SEC Filing | Renasant Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1995 Commission file number 0-12154 THE PEOPLES HOLDING COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Mississippi 64-0676974 ------------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 209 Troy Street Tupelo, Mississippi 38802-0709 ------------------------------ ------------- (Address of principal offices) (Zip Code) Registrant's Telephone Number: (601) 680-1001 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5.00 Par Value ------------------------------ (Title of 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 periods 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 the 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 admendment to this Form 10-K. ( X ) The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 12, 1996 was $119,167,770. On March 12, 1996, there were 2,604,760 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Shareholders' Report are incorporated by reference into Part I and II of this report. Portions of annual Proxy Statement dated March 19, 1996, relating to the annual meeting of shareholders of The Peoples Holding Company, are incorporated by reference into Part III. 1

Exhibit Index on Page THE PEOPLES HOLDING COMPANY FORM 10-K For the year ended December 31, 1995 CONTENTS PART I Item 1. Business.............................................3 Item 2. Properties..........................................13 Item 3. Legal Proceedings...................................13 Item 4. Submission of Matters to a Vote of Security Holders.13 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.........................14 Item 6. Selected Financial Data.............................15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......15 Item 8. Financial Statements and Supplementary Data.........15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............15 PART III Item 10. Directors and Executive Officers of the Registrant..15 Item 11. Executive Compensation..............................15 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................15 Item 13. Certain Relationships and Related Transactions......15 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................16 2

PART I ITEM 1. BUSINESS General The Peoples Holding Company (the ("Registrant" or "Company"), was organized under the laws of the State of Mississippi and incorporated on November 10, 1982, in order to acquire all of the common stock of The Peoples Bank & Trust Company, Tupelo, Mississippi (the "Bank"). Organization The Registrant commenced business on July 1, 1983 and the acquisition of the Bank was also consummated at that time. All of the Registrant's banking activities are conducted through the Bank, which on December 31, 1995, had 41 banking offices in Tupelo, Aberdeen, Amory, Batesville, Booneville, Calhoun City, Coffeeville, Corinth, Grenada, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Plantersville, Pontotoc, Saltillo, Sardis, Shannon, Smithville, Southaven, Verona, Water Valley, West Point, and Winona, Mississippi. All branches are located within a 100 mile radius of Tupelo, Mississippi. All members of the Board of Directors of the Registrant are also members of the Board of Directors of the Bank. Responsibility for the management of the Bank and its branches remains with the Board of Directors and Officers of the Bank; however, management services rendered to the Bank by the Registrant are intended to supplement the internal management of the Bank and expand the scope of banking services normally offered by them. The Bank, which is the Registrant's sole subsidiary, was established in February 1904, as a state chartered bank. It is insured by the Federal Deposit Insurance Corporation. As a commercial bank, a complete range of banking services are provided to individuals and small-to medium-size businesses. These services include checking and savings accounts, business and personal loans, interim construction and residential mortgage loans, student loans, as well as safe deposit and night depository facilities. In addition to a wide variety of fiduciary services, the Bank administers (as trustee or in other fiduciary or representative capacities) pension, profit-sharing and other employee benefit plans and personal trusts and estates. Neither the Registrant nor the Bank has any foreign activities. The Bank also offers to its customers the VISA and MasterCard credit cards. Competition Vigorous competition exists in all major areas where the Registrant and its subsidiary are engaged in business. Not only does the Registrant compete through its subsidiary bank with state and national banks in its service areas, but also, with savings and loan associations, credit unions, and finance companies for available loans and depository accounts. In the following paragraph reference is made to the Registrant's competitive position as measured in terms of total assets on December 31, 1995. Any such reference is used solely as a method of placing the competition in perspective as of that particular date. Due to the intense local competition, the Registrant makes no representation that its competitive position has remained constant, nor can it predict whether its position will change in the future. On December 31, 1995, the Registrant and its subsidiary had total assets of $841,699,408 and, as such, ranked sixth in Mississippi. The Registrant receives a large part of its competition from the Bank of Mississippi, the Tupelo branch operation of Deposit Guaranty National Bank and Union Planters Bank of Memphis, TN. On December 31, 1995, the Bank of Mississippi, Deposit Guaranty National Bank, and Union Planters Bank of Mississippi had total assets of approximately $3,302,028,000, $4,479,709,000, and $620,152,000, respectively. 3

