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PEOPLES FINANCIAL CORP /MS/ - Annual Report: 2004 (Form 10-K)

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934       OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

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 þ NO o

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. þ

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

At June 30, 2004, the aggregate market value of the registrant’s voting stock held by non-affiliates was approximately $71,851,000.

On March 1, 2005, the registrant had outstanding 5,552,859 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, 2004 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 13, 2005, are incorporated by reference into Part III of this report.

 
 


CONTENTS

         
       
 
       
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 Annual Report to Shareholders
 Consent of Independent Registered Public Accounting Firm
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to 18 U.S.C. Section 1350
 Certification of CFO Pursuant to 18 U.S.C. Section 1350

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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, 2004, 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.

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The Main Office, operations center and asset management and trust services of the Bank are located in downtown Biloxi, MS. At December 31, 2004, the Bank also had fifteen (15) branches located 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, 2004, the Bank employed 212 full-time employees and 16 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. 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 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 common stock of the Company is listed on the NASDAQ small market exchange, such listing subjecting the Company to compliance with the exchange’s requirements with respect to reporting and other rules and regulations. See the comments regarding The Sarbanes-Oxley Act of 2002 presented in “Management’s Discussion and Analysis ” at pages 5 - 9 of the 2004 Annual Report to Shareholders, which is incorporated herein by reference.

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.

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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, 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

The Gramm-Leach-Bliley Act (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 2004 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).

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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.

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.

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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 2004 Annual Report to Shareholders and “Note A - Business and Summary of Significant Accounting Policies” at pages 15 - 29 of the 2004 Annual Report to Shareholders are incorporated herein by reference.

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 2004 Annual Report are incorporated herein by reference.

DIVIDEND PAYOUT

                         
    Years Ended December 31,  
    2004     2003     2002  
     
Dividend payout ratio
    33.65 %     32.22 %     42.11 %
     

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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)   2004     2003     2002  
 
ASSETS:
                       
Cash and due from financial institutions
  $ 38,639     $ 34,423     $ 34,560  
Available for sale securities:
                       
Taxable securities
    189,371       189,053       141,296  
Non-taxable securities
    6,272       5,359       2,054  
Other securities
    5,088       6,454       6,511  
Held to maturity securities:
                       
Taxable securities
    374       6,629       19,079  
Non-taxable securities
    3,162       3,619       5,058  
Net loans (1)
    316,638       287,504       319,023  
Federal funds sold
    563       5,685       11,677  
Other assets
    29,798       35,522       30,696  
     
TOTAL ASSETS
  $ 589,905     $ 574,248     $ 569,954  
     
LIABILITIES AND SHAREHOLDERS’ EQUITY:
                       
Non-interest bearing deposits
  $ 62,655     $ 119,038     $ 77,254  
Interest bearing deposits
    331,305       267,017       325,135  
     
Total deposits
    393,960       386,055       402,389  
Federal funds purchased and securities sold under agreements to repurchase
    95,922       87,912       74,580  
Other liabilities
    15,958       17,793       12,631  
     
Total liabilities
    505,840       491,760       489,600  
Shareholders’ equity
    84,065       82,488       80,354  
     
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 589,905     $ 574,248     $ 569,954  
     


(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)   2004     2003     2002  
 
INTEREST EARNING ASSETS:
                       
Loans (1)
  $ 323,190     $ 293,708     $ 324,757  
Federal funds sold
    563       5,685       11,677  
Available for sale securities:
                       
Taxable securities
    189,371       189,053       141,296  
Non-taxable securities
    6,272       5,359       2,054  
Other securities
    5,088       6,454       6,511  
Held to maturity securities:
                       
Taxable securities
    374       6,629       19,079  
Non-taxable securities
    3,162       3,619       5,058  
     
TOTAL INTEREST EARNING ASSETS
  $ 528,020     $ 510,507     $ 510,432  
     
 
                       
INTEREST BEARING LIABILITIES:
                       
Savings and negotiable interest bearing deposits
  $ 205,353     $ 129,799     $ 153,867  
Time deposits
    125,952       137,218       171,268  
Federal funds purchased and securities sold under agreements to repurchase
    95,922       87,912       74,580  
Other borrowed funds
    8,355       10,749       6,004  
     
TOTAL INTEREST BEARING LIABILITIES
  $ 435,582     $ 365,678     $ 405,719  
     


(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)   2004     2003     2002  
 
INTEREST EARNED ON:
                       
