earnings and Net Yield on Interest Earning Assets

                         
Years Ended December 31,            
(In thousands except percentages)
  2003
  2002
  2001
Total interest income (1)
  $ 25,255     $ 27,605     $ 37,550  
Total interest expense
    5,839       9,616       18,354  
 
   
 
     
 
     
 
 
Net interest earnings
  $ 19,416     $ 17,989     $ 19,196  
 
   
 
     
 
     
 
 
Net yield on interest earning assets
    3.83 %     3.52 %     3.61 %
 
   
 
     
 
     
 
 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2003, 2002 and 2001.

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SCHEDULE I-F
Analysis of Changes In Interest Income and Interest Expense
(In thousands)

                                                 
                    Attributable to:
   
                    Increase                   Rate /
    2003
  2002
  (Decrease)
  Volume
  Rate
  Volume
INTEREST INCOME:(1)
                                               
Loans (2) (3)
  $ 17,182     $ 20,061     $ (2,879 )   $ (1,918 )   $ (1,063 )   $ 102  
Federal funds sold
    62       196       (134 )     (170 )     268       (232 )
Available for sale securities:
                                               
Taxable securities
    6,893       5,658       1,235       1,912       (506 )     (171 )
Non-taxable securities
    268       113       155       181       (10 )     (16 )
Other securities
    249       257       (8 )     (2 )     (6 )        
Held to maturity securities:
                                               
Taxable securities
    311       900       (589 )     (587 )     (5 )     3  
Non-taxable securities
    290       420       (130 )     (119 )     (15 )     4  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total
  $ 25,255     $ 27,605     $ (2,350 )   $ (703 )   $ (1,337 )   $ (310 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
INTEREST EXPENSE:
                                               
Savings and negotiable interest bearing deposits
  $ 1,489     $ 2,398     $ (909 )   $ (375 )   $ (632 )   $ 98  
Time deposits
    2,896       5,654       (2,758 )     (1,124 )     (2,039 )     405  
Federal funds purchased and securities sold under agreements to repurchase
    998       1,180       (182 )     211       (333 )     (60 )
Other borrowed funds
    456       384       72       303       (129 )     (102 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total
  $ 5,839     $ 9,616     $ (3,777 )   $ (985 )   $ (3,133 )   $ 341  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2003 and 2002.

(2) Loan fees are included in these figures.

(3) Includes interest on nonaccrual loans.

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SCHEDULE I-F (continued)
Analysis of Changes in Interest Income and Interest Expense
(In thousands)

                                                 
                    Attributable to:
   
                    Increase                   Rate /
    2002
  2001
  (Decrease)
  Volume
  Rate
  Volume
INTEREST INCOME:(1)
                                               
Loans (2) (3)
  $ 20,061     $ 28,174     $ (8,113 )   $ (2,637 )   $ (6,042 )   $ 566  
Federal funds sold
    196       204       (8 )     222       (110 )     (120 )
Available for sale securities:
                                               
Taxable securities
    5,658       4,407       1,251       2,784       (940 )     (593 )
Non-taxable securities
    113       243       (130 )     (105 )     (43 )     18  
Other securities
    257       446       (189 )     (16 )     (180 )     7  
Held to maturity securities:
                                               
Taxable securities
    900       3,540       (2,640 )     (2,513 )     (437 )     310  
Non-taxable securities
    420       536       (116 )     (71 )     (52 )     7  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total
  $ 27,605     $ 37,550     $ (9,945 )   $ (2,336 )   $ (7,804 )   $ 195  
 
   
 
     
 
     
 
     
 
     
 
     
 
 
INTEREST EXPENSE:
                                               
Savings and negotiable interest bearing deposits
  $ 2,398     $ 3,990     $ (1,592 )   $ 250     $ (1,734 )   $ (108 )
Time deposits
    5,654       11,707       (6,053 )     (2,559 )     (4,472 )     978  
Federal funds purchased and securities sold under agreements to repurchase
    1,180       2,220       (1,040 )     266       (1,166 )     (140 )
Other borrowed funds
    384       437       (53 )     (70 )     20       (3 )
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total
  $ 9,616     $ 18,354     $ (8,738 )   $ (2,113 )   $ (7,352 )   $ 727  
 
   
 
     
 
     
 
     
 
     
 
     
 
 

(1) All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2002 and 2001.