The Bank also receives competition from several locally owned banks in several of the towns it serves. The National Bank of Commerce of Mississippi, Starkville, Mississippi has branch banks in Amory and Aberdeen which are in competition with the Bank's branches in those towns. Supervision and Regulation The Registrant is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Act"), and is registered as such with the Board of Governors of the Federal Reserve System (the "Board"). The Registrant is required to file with the Board an annual report and such other information as the board may require. The Board may also make examinations of the Registrant and its subsidiary pursuant to the Act. The Board also has the authority (which it has not exercised) to regulate provisions of certain bank holding company debt. The Act requires every bank holding company to obtain prior approval of the Board before acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority-owned by the Registrant. The Act provides that the Board shall not approve any acquisition, merger or consolidation which would result in monopoly or which would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize or attempt to monopolize the business of banking, or any other transaction the effect of which might substantially lessen competition, or in any manner be a restraint on trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The Act also prohibits a bank holding company, with certain exceptions, from itself engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities. The principal exception is for engaging in or acquiring shares of a company whose activities are found by the Board to be so closely related to banking or managing banks as to be a proper incident thereto. In making such determinations the Board is required to consider whether the performance of such activities by a bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency of resources, versus the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest or unsound banking practices. The Act prohibits the acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank to be acquired is located. The Registrant and its subsidiary are subject to certain restrictions imposed by the Federal Reserve Act and the Federal Deposit Insurance Act on any extensions of credit to the bank holding company or its subsidiary, on investments in the stock or other securities of the bank holding company or its subsidiary, and on taking such stock or other securities as collateral for loans of any borrower. The Bank was chartered under the laws of the State of Mississippi and is subject to the supervision of, and is regularly examined by, the Department of Banking and Consumer Finance of the State of Mississippi. The Bank is also insured by the Federal Deposit Insurance Corporation and is subject to examination and review by that regulatory authority. Mississippi banks are permitted to merge with other existing banks statewide and to acquire or be acquired, by banks or bank holding companies of a state within a region consisting of Alabama, Arkansas, Florida, Kentucky, Louisiana, Missouri, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West Virginia, provided, however, that the state of an acquired bank has to have reciprocal legislation which would allow banks or bank holding companies in that state to acquire or be acquired by banks or bank holding companies in Mississippi. 4

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans, or advances. The approval of the Mississippi Department of Banking and Consumer Finance is required prior to the Bank paying dividends and is limited to earnings retained in the current year plus retained net profits. Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specific obligations. At December 31, 1995, the maximum amount available for transfer from the Bank to the Company in the form of loans was 11% of consolidated net assets. Mississippi laws authorize multi-bank holding companies but there are no statutes regulating the operation of such companies. Monetary Policy and Economic Controls The earnings and growth of the banking industry, the Bank and, to a larger extent, the Registrant, are affected by the policies of regulatory authorities, including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in U. S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These instruments are used in varying degrees to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve System have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. In view of changing conditions in the national economy and in the various money markets as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, the effect on future business and earnings of the Registrant and its subsidiary cannot be predicted with accuracy. In the past few years, the trend seems to be toward competitive equality within the financial services industry. This was evidenced in 1980 by the formation of the Depository Institution Deregulation Committee (the "DIDC"). The DIDC's sole purpose was to eliminate the restrictions imposed upon the rates of interest a depository institution could pay on a deposit account. The trend was again evidenced in 1982 with the passage of the Garn-St. Germain Depository Institutions Act. This act provided for, among other things, the money market account. This account was designed to operate in a manner similar to the money market mutual funds being offered by the stock and similar to the money market mutual funds being offered by the stock and investment brokers. It would earn a market rate of interest, with limited third-part withdrawals and a minimum balance requirement. Source and Availability of Funds The funds essential to the business of the Registrant and its subsidiary consist primarily of funds derived from customer deposits and borrowings of federal funds by the banking subsidiary, and from loans under established lines of credit. The availability of such funds is primarily dependent upon the economic policies of the federal government, the economy in general and the general credit market for loans. Personnel At December 31, 1995, the Registrant and its subsidiary employed 602 persons, 537 on a full-time basis and 65 on a part-time basis. Dependence Upon a Single Customer Neither the Registrant nor its subsidiary is dependent upon a single customer or upon a limited number of customers. Line of Business The Registrant operates in the field of finance, and its activities are solely in commercial banking. The Registrant has derived substantially all of its consolidated total operating income from the commercial banking business of its subsidiary bank. 5