Loans (2)
  $ 17,526     $ 17,182     $ 20,061  
Federal funds sold
    62       62       196  
Available for sale securities:
                       
Taxable securities
    6,195       6,893       5,658  
Non-taxable securities
    559       268       113  
Other securities
    230       249       257  
Held to maturity securities:
                       
Taxable securities
    20       311       900  
Non-taxable securities
    248       290       420  
     
TOTAL INTEREST EARNED (1)
  $ 24,840     $ 25,255     $ 27,605  
     
 
                       
INTEREST PAID ON:
                       
Savings and negotiable interest bearing deposits
  $ 1,462     $ 1,489     $ 2,398  
Time deposits
    2,138       2,896       5,654  
Federal funds purchased and securities sold under agreements to repurchase
    1,043       998       1,180  
Other borrowed funds
    447       456       384  
     
TOTAL INTEREST PAID
  $ 5,090     $ 5,839     $ 9,616  
     


(1)     All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2004, 2003 and 2002.

(2)     Loan fees of $588, $547 and $521 for 2004, 2003 and 2002, 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)   2004     2003     2002  
 
AVERAGE RATE EARNED ON:
                       
Loans
    5.54 %     5.85 %     6.18 %
Federal funds sold
    1.06       1.09       1.68  
Available for sale securities:
                       
Taxable securities
    3.27       3.65       4.00  
Non-taxable securities
    8.91       5.00       5.50  
Other securities
    4.52       3.86       3.95  
Held to maturity securities:
                       
Taxable securities
    5.35       4.69       4.72  
Non-taxable securities
    7.84       8.01       8.30  
     
TOTAL (weighted average rate) (1)
    4.72 %     4.95 %     5.41 %
     
 
                       
AVERAGE RATE PAID ON:
                       
Savings and negotiable interest bearing deposits
    0.71 %     1.15 %     1.56 %
Time deposits
    1.70       2.11       3.30  
Federal funds purchased and securities sold under agreements to repurchase
    1.09       1.14       1.58  
Other borrowed funds
    5.36       4.24       6.40  
     
TOTAL (weighted average rate)
    1.17 %     1.60 %     2.37 %
     


(1)   All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2004, 2003 and 2002.

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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)   2004     2003     2002  
 
Total interest income (1)
  $ 24,840     $ 25,255     $ 27,605  
Total interest expense
    5,090       5,839       9,616  
     
Net interest earnings
  $ 19,750     $ 19,416     $ 17,989  
     
Net yield on interest earning assets
    3.75 %     3.83 %     3.52 %
     


(1)   All interest earned is reported on a taxable equivalent basis using a tax rate of 34% in 2004, 2003 and 2002.

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

                                                 
                            Attributable to:  
                    Increase                     Rate /  
    2004     2003     (Decrease)     Volume     Rate     Volume  
     
INTEREST INCOME:(1)
                                               
Loans (2) (3)
  $ 17,526     $ 17,182     $ 344     $ 1,341     $ (925 )   $ (72 )
Federal funds sold
    62       62               2       (1 )     (1 )
Available for sale securities:
                                               
Taxable securities
    6,195       6,893       (698 )     12       (708 )     (2 )
Non-taxable securities
    559       268       291       46       210       35  
Other securities
    230       249       (19 )     (53 )     43       (9 )
Held to maturity securities:
                                               
Taxable securities
    20       311       (291 )     (293 )     43       (41 )
Non-taxable securities
    248       290       (42 )     (37 )     (6 )     1  
     
Total
  $ 24,840     $ 25,255     $ (415 )   $ 1,018     $ (1,344 )   $ (89 )
     
 
                                               
INTEREST EXPENSE:
                                               
Savings and negotiable interest bearing deposits
  $ 1,462     $ 1,489     $ (27 )   $ 867     $ (565 )   $ (329 )
Time deposits
    2,138       2,896       (758 )     (238 )     (567 )     47  
Federal funds purchased and securities sold under agreements to repurchase
    1,043       998       45       91       (42 )     (4 )
Other borrowed funds
    447       456       (9 )     (102 )     119       (26 )
     
Total
  $ 5,090     $ 5,839     $ (749 )   $ 618     $ (1,055 )   $ (312 )
     


(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.
 