(2) Loan fees are included in these figures.

(3) Includes interest on nonaccrual loans.

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SCHEDULE II-A
Securities Portfolio
Book Value of Securities Portfolio at the Dates Indicated

                         
December 31, (In thousands):
  2003
  2002
  2001
Available for sale securities:
                       
U. S. Government, agency and corporate obligations
  $ 195,888     $ 142,751     $ 136,149  
States and political subdivisions
    7,267       4,139       1,763  
Other securities
    4,331       4,594       4,990  
 
   
 
     
 
     
 
 
Total
  $ 207,486     $ 151,484     $ 142,902  
 
   
 
     
 
     
 
 
Held to maturity securities:
                       
U. S. Government, agency and corporate obligations
  $ 1,000     $ 12,998     $ 32,635  
States and political subdivisions
    3,353       4,590       5,644  
 
   
 
     
 
     
 
 
Total
  $ 4,353     $ 17,588     $ 38,279  
 
   
 
     
 
     
 
 

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SCHEDULE II-B
Maturity of Securities Portfolio at December 31, 2003
And Weighted Average Yields of Such Securities

                                                                 
    Maturity
    (In thousands except percentage data)
                    After one but   After five but    
    Within one year
  within five years
  within ten years
  After ten years
    Amount   Yield   Amount   Yield   Amount   Yield   Amount   Yield
   
 
 
 
 
 
 
 
Available for sale securities:
                                                               
U. S. Government, agency and corporate obligations
  $ 30,271       3.37 %   $ 101,274       3.53 %   $ 61,785       4.36 %   $ 2,558       5.43 %
States and political subdivisions
    167       2.93 %     3,422       3.65 %     1,471       3.43 %     2,207       3.69 %
Other
                                                    4,331       3.86 %
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Totals
  $ 30,438       3.36 %   $ 104,696       3.54 %   $ 63,256       4.28 %   $ 9,096       4.39 %
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Held to maturity securities:
                                                               
U. S. Government, agency and corporate obligations
  $ 1,000       5.29 %   $               $               $            
States and political subdivisions
    131       4.45 %     1,212       5.25 %     283       5.27 %     1,727       5.23 %
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Totals
  $ 1,131       5.20 %   $ 1,212       5.25 %   $ 283       5.27 %   $ 1,727       5.23 %
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

Note: The weighted average yields are calculated on the basis of cost. Average yields on investments in states and political subdivisions are based on their contractual yield.

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SCHEDULE III-A
Loan Portfolio
Loans by Type Outstanding (1)

                                         
December 31, (In thousands):
  2003
  2002
  2001
  2000
  1999
Real estate, construction
  $ 14,896     $ 21,534     $ 25,636     $ 29,269     $ 24,793  
Real estate, mortgage
    223,246       197,478       224,524       235,835       215,726  
Loans to finance agricultural production and other loans to farmers
    3,980       7,375       7,241       11,019       8,441  
Commercial and industrial loans
    41,832       65,946       71,271       79,620       63,104  
Loans to individuals for household, family and other consumer expenditures
    11,020       15,990       15,068       17,186       16,476  
Obligations of states and political subdivisions
    2,560       3,637       3,233       3,967       2,723  
All other loans
    389       336       196       580       1,254  
 
   
 
     
 
     
 
     
 
     
 
 
Totals
  $ 297,923     $ 312,296     $ 347,169     $ 377,476     $ 332,517  
 
   
 
     
 
     
 
     
 
     
 
 

(1)   No foreign debt outstanding.