Acquisition of Certain Assets and Liabilities In the past several years, the Bank has acquired several banks and continues to examine other possible candidates for acquisition by cash or stock or a combination of both. Executive Officers of The Registrant The principal executive officer of the Company and its subsidiary as of December 31, 1995, is as follows: Name Age ---- --- John W. Smith 60 Position and Office: Director and Executive Vice-President of the Company from July, 1983, until July 1993, and Director and President since August, 1993. Director and Executive Vice-President of the Bank from 1978 and 1976, respectively, until August, 1993, and Director and President of the Bank since August, 1993. Mr. Smith has been employed by the Registrant or its subsidiary in a management position for the last seven (7) years. All of the Registrant's officers are appointed annually by the appropriate Board of Directors to serve at the discretion of the Board. The following table sets forth for The Peoples Holding Company, as of December 31 for the years indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and rates. The change in volume and rate is calculated using the tax equivalent basis. [CAPTION] 1995 COMPARED TO 1994 INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) [S] [C] [C] [C] Earning assets: Loans, net of unearned income ................ $ 4,542 $ 4,737 $ 9,279 Securities U. S. government securities and agencies ...... (1,508) 989 (519) Obligations of states and political subdivisions ....... 331 71 402 Mortgage-backed securities ..... 156 563 719 Other securities ............... (31) 94 63 Other ............................ 172 328 500 -------- -------- -------- Total earning assets ............. $ 3,662 $ 6,782 $ 10,444 -------- -------- -------- Interest-bearing liabilities: Interest-bearing demand deposit accounts ............... $ (513) $ 630 $ 117 Savings accounts ................. (155) 186 31 Time deposits .................... 2,253 4,346 6,599 Other ............................ (77) 61 (16) -------- -------- -------- Total interest-bearing liabilities .................... $ 1,508 $ 5,223 $ 6,731 -------- -------- -------- Change in net interest income ......................... $ 2,154 $ 1,559 $ 3,713 ======== ======== ======== (1) The change in interest due to both volume and rate has been allocated on a pro-rata basis using the absolute ratio value of amounts calculated. 6

[CAPTION] 1994 COMPARED TO 1993 INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) [S] [C] [C] [C] Earning assets: Loans, net unearned income ................. $ 3,568 $ 600 $ 4,168 Securities: U. S. Government securities and agencies ....... 1,214 (306) 908 Obligations of states and political subdivisions ........ 789 (310) 479 Mortgage-backed securities ...... (391) (290) (681) Other securities ................. 67 (21) 46 Other ............................. (237) 127 (110) ------- ------- ------- Total earning assets .............. $ 5,010 $ (200) $ 4,810 ------- ------- ------- Interest-bearing liabilities: Interest-bearing demand deposits accounts ............... $ (208) $ 73 $ (135) Savings accounts .................. 376 (590) (214) Time deposits ..................... 881 1,118 1,999 Other ............................. 166 110 276 ------- ------- ------- Total interest-bearing liabilities ..................... $ 1,215 $ 711 $ 1,926 ------- ------- ------- Change in net interest income .......................... $ 3,795 $ (911) $ 2,884 ======= ======= ======= (1) The change in interest due to both volume and rate has been allocated on a pro-rata basis using the absolute ratio value of amounts calculated. 7