(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 /  
    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 II-A
Securities Portfolio
Book Value of Securities Portfolio at the Dates Indicated

                         
December 31, (In thousands):   2004     2003     2002  
 
Available for sale securities:
                       
U. S. Government, agency and corporate obligations
  $ 156,465     $ 195,888     $ 142,751  
States and political subdivisions
    13,383       7,267       4,139  
Other securities
    3,183       4,331       4,594  
     
Total
  $ 173,031     $ 207,486     $ 151,484  
     
 
                       
Held to maturity securities:
                       
U. S. Government, agency and corporate obligations
  $       $ 1,000     $ 12,998  
States and political subdivisions
    6,587       3,353       4,590  
     
Total
  $ 6,587     $ 4,353     $ 17,588  
     

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SCHEDULE II-B
Maturity of Securities Portfolio at December 31, 2004
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
  $ 49,767       1.19 %   $ 64,093       3.33 %   $ 41,648       4.42 %   $ 957       5.04 %
 
                                                               
States and political subdivisions
    126       2.70 %     4,355       3.81 %     4,356       3.82 %     4,546       4.02 %
Other
                                                    3,183       4.52 %
     
Totals
  $ 49,893       1.20 %   $ 68,448       3.36 %   $ 46,004       4.37 %   $ 8,686       4.59 %
     
Held to maturity securities:
                                                               
 
                                                               
States and political subdivisions
  $ 435       4.46 %   $ 1,836       4.63 %   $ 2,483       4.41 %   $ 1,833       4.36 %
     
Totals
  $ 435       4.46 %   $ 1,836       4.63 %   $ 2,483       4.41 %   $ 1,833       4.36 %
     

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):   2004     2003     2002     2001     2000  
 
Real estate, construction
  $ 20,926     $ 14,896     $ 21,534     $ 25,636     $ 29,269  
 
                                       
Real estate, mortgage
    250,676       223,246       197,478       224,524       235,835  
 
                                       
Loans to finance agricultural production and other loans to farmers
    4,251       3,980       7,375       7,241       11,019  
 
                                       
Commercial and industrial loans
    44,983       41,832       65,946       71,271       79,620  
 
                                       
Loans to individuals for household, family and other consumer expenditures
    11,387       15,252       19,522       15,068       17,186  
 
                                       
Obligations of states and political subdivisions
    1,654       2,560       3,637       3,233       3,967  
 
                                       
All other loans
    316       389       336       196       580  
     
Totals
  $ 334,193     $ 302,155     $ 315,828     $ 347,169     $ 377,476  
     


(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, 2004

                                 
            Maturity (In thousands)        
     
            Over one year              
    One year or     through 5              
    less     years     Over 5 years     Total  
     
Loans:
                               
Real estate, construction
  $ 13,798     $ 3,017     $ 4,111     $ 20,926  
Real estate, mortgage
    68,411       127,918       54,347       250,676  
Loans to finance agricultural production and other loans to farmers
    3,872       379               4,251  
Commercial and industrial loans
    20,224       23,524       1,235       44,983  
Loans to individuals for household, family and other consumer expenditures
    4,385       6,875       127       11,387  
Obligations of states and political subdivisions
    26       236       1,392       1,654  
All other loans
    256       60               316  
     
Totals
  $ 110,972     $ 162,009     $ 61,212     $ 334,193  
     
 
                               
Loans with pre-determined interest rates
  $ 23,655     $ 95,818     $ 5,145     $ 124,618  
Loans with floating interest rates
    87,317       66,191       56,067       209,575  
     
Totals
  $ 110,972     $ 162,009     $ 61,212     $ 334,193  
     

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SCHEDULE III-C
Non-Performing Loans

                                         
December 31, (In thousands):   2004     2003     2002     2001     2000  
 
Loans accounted for on a non-accrual basis (1)
  $ 6,164     $ 7,415     $ 6,550     $ 650     $ 3,424  
 
                                       
Loans which are contractually past due 90 or more days as to interest or principal payment, but are not included above
    1,190       4,867       2,828       1,732       24  


(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 2004 Annual Report to Shareholders to discussion of impaired loans.