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SCHEDULE III-B

Maturities and Sensitivity to Changes in
Interest Rates of the Loan Portfolio as of December 31, 2003

                                 
    Maturity (In thousands)
            Over one year        
    One year or   through 5        
    less
  years
  Over 5 years
  Total
Loans:
                               
Real estate, construction
  $ 11,110     $ 2,012     $ 1,774     $ 14,896  
Real estate, mortgage
    47,011       131,642       44,593       223,246  
Loans to finance agricultural production and other loans to farmers
    3,860       120               3,980  
Commercial and industrial loans
    18,529       18,288       5,015       41,832  
Loans to individuals for household, family and other consumer expenditures
    4,264       6,573       183       11,020  
Obligations of states and political subdivisions
    241       812       1,507       2,560  
All other loans
    327       62               389  
 
   
 
     
 
     
 
     
 
 
Totals
  $ 85,342     $ 159,509     $ 53,072     $ 297,923  
 
   
 
     
 
     
 
     
 
 
Loans with pre-determined interest rates
  $ 22,067     $ 79,269     $ 14,584     $ 115,920  
Loans with floating interest rates
    63,275       80,240       38,488       182,003  
 
   
 
     
 
     
 
     
 
 
Totals
  $ 85,342     $ 159,509     $ 53,072     $ 297,923  
 
   
 
     
 
     
 
     
 
 

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SCHEDULE III-C
Non-Performing Loans

                                         
December 31, (In thousands):
  2003
  2002
  2001
  2000
  1999
Loans accounted for on a non-accrual basis (1)
  $ 7,415     $ 6,550     $ 650     $ 3,424     $ 100  
 
Loans which are contractually past due 90 or more days as to interest or principal payment, but are not included above
    4,867       2,828       1,732       24       1,238  

(1) The Bank places loans on a nonaccrual status when, in the opinion of Management, they possess sufficient uncertainty as to timely collection of interest or principal so as to preclude the recognition in reported earnings of some or all of the contractual interest. See Note C to the 2003 Annual Report to Shareholders for discussion of impaired loans.

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SCHEDULE IV-A
Summary of Loan Loss Expenses
(In thousands except percentage data)

                                         
    2003
  2002
  2001
  2000
  1999
Average amount of loans outstanding (1)
  $ 293,708     $ 324,757     $ 358,291     $ 359,624     $ 304,201  
 
   
 
     
 
     
 
     
 
     
 
 
Balance of allowance for loan losses at the beginning of period
  $ 6,697     $ 5,658     $ 4,568     $ 4,338     $ 4,382  
Loans charged-off:
                                       
Commercial, financial and agricultural
    109       139       895       2,088       334  
Consumer and other
    1,236       1,926       1,079       2,573       74  
 
   
 
     
 
     
 
     
 
     
 
 
Total loans charged-off
    1,345       2,065       1,974       4,661       408  
Recoveries of loans previously charged-off:
                                       
Commercial, financial and agricultural
    42       64       230       209       190  
Consumer and other
    558       612       331       490       54  
 
   
 
     
 
     
 
     
 
     
 
 
Total recoveries
    600       676       561       699       244  
 
   
 
     
 
     
 
     
 
     
 
 
Net loans charged-off
    745       1,389       1,413       3,962       164  
Provision for loan losses charged to operating expense
    447       2,428       2,503       4,192       120  
 
   
 
     
 
     
 
     
 
     
 
 
Balance of allowance for loan losses at end of period
  $ 6,399     $ 6,697     $ 5,658     $ 4,568     $ 4,338  
 
   
 
     
 
     
 
     
 
     
 
 
Ratio of net charge-offs during period to average loans outstanding
    0.25 %     0.43 %     0.39 %     1.10 %     0.05 %
 
   
 
     
 
     
 
     
 
     
 
 

(1) Net of unearned income.