INVESTMENT PORTFOLIO The following table sets forth the amortized cost of securities at the dates indicated: [CAPTION] December 31 1995 1994 1993 --------- -------- -------- (In Thousands) [S] [C] [C] [C] U.S. Government and Agency Securities .... $ 99,842 $124,463 $118,630 Obligations of State and Political Subdivisions 49,363 45,756 42,908 Other Securities ....... 66,688 48,124 70,204 -------- -------- -------- $215,893 $218,343 $231,742 ======== ======== ======== The following table sets forth the maturity distribution of securities at December 31, 1995: [CAPTION] After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years -------- ----------- ---------- --------- (In Thousands) [S] [C] [C] [C] [C] U.S Government and Agency Securities ... $ 20,881 $ 65,508 $ 13,453 $ Obligations of States and Political Subdivisions . 3,218 12,716 24,832 8,597 Other Securities 18,433 43,467 4,788 -------- -------- -------- -------- Total ....... $ 42,532 $121,691 $ 43,073 $ 8,597 ======== ======== ======== ======== The maturity of mortgage-backed securities, included as other securities, reflects scheduled repayments when the payment is due. 8

The following table sets forth the weighted average yields of securities, by maturity at December 31, 1995: [CAPTION] After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years -------- ----------- ---------- --------- [S] [C] [C] [C] [C] U.S. Government and Agency Securities ... 5.35% 6.79% 6.72% Obligations of States and Political Subdivisions . 9.50% 9.87% 8.67% 8.40% Other Securities 6.04% 6.44% 6.83% Weighted average yields on tax-exempt obligations have been computed on a fully tax-equivalent basis assuming a federal tax rate of 34% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit. The following table sets forth loans (excluding real estate mortgage loans and consumer loans) outstanding as of December 31, 1995, which, based on remaining scheduled repayments of principal, are due in the periods indicated; also, amounts due after one year are classified according to their sensitivity to changing interest rates. [CAPTION] Loans Maturing -------------------------------------------- After One After Within But Within Five One Year Five Years Years Total -------- ---------- ----- ----- [S] [C] [C] [C] [C] Commercial, financial and agricultural $ 74,262 $ 23,910 $ 5,861 $104,033 Real estate- construction 16,175 646 30 16,851 -------- -------- -------- -------- $ 90,437 $ 24,556 $ 5,891 $120,884 ======== ======== ======== ======== [CAPTION] Interest Sensitivity -------------------- Fixed Variable Rate Rate ---- ---- (In Thousands) [S] [C] [C] Due after 1 but within 5 years ................. $22,448 $ 2,108 Due after 5 years ....... 5,870 21 ------- ------ $28,318 $ 2,129 ======= ======= 9

Allowance for Loan Losses Inherent in any lending activity is credit risk, that is, the risk of loss should a borrower or trading counterparty default. The Company's credit risk is monitored and managed by a Loan Committee and a Loss Management Committee. Credit quality and policies are the primary responsibilities of these committees. The Company tries to maintain diversification within its loan portfolio in order to minimize the effect of economic conditions within a particular industry. The allowance for loan losses is available to absorb potential credit losses from the entire loan portfolio. The appropriate level of the allowance is based on a quarterly analysis of the loan portfolio and represents an amount that management deems adequate to provide for potential losses, including losses on loans assessed as impaired under SFAS No. 114, "Accounting by Creditors For Impairement of a Loan." the balance of these loans determined as impaired and their related allowance is included in management's estimation and analysis of the allowance for loan losses. The analysis includes the consideration of such factors as the risk rating of individual credits, the size and diversity of the loan portfolio, economic conditions, prior loss experience, and the results of periodic credit reviews by internal loan review, the regulators, and the Company's independent accounting firm. If the allowance is deemed inadequate, management sets aside additional reserves by increasing the charges against income. The anticipated net charge-offs by loan category during 1996 include: In Thousands ------------- Commercial, financial and agricultural $ 371 Real estate - construction ........... 61 Real estate - mortgage ............... 929 Consumer ............................. 535 ------ TOTAL ................................ $1,896 ====== 10