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

                                         
    2004     2003     2002     2001     2000  
     
Average amount of loans outstanding (1)
  $ 323,190     $ 293,708     $ 324,757     $ 358,291     $ 359,624  
     
Balance of allowance for loan losses at the beginning of period
  $ 6,399     $ 6,697     $ 5,658     $ 4,568     $ 4,338  
Loans charged-off:
                                       
Commercial, financial and agricultural
    105       109       139       895       2,088  
Consumer and other
    666       1,236       1,926       1,079       2,573  
     
Total loans charged-off
    771       1,345       2,065       1,974       4,661  
Recoveries of loans previously charged-off:
                                       
Commercial, financial and agricultural
    49       42       64       230       209  
Consumer and other
    445       558       612       331       490  
     
Total recoveries
    494       600       676       561       699  
     
Net loans charged-off
    277       745       1,389       1,413       3,962  
Provision for loan losses charged to operating expense
    448       447       2,428       2,503       4,192  
     
Balance of allowance for loan losses at end of period
  $ 6,570     $ 6,399     $ 6,697     $ 5,658     $ 4,568  
     
Ratio of net charge-offs during period to average loans outstanding
    0.09 %     0.25 %     0.43 %     0.39 %     1.10 %
     


(1)   Net of unearned income.

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SCHEDULE IV-B
Allocation of the Allowance for Loan Losses

                                                                                 
    2004     2003     2002     2001     2000  
            % of             % of             % of             % of             % of  
            Loans             Loans             Loans             Loans             Loans  
Balance at December           to Total             to Total             to Total             to Total             to Total  
   31, (In thousands)   Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans  
 
Real estate, construction
  $ 860       6     $ 658       5     $ 245       7     $ 256       7     $ 260       8  
Real estate, mortgage
    3,496       75       3,229       74       3,770       63       4,260       65       2,913       62  
Loans to finance agricultural production and other loans to farmers
    38       1       20       1       70       2       72       2       237       3  
Commercial and industrial loans
    2,072       13       1,963       14       2,425       21       875       20       918       21  
Loans to individuals for household, family and other consumer expenditures
    103       3       525       4       173       5       175       4       200       4  
Obligations of states and political subdivisions
    -0-       1       -0-       1       -0-       1       -0-       1       -0-       1  
All other loans
    1       1       4       1       14       1       15       1       25       1  
Unallocated
    -0-       N/A       -0-       N/A       -0-       N/A       5       N/A       15       N/A  
     
Totals
  $ 6,570       100     $ 6,399       100     $ 6,697       100     $ 5,658       100     $ 4,568       100  
     

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SCHEDULE V
Summary of Average Deposits and Their Yields

                                                 
    2004     2003     2002  
Years Ended December 31, (In thousands except for percentage data)   Amount     Rate     Amount     Rate     Amount     Rate  
 
Demand deposits in domestic offices
  $ 62,655       N/A     $ 119,038       N/A     $ 77,254       N/A  
Negotiable interest bearing deposits in domestic offices
    163,391       .70 %     86,447       1.27 %     119,034       1.45 %
Savings deposits in domestic offices
    41,962       .76 %     43,352       .92 %     34,833       1.93 %
Time deposits in domestic offices
    125,952       1.70 %     137,218       2.11 %     171,268       3.30 %
     
Total deposits
  $ 393,960       0.91 %   $ 386,055       1.14 %   $ 402,389       2.00 %
     

Certificates of deposit outstanding in amounts $100,000 or more (in thousands) by the amount of time remaining until maturity as of December 31, 2004, are as follows:

         
Remaining maturity:
       
3 months or less
  $ 31,579  
Over 3 through 6 months
    11,809  
Over 6 months through 12 months
    7,157  
Over 12 months
    1,403  
 
     
Total
  $ 51,948  
 
     

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

                         
    2004     2003     2002  
 
Amount outstanding at December 31,
  $ 87,277     $ 95,039     $ 67,246  
Weighted average interest rate at December 31,
    1.31 %     1.03 %     1.08 %
Maximum outstanding at any month-end during year
  $ 104,679     $ 97,757     $ 95,261  
Average amount outstanding during year
  $ 95,922     $ 87,912     $ 74,580  
Weighted average interest rate
    1.09 %     1.14 %     1.58 %

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

                                         
  0 - 3     4 - 12     1 - 5     Over 5        
December 31, 2004 (In thousands)   Months     Months     Years     Years     Total  
     
ASSETS:
                                       
Loans (1)
  $ 216,583     $ 10,486     $ 95,815     $ 5,145     $ 328,029  
Available for sale securities
    28,935       20,958       68,448       54,690       173,031  
Held to maturity securities
    225       210       1,836       4,316       6,587  
     
Total assets
  $ 245,743     $ 31,654     $ 166,099     $ 64,151     $ 507,647  
     
 
                                       
FUNDING SOURCES:
                                       
Interest bearing deposits
  $ 227,080     $ 48,855     $ 23,724     $ 3     $ 299,662  
Long-term funds
    56       166       704       6,277       7,203  
     
Total funding sources
  $ 227,136     $ 49,021     $ 24,428     $ 6,280     $ 306,865  
     
 
                                       
REPRICING/MATURITY GAP:
                                       
Period
  $ 18,607     $ (17,367 )   $ 141,671     $ 57,871     $ 200,782  
Cumulative
    18,607       1,240       142,911       200,782          
Period Gap/Total Assets
    3.67 %     (3.42 )%     27.91 %     11.39 %        
Cumulative Gap/Total Assets
    3.67 %     0.25 %     28.16 %     39.55 %        


(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 16 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 address of the Main Office and branch locations are listed on page 34 of the 2004 Annual Report to Shareholders.

ITEM 3 — LEGAL PROCEEDINGS

The information included in Note L to the Consolidated Financial Statements included in the 2004 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 2004 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 2004 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 2004 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 2004 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 2004 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

As of December 31, 2004, 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
Rule 13(a)-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 information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 are 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 December 31, 2004, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9b — OTHER INFORMATION

Reports on Form 8-K:

A Report on Form 8-K was filed on December 13, 2004, for the purpose of announcing, by press release, the declaration of a semi-annual dividend.

A Report on Form 8-K was filed on January 12, 2005, for the purpose of announcing, by press release, the earnings for the year ended December 31, 2004.

A Report on Form 8-K was filed on March 10, 2005, for the purpose of announcing the receipt of proceeds from the Pulse EFT Association Exchange which will be recorded as extraordinary income for the quarter ended March 31, 2005.

PART III

ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information in Sections II, VII, VIII and IX contained in the Proxy Statement in connection with the Annual Meeting of Shareholders to be held April 13, 2005, which was filed by the Company in definitive form with the Commission on March 11, 2005, 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 13, 2005, which was filed by the Company in definitive form with the Commission on March 11, 2005, 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 13, 2005, which was filed by the Company in definitive form with the Commission on March 11, 2005, 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 13, 2005, which was filed by the Company in definitive form with the Commission on March 11, 2005, 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 13, 2005, which was filed by the Company in definitive form with the Commission on March 11, 2005, 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           Exhibit
        Reference to Registration   Form of   Date of   Number in
    Description   or File 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   0-30050   10-K   12/31/03     10.1  
 
                       
(10.2)
  Directors’ Deferred Income Plan Agreements   0-30050   10-K   12/31/03     10.2  
 
                       
(10.3)
  Executive Supplemental Income Plan Agreements   0-30050   10-K   12/31/03     10.3  
 
                       
(10.4)
  Split Dollar Plan Agreements   0-30050   10-K   12/31/03     10.4  
 
                       
(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, 2004 * ( C)                    
 
                       
(21)
  Proxy Statement for Annual Meeting of Shareholders to be held April 13, 2005                    
 
                       
(22)
  Subsidiaries of the registrant   33-15595   10-K   12/31/88     22  

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        Incorporated by           Exhibit
        Reference to Registration   Form of   Date of   Number in
    Description   or File Number   Report   Report   Report
     
(23)
  Consent of Independent Registered Public Accounting Firm*                    
 
                       
(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 December 13, 2004, January 12, 2005 and March 10, 2005.


(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 23, 2005    
         
  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 23, 2005    
    Chevis C. Swetman, Chairman of the Board   
     
 
             
BY:
      BY:   /s/ Dan Magruder
           
             
Date:
      Date:   March 24, 2005
           
  Drew Allen, Director       Dan Magruder, Director
 
           
BY:
  /s/ Rex E. Kelly   BY:   /s/ Lyle M. Page
           
             
Date:
  March 23, 2005   Date:   March 23, 2005
           
  Rex E. Kelly, Director       Lyle M. Page, Director
 
           
      BY:   /s/ Lauri A. Wood
           
             
      Date:   March 23, 2005
           
          Lauri A. Wood, Principal Financial and
          Accounting Officer

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