Peoples Financial Corporation Third Quarter Net Is Pushed to a Loss Due to Previously Announced Charges

The company announced on September 25, 2008, that it would record charges related to non-cash losses on its investment in preferred shares of Federal Home Loan Mortgage Company (FHLMC or commonly known as Freddie Mac) and increase its non-cash charge to provide for potential losses on loans. The charges totaled approximately $2,000,000 after taxes for the Freddie Mac preferred shares and approximately $1,000,000 after taxes for the provision to loan losses.

"Despite the ongoing financial crisis -- which is the worst I have seen in my 37-year banking career -- our primary capital stands at 12.74%, well in excess of our regulatory requirements. In fact, our capital ratio has actually increased over the same period last year. Net interest income, a key component of profitability, has risen sequentially each quarter this year, and the bank's net interest margin has expanded the last six quarters. Though this has been a positive trend, with the recent Fed rate cut, net interest margins may be pressured for the remainder of the year," said Swetman.

The company earned $3,412,000 for the nine months ended September 30, 2008, down from $8,096,000 during the same period last year.

Earnings per share for the third quarter of 2008 were ($.16) per average weighted share, and $.64 per average weighted share for the nine month period in 2008, based on average weighted shares outstanding of 5,322,925 for the third quarter and 5,359,690 for the nine months ended September 30, 2008.

"The national credit and financial crisis has moved from Wall Street to Main Street," said Swetman. "The Freddie Mac charge we took during the third quarter is a one-time, non-recurring event. We bought these Freddie Mac preferred shares nearly a decade ago as extremely safe, conservative investments that hundreds of community banks purchased with the blessing of our state and federal regulators," he added.

"We have applied the same systematic analysis of our loan portfolio that has served us so well over the years to identify problems, and we concluded that the potential losses are best reserved now rather than later. Because we do not have a large volume of residential mortgage business, our exposure is more limited than that of many other banks. Nevertheless, we will continue to be vigilant in identifying problem loans in their earliest stages," said Swetman.

Founded in 1896, with $875 million in assets as of September 30, 2008, The Peoples Bank operates 16 branches along the Mississippi Gulf Coast inHancock, Harrison,Jackson andStone counties. In addition to a comprehensive range of retail and commercial banking services, the bank also operates a trust and investment services department that has provided customers with financial, estate and retirement planning services since 1936. The bank also formed a mortgage loan department in July 2007, to provide residential loans for primary, secondary and multi-family homes up to four units.

The Peoples Bank is a wholly-owned subsidiary of Peoples Financial Corporation, listed on the NASDAQ Capital Market under the symbol PFBX. Additional information is available on the Internet at http://www.thepeoples.com.

This news release contains forward-looking statements and reflects industry conditions, company performance and financial results. These forward-looking statements are subject to a number of risk factors and uncertainties which could cause the Company's actual results and experience to differ from the anticipated results and expectation expressed in such forward-looking statements.

    PEOPLES FINANCIAL CORPORATION
    (Unaudited)
    (In thousands, except per share figures)

    EARNINGS SUMMARY

    Three Months Ended September 30,                  2008              2007

    Net interest income                             $7,217            $7,860
    Provision for loan losses                        1,701            (1,197)
    Non-interest income                              2,811             2,504
    Non-interest expense                             9,626             6,586
    Income taxes                                      (443)            1,580
    Net income                                        (856)            3,395
    Earnings per share                                (.16)              .62

    Nine Months Ended September 30,                   2008              2007

    Net interest income                            $21,502           $22,854
    Provision for loan losses                        1,795            (1,097)
    Non-interest income                              7,980             7,116
    Non-interest expense                            22,655            18,893
    Income taxes                                     1,620             4,078
    Net income                                       3,412             8,096
    Earnings per share                                 .64              1.47


    PERFORMANCE RATIOS (annualized)

    September 30,                                     2008              2007

    Return on average assets                         0.50%             1.12%
    Return on average equity                         3.92%            10.73%
    Net interest margin                              3.59%             3.51%
    Efficiency ratio                                   82%               61%

    BALANCE SHEET SUMMARY

    Balance at September 30,                          2008              2007

    Total assets                                  $874,898          $940,704
    Loans                                          462,555           449,998
    Securities                                     300,875           404,489
    Total deposits                                 537,537           609,751
    Total federal funds purchased                  212,309           207,974
    Shareholders' equity                           105,440           103,017
    Book value per share                             19.84             18.96
    Weighted average shares                      5,359,690         5,512,283

    PERIOD END DATA

    Allowance for loan losses as a
     percentage of loans                             2.31%             2.10%
    Loans past due 90 days and
     still accruing                                  1,256               272
    Nonaccrual loans                                15,659               136
    Primary capital                                 12.74%            11.69%

SOURCE Peoples Financial Corporation

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