ITEM 2. PROPERTIES The main offices of the Registrant and its subsidiary, The Peoples Bank and Trust Company, are located at 209 Troy Street, Tupelo, Mississippi. All floors of the five-story building are occupied by various departments within the Bank. The Bank constructed a new Technology Center designed to house the electronic data processing, proof, purchasing, statement rendering, and voice response operations. The Technology Center is located in Tupelo, Mississippi. In addition, the Bank operated thirty (30) full-service branches, and eleven (11) limited-service branches all of which are located within a 100 mile radius of Tupelo, Mississippi. The Bank has two (2) full-service branches in Southaven; one (1) full-service branch and two (2) limited-service branches in Booneville, one (1) full-service branch and one (1) limited-service branch in Amory, Corinth, Pontotoc, Grenada, Water Valley, and West Point, one (1) full-service branch each at Aberdeen, Batesville, Calhoun City, Coffeeville, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Saltillo, Sardis, Shannon, Verona, and Winona, Mississippi, one (1) limited-service branch each at Plantersville, and Smithville, Mississippi and six (6) full-service branches and one (1) limited-service branch in Tupelo, Mississippi. The Registrant leases, on a long-term basis, five branch locations for use in conducting banking activities. The aggregate annual rental for all leased premises during the year ending December 31, 1995, did not exceed five percent of the Bank's operating expenses. It is anticipated that in the next five years, branch renovations and construction will be completed at Aberdeen, Grenada, Corinth and a new location west of Tupelo, Mississippi. The other facilities owned or occupied under lease by the Bank are considered by management to be adequate. ITEM 3. LEGAL PROCEEDINGS There were no material legal proceedings pending or threatened at December 31, 1995, which in the opinion of the Company could have a material adverse effect upon the Company's business or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fourth quarter of 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information under the captions "Market Value of Stock by Quarters" on page 28 of the Registrant's 1995 Annual Report is incorporated herein by reference. At March 14, 1996, the total number of shareholders of the Company's common stock was 2,304. The Registrant's common stock trades on the Nasdaq Stock Market under the symbol PHCO. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Financial Information" on Page 27 of the Registrant's 1995 Annual Report is incorporated herein by reference. 11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages 29 through 41 of the Registrant's 1995 Annual Report are incorporated herein in reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements are included on pages 8 through 26 of the Registrant's 1995 Annual Report and are incorporated herein by reference. The information on Page 25 of the Registrant's 1995 Annual report reflecting unaudited quarterly results of operations is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and nominees of the Registrant appear under "Election of Directors" on Pages 3 through 4 of the Company's definitive Proxy Statement, dated March 19, 1996, which is incorporated herein by reference. Information concerning executive officers of the Registrant and its subsidiary appears on Page 5 of the Proxy Statement under the caption "Executive Officers." ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Summary Compensation Table-Annual Compensation" on Pages 6 through 10 of the Company's definitive Proxy Statement, dated March 19, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing under "Principal Holders of Voting Security" on Page 2 of the Company's definitive Proxy Statement, dated March 19, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under "Transaction with Management: on Page 11 of the Company's definitive Proxy Statement, dated March 19, 1996, is incorporated herein by reference. 12

PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) and (c) The response to this portion of Item 14 is submitted as a separate section of this report. (a) (3) Listing of Exhibits: (3) Articles of Incorporation and Bylaws of the Registrant are incorporated herein by reference to exhibits filed with the Registration Statement on Form S-14, File No. 2-21776. (11) Statement re: Computation of per share earnings (13) Annual Report to Shareholders for the year ended December 31, 1995 (23) Consent of Independent Auditors (27) Financial Data Schedule (b) No Form 8-K was filed during the quarter ended December 31, 1995. (d) Financial Statement Schedules -- None. 13