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SCHEDULE IV-B
Allocation of the Allowance for Loan Losses

                                                                                 
    2003
  2002
  2001
  2000
  1999
            % of           % of           % of           % of           % of
            Loans           Loans to           Loans           Loans           Loans
Balance at December           to Total           Total           to Total           to Total           to Total
31, (In thousands)
  Amount
  Loans
  Amount
  Loans
  Amount
  Loans
  Amount
  Loans
  Amount
  Loans
Real estate, construction
  $ 658       5     $ 245       7     $ 256       7     $ 260       8     $ 289       7  
Real estate, mortgage
    3,229       74       3,770       63       4,260       65       2,913       62       2,647       65  
Loans to finance agricultural production and other loans to farmers
    20       1       70       2       72       2       237       3       245       3  
Commercial and industrial loans
    1,963       14       2,425       21       875       20       918       21       859       18  
Loans to individuals for household, family and other consumer expenditures
    525       4       173       5       175       4       200       4       256       5  
Obligations of states and political subdivisions
    -0-       1       -0-       1       -0-       1       -0-       1       -0-       1  
All other loans
    4       1       14       1       15       1       25       1       23       1  
Unallocated
    -0-       N/A       -0-       N/A       5       N/A       15       N/A       19       N/A  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 
Totals
  $ 6,399       100     $ 6,697       100     $ 5,658       100     $ 4,568       100     $ 4,338       100  
 
   
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
 

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SCHEDULE V
Summary of Average Deposits and Their Yields

                                                 
    2003
  2002
  2001
Years Ended December                        
31, (In thousands                        
except for percentage                        
data)
  Amount
  Rate
  Amount
  Rate
  Amount
  Rate
Demand deposits in domestic offices
  $ 119,038       N/A     $ 77,254       N/A     $ 69,375       N/A  
Negotiable interest bearing deposits in domestic offices
    86,447       1.27 %     119,034       1.45 %     119,900       2.76 %
Savings deposits in domestic offices
    43,352       .92 %     34,833       1.93 %     24,880       2.73 %
Time deposits in domestic offices
    137,218       2.11 %     171,268       3.30 %     219,170       5.34 %
 
   
 
     
 
     
 
     
 
     
 
     
 
 
Total deposits
  $ 386,055       1.14 %   $ 402,389       2.00 %   $ 433,325       3.62 %
 
   
 
     
 
     
 
     
 
     
 
     
 
 

Certificates of deposit outstanding in amounts $100,000 or more (in thousands) by the amount of time remaining until maturity as of December 31, 2003, are as follows:

         
Remaining maturity:
       
3 months or less
  $ 30,103  
Over 3 through 6 months
    19,348  
Over 6 months through 12 months
    7,526  
Over 12 months
    1,206  
 
   
 
 
Total
  $ 58,183  
 
   
 
 

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SCHEDULE VI
Short Term Borrowings
(In thousands except percentage data)

                         
    2003
  2002
  2001
Amount outstanding at December 31,
  $ 95,039     $ 67,246     $ 82,489  
Weighted average interest rate at December 31,
    1.03 %     1.08 %     1.62 %
Maximum outstanding at any month-end during year
  $ 97,757     $ 95,261     $ 82,489  
Average amount outstanding during year
  $ 87,912     $ 74,580     $ 66,606  
Weighted average interest rate
    1.14 %     1.58 %     3.33 %

Note: Short term borrowings include federal funds purchased from other banks and securities sold under agreements to repurchase.