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. THE PEOPLES HOLDING COMPANY DATED: March 19, 1996 By /s/ John W. Smith - ---------------------- ----------------------------- John W. Smith, President & CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated. John W. Smith, President and Director (Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer) . /s/ John W. Smith Robert C. Leake, Chairman of the Board and Director ...................... /s/ Robert C. Leake William M. Beasley, Director .. /s/ William M. Beasley George H. Booth, II, Director . /s/ George H. Booth, II Dr. Walter L. Bourland, Director ...................... /s/ Walter L. Bourland, M.D. Frank B. Brooks, Director ..... /s/ Frank B. Brooks A. M. Edwards, Jr., Director .. /s/ A. M. Edwards, Jr. Eugene B. Gifford, Jr., Director ...................... /s/ Eugene B. Gifford, Jr. David P. Searcy, Director ..... /s/ David P. Searcy Jimmy S. Threldkeld, Director . /s/ Jimmy S. Threldkeld Leonard W. Walden, Director ... /s/ Leonard W. Walden J. Heywood Washburn, Director . /s/ J. Heywood Washburn Robert H. Weaver, Director .... /s/ Robert H. Weaver J. Larry Young, Director ...... /s/ J. Larry Young 14

Form 10-K--Item 14 (a) (1) and (2) and (c) THE PEOPLES HOLDING COMPANY AND SUBSIDIARY LIST OF FINANCIAL STATEMENTS The following consolidated financial statements and report of independent auditors of The Peoples Holding Company and subsidiary included in the Annual Report of the registrant to its shareholders for the year ended December 31, 1995, are incorporated by reference in Item 8. These items are included in exhibit 13. Report of Independent Auditors Consolidated Balance Sheets--December 31, 1995 and 1994 Consolidated Statements of Income--Years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Shareholders' Equity--Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flow--Years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements--December 31, 1995 Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are not applicable and therefore, have been omitted. 15

EXHIBIT 11 THE PEOPLES HOLDING COMPANY STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS [CAPTION] Year Ended December 31 --------------------------------------- 1995 1994 1993 --------- ---------- ---------- [S] [C] [C] [C] PRIMARY & FULLY DILUTED: Average shares outstanding 2,604,760 2,604,760 2,604,760 Net income $9,203,910 $8,208,920 $7,735,292 ---------- ---------- ---------- Per share amount $3.53 $3.15 $2.97 ===== ===== =====

Financial Statements Consolidated Balance Sheets December 31 1995 1994 ---- ---- Assets Cash and due from banks ......................................................... $ 46,918,819 $ 45,123,177 Federal funds sold .............................................................. 17,000,000 150,000 ---------- ---------- Cash and Cash Equivalents ............................ 63,918,819 45,273,177 Interest-bearing balances with banks ............................................ 8,814,411 188,549 Securities held-to-maturity (market value - $50,109,526 and $44,931,275 at December 31, 1995 and 1994, respectively) ............... 49,362,527 45,756,198 Securities available-for-sale (amortized cost - $166,530,900 and $172,586,341 at December 31, 1995 and 1994, respectively) .............. 168,381,798 167,238,212 Loans: Commercial, financial and agricultural ................................. 104,032,841 95,921,379 Real estate - construction ............................................. 16,850,556 18,188,860 Real estate - mortgage ................................................. 259,918,417 253,153,672 Consumer ............................................................... 149,218,137 143,948,292 Unearned income ........................................................ (11,231,586) (12,010,336) ----------- ----------- Total Loans, Net of Unearned Income .................. 518,788,365 499,201,867 Allowance for loan losses .............................................. (8,815,130) (8,182,801) ----------- ------------ Net Loans ............................................ 509,973,235 491,019,066 Premises and equipment .......................................................... 20,323,492 16,780,966 Other assets .................................................................... 20,925,126 20,810,320 ----------- ----------- Total Assets ......................................... $ 841,699,408 $ 787,066,488 =========== =========== Liabilities and Shareholders' Equity Liabilities Deposits: Noninterest-bearing .................................................... $ 116,894,919 $ 118,711,872 Certificates of deposit exceeding $100,000 ............................. 62,620,549 58,984,109 Other interest-bearing ................................................. 560,029,831 518,583,728 ----------- ----------- Total Deposits ....................................... 739,545,299 696,279,709 Treasury tax and loan note account .............................................. 2,400,495 3,115,183 Borrowings ...................................................................... 4,313,109 4,650,488 Other liabilities ............................................................... 10,480,085 9,287,227 ----------- ----------- Total Liabilities .................................... 756,738,988 713,332,607 Shareholders' Equity Common stock, $5 par value - 7,500,000 and 4,200,000 shares authorized in 1995 and 1994, respectively; 2,604,760 issued and outstanding in 1995 and 1994, respectively ............................................ 13,023,800 13,023,800 Additional paid-in capital ...................................................... 39,875,796 29,875,796 Unrealized gains (losses) on securities available-for-sale, net of tax .......... 1,169,262 (3,529,765) Retained earnings ............................................................... 30,891,562 34,364,050 ---------- ---------- Total Shareholders' Equity ........................... 84,960,420 73,733,881 ----------- ----------- Total Liabilities and Shareholders' Equity ........... $ 841,699,408 $ 787,066,488 =========== =========== See notes to consolidated financial statements.

Consolidated Statements of Income Year Ended December 31 1995 1994 1993 ---- ---- ---- Interest income: Loans ...................................................... $ 49,138,054 $ 39,913,585 $ 35,745,342 Securities: Taxable ........................................... 10,097,721 10,088,324 9,832,739 Tax-exempt ........................................ 2,764,337 2,559,206 2,242,796 Other ...................................................... 1,008,809 508,338 618,348 ---------- ---------- ---------- Total Interest Income ........... 63,008,921 53,069,453 48,439,225 Interest expense: Deposits ................................................... 25,234,441 18,487,040 16,836,454 Borrowings ................................................. 386,764 403,041 126,701 ---------- ---------- ---------- Total Interest Expense .......... 25,621,205 18,890,081 16,963,155 ---------- ---------- ---------- Net Interest Income ............. 37,387,716 34,179,372 31,476,070 Provision for loan losses ........................................... 2,826,647 2,001,010 2,865,530 ---------- ---------- ---------- Net Interest Income After Provision For Loan Losses ....... 34,561,069 32,178,362 28,610,540 Noninterest income: Service charges on deposit accounts ........................ 6,188,520 5,780,725 5,111,308 Fees and commissions ....................................... 1,215,810 1,265,031 1,256,543 Trust department ........................................... 584,273 549,925 500,257 Securities (losses) gains .................................. (507,344) 2,701 524,622 Trading securities gains ................................... 114,221 Other ...................................................... 3,089,856 2,100,036 1,846,539 ---------- --------- --------- Total Noninterest Income ........ 10,571,115 9,698,418 9,353,490 Noninterest expense: Salaries and employee benefits ............................. 18,055,318 16,617,611 15,224,417 Net occupancy .............................................. 2,178,314 2,150,588 1,993,189 Equipment .................................................. 1,460,488 1,149,827 1,047,365 Other ...................................................... 10,303,357 11,128,930 9,419,781 ---------- ---------- ---------- Total Noninterest Expense ....... 31,997,477 31,046,956 27,684,752 Income before income taxes and cumulative effect of accounting changes ......................................... 13,134,707 10,829,824 10,279,278 Income taxes ........................................................ 3,930,797 2,620,904 3,066,504 ---------- ---------- ---------- Income before cumulative effect of accounting changes ............... 9,203,910 8,208,920 7,212,774 Cumulative effect of change in method of accounting for income taxes and postretirement benefits other than pensions .............................................. 522,518 ---------- ---------- ---------- Net Income ...................... $ 9,203,910 $ 8,208,920 $ 7,735,292 ========== ========== ========== Earnings per share: Income before cumulative effect of accounting changes ........................................... $ 3.53 $ 3.15 $ 2.77 Cumulative effect of accounting changes .................... .20 ---------- --------- --------- Earnings Per Share .............. $ 3.53 $ 3.15 $ 2.97 ========== ========= ========= Weighted average shares outstanding ................................. 2,604,760 2,604,760 2,604,760 ========== ========= ========= See notes to consolidated financial statements.

Consolidated Statements of Shareholders' Equity Common Stock Additional Unrealized Paid-in Gains and Retained Shares Amount Capital (Losses) Earnings Total ------ ------ ------- -------- -------- ----- Balance at January 1, 1993 ........ 2,509,055 $ 12,545,275 $ 29,875,796 $ $ 23,557,041 $ 65,978,112 Net income for 1993 ............... 7,735,292 7,735,292 Cash dividends: The Peoples Holding Co.- $.84 per share .................... (2,200,224) (2,200,224) Pooled Company .................... (75,000) (75,000) ------------------------------------------------------------------------------------------ Balance at December 31, 1993 ...... 2,509,055 12,545,275 29,875,796 29,017,109 71,438,180 Unrealized losses on securities available-for-sale, net of tax .... (3,529,765) (3,529,765) Net income for 1994 ............... 8,208,920 8,208,920 4% stock dividend ................. 95,705 478,525 (478,525) Payment of fractional shares for stock dividend and pooling-of-interests .............. (40,578) Cash dividends - $.90 per share .................... (2,342,876) (2,342,876) ----------------------------------------------------------------------------------------- Balance at December 31, 1994 ...... 2,604,760 13,023,800 29,875,796 (3,529,765) 34,364,050 73,733,881 Unrealized gains on securities available-for-sale, net of tax .... 4,699,027 4,699,027 Transfer of capital ............... 10,000,000 (10,000,000) Net income for 1995 ............... 9,203,910 9,203,910 Cash dividends - $1.03 per share ................... (2,676,398) (2,676,398) ----------------------------------------------------------------------------------------- Balance at December 31, 1995 ...... 2,604,760 $ 13,023,800 $ 39,875,796 $ 1,169,262 $30,891,562 $ 84,960,420 ========================================================================================= See notes to consolidated financial statements.

Consolidated Statements Of Cash Flows Year Ended December 31 1995 1994 1993 ---- ---- ---- Operating Activities Net income ................................................................ $ 9,203,910 $ 8,208,920 $ 7,735,292 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ............................... 2,826,647 2,001,010 2,865,530 Provision for depreciation and amortization ............. 1,868,370 1,774,975 1,532,835 Net amortization of securities premiums/discounts ................................... 131,421 1,180,503 475,229 Gains on sales of trading securities .................... (114,221) Proceeds from sales of trading securities ............... 8,241,556 Purchases of trading securities ......................... (3,187,429) Gain on sale of loans ................................... (585,304) (Gains) losses on sales/calls of securities ............. 507,344 (2,701) (524,622) Increase in other liabilities ........................... 1,192,858 720,883 954,812 Deferred income tax credits ............................. (459,499) (800,550) (733,521) (Gains) losses on sales of premises and equipment ....... 129,726 21,735 (3,955) Increase in other assets ................................ (461,230) (819,410) (239,043) ---------- ---------- ---------- Net Cash Provided By Operating Activities ...... 14,354,243 12,285,365 17,002,463 ---------- ---------- ---------- Investing Activities Net (increase) decrease in balances with other banks ...................... (8,625,862) (110,662) 46,071 Proceeds from sales of securities ......................................... 4,934,639 Proceeds from sales of securities held-to-maturity ........................ 489,287 Proceeds from sales of securities available-for-sale ...................... 28,989,992 10,746,669 Proceeds from maturities/calls of securities .............................. 83,667,180 Proceeds from maturities/calls of securities held-to-maturity ................................................. 2,495,029 4,369,626 Proceeds from maturities/calls of securities available-for-sale ............................................... 65,464,778 55,120,283 Purchases of securities ................................................... (131,709,918) Purchases of securities held-to-maturity .................................. (5,949,418) (7,304,699) Purchases of securities available-for-sale ................................ (89,190,035) (51,199,932) Net increase in loans ..................................................... (36,170,506) (63,625,715) (36,203,252) Proceeds from sale of loans ............................................... 12,690,078 Proceeds from sales of premises and equipment ............................. 169,850 80,692 116,633 Purchases of premises and equipment ....................................... (5,119,632) (2,190,754) (1,599,887) ----------- ----------- ----------- Net Cash Used In Investing Activities .......... (35,245,726) (53,625,205) (80,748,534) ----------- ----------- ----------- Financing Activities Net increase (decrease) in noninterest-bearing deposits ................... (1,816,953) 19,014,257 16,400,533 Net increase in certificates of deposit exceeding $