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SCHEDULE VII
Interest Sensitivity/Gap Analysis

                                         
December 31, 2003 (In   0 - 3   4 - 12   1 - 5   Over 5    
thousands)
  Months
  Months
  Years
  Years
  Total
ASSETS:
                                       
Loans (1)
  $ 177,843     $ 15,202     $ 79,340     $ 18,123     $ 290,508  
Available for sale securities
    14,063       16,375       104,696       72,352       207,486  
Held to maturity securities
    101       1,029       1,213       2,010       4,353  
 
   
 
     
 
     
 
     
 
     
 
 
Total assets
  $ 192,007     $ 32,606     $ 185,249     $ 92,485     $ 502,347  
 
   
 
     
 
     
 
     
 
     
 
 
FUNDING SOURCES:
                                       
Interest bearing deposits
  $ 219,280     $ 53,985     $ 22,866     $ 2     $ 296,133  
Long-term funds
    10,068       205       748       6,159       17,180  
 
   
 
     
 
     
 
     
 
     
 
 
Total funding sources
  $ 229,348     $ 54,190     $ 23,614     $ 6,161     $ 313,313  
 
   
 
     
 
     
 
     
 
     
 
 
REPRICING/MATURITY GAP:
                                       
Period
  $ (37,341 )   $ (21,584 )   $ 161,635     $ 86,324     $ 189,034  
Cumulative
    (37,341 )     (58,925 )     102,710       189,034          
Period Gap/Total Assets
    (7.43 %)     (4.29 )%     32.18 %     17.18 %        
Cumulative Gap/Total Assets
    (7.43 %)     (11.72 )%     20.46 %     37.64 %        

     (1) Amounts stated include fixed and variable rate investments of the balance sheet that are still accruing interest. Variable rate instruments are included in the next period in which they are subject to a change in rate. The principal portions of scheduled payments on fixed rate instruments are included in periods in which they become due or mature.

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ITEM 2 — PROPERTIES

The principal properties of the Company are its 15 business locations, including the Main Office, which is located at 152 Lameuse Street in Biloxi, MS. All such properties are owned by the Company. The operations center is subject to a mortgage from the Small Business Administration. The address of the Main Office and branch locations are listed on page 34 of the 2003 Annual Report to Shareholders.

ITEM 3 — LEGAL PROCEEDINGS

The information included in Note K to the Consolidated Financial Statements included in the 2003 Annual Report to Shareholders is incorporated herein by reference.

ITEM 4 — SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS

None.

PART II

ITEM 5 — MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The information provided on page 32 of the 2003 Annual Report is incorporated herein by reference.

ITEM 6 — SELECTED FINANCIAL DATA

The information under the caption “Five Year Comparative Summary of Selected Financial Information” on page 31 of the 2003 Annual Report is incorporated herein by reference.

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 5 — 9 of the 2003 Annual Report is incorporated herein by reference.

ITEM 7a — QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information under the caption “Quantitative and Qualitative Disclosures about Market Risk” on pages 8 — 9 of the 2003 Annual Report is incorporated herein by reference.

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ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The following consolidated financial statements of the Company and consolidated subsidiaries and the independent auditors’ report appearing on pages 10 — 30 of the 2003 Annual Report are incorporated herein by reference:

 
Consolidated Statements of Condition on page 10
Consolidated Statements of Income on page 11
Consolidated Statements of Shareholders’ Equity on page 12 - 13
Consolidated Statements of Cash Flows on page 14
Notes to Consolidated Financial Statements on pages 15 - 29
Independent Auditors’ Report on page 30

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9a — CONTROLS AND PROCEDURES

Based on their evaluation, as of December 31, 2003, 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 December 31, 2003, there were no changes in internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information in Sections II and IX contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held April 14, 2004, which was filed by the Company in definitive form with the Commission on March 12, 2004, is incorporated herein by reference.

The Company’s Board of Directors has adopted a Code of Conduct that applies to not only the chief executive officer and the chief financial officer, but also all of the officers, directors and employees of the Company and its subsidiaries. A copy of this Code of Conduct can be found at the Company’s internet website at www.thepeoples.com. The Company intends to disclose any amendments to its

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Code of Conduct, and any waiver from a provision of the Code of Conduct granted to the Company’s chief executive officer or chief financial officer on the Company’s internet website within five business days following such amendment or waiver. The information contained on or connected to the Company’s internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that the Company may file with or furnish to the SEC.

ITEM 11 — EXECUTIVE COMPENSATION

The information in Section V contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held April 14, 2004, which was filed by the Company in definitive form with the Commission on March 12, 2004, is incorporated herein by reference.

ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in Sections III and IV contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held April 14, 2004, which was filed by the Company in definitive form with the Commission on March 12, 2004, is incorporated herein by reference.

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in Sections V, VI, VII and IX contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held April 14, 2004, which was filed by the Company in definitive form with the Commission on March 12, 2004, is incorporated herein by reference.

ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information in Section XII contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held April 14, 2004, which was filed by the Company in definitive form with the Commission on March 12, 2004, is incorporated herein by reference.

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PART IV

ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 — K

(a) 1. Index of Financial Statements:

     See Item 8.

(a) 2. Index of Financial Schedules:

     All other schedules have been omitted as not applicable or not required or because the information has been included in the financial statements or applicable notes.

(a) 3. Index of Exhibits:

                         
        Incorporated by            
        Reference to   Form       Exhibit
        Registration or File   of   Date of   Number in
    Description
  Number
  Report
  Report
  Report
(3.1)
  Articles of Incorporation   0-30050   10/a   6/21/99     3.1  
 
                       
(3.2)
  By-Laws   0-30050   10/a   6/21/99     3.2  
 
                       
(10.1)
  Description of Automobile Plan*                    
 
                       
(10.2)
  Directors’ Deferred Income Plan Agreements*                    
 
                       
(10.3)
  Executive Supplemental
Income Plan Agreements*
                   
 
                       
(10.4)
  Split Dollar Plan Agreements*                    
 
                       
(10.5)
  Deferred Compensation Plan   33-15595   10-K   12/31/93     10.5  
 
                       
(10.6)
  Description of Stock Incentive Plan   33-15595   10-K   12/31/01     10.6  
 
                       
(13)
  Annual Report to Shareholders for year ended December 31, 2003 * ( C)                    
 
                       
(21)
  Proxy Statement for Annual Meeting of Shareholders to be held April 14, 2004                    
 
                       
(22)
  Subsidiaries of the registrant   33-15595   10-K   12/31/88     22  

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        Incorporated by            
        Reference to   Form       Exhibit
        Registration or File   of   Date of   Number in
    Description
  Number
  Report
  Report
  Report
(23)
  Consent of Certified Public Accountants *                    
 
                       
(31.1)
  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes -Oxley Act of 2002*                    
 
                       
(31.2)
  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes — Oxley Act of 2002*                    
 
                       
(32.1)
  Certification of Chief Executive Officer Pursuant to 18 U.S.C. ss. 1350*                    
 
                       
(32.2)
  Certification of Chief Financial Officer Pursuant to 18 U.S.C. ss. 1350*                    

(b) Reports on Form 8-K:

A Form 8-K was filed on October 17, 2003 and January 12, 2004.

(C) Furnished for the information of the Commission only and not deemed “filed” except for those portions which are specifically incorporated herein.

* Filed herewith.

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Table of Contents

SIGNATURES

Pursuant to the requirements 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)

       
  Date: March 24, 2004  
 
BY:  /s/ Chevis C. Swetman  
 
 
  Chevis C. Swetman, Chairman of the Board  

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

       
 
BY:  /s/ Chevis C. Swetman  
 
 
Date: March 24, 2004
Chevis C. Swetman, Chairman, President and CEO
             
BY:
  /s/ Drew Allen

  BY:   /s/ Dan Magruder

Date:
  March 24, 2004   Date:   March 24, 2004
  Drew Allen, Director       Dan Magruder, Director
 
           
BY:
      BY:   /s/ Lyle M. Page
 
     
Date:
      Date:   March 24, 2004
  Rex E. Kelly, Director       Lyle M. Page, Director
 
           
      BY:   /s/ Lauri A. Wood
         
      Date:   March 24, 2004
          Lauri A. Wood, Principal Financial
          and Accounting Officer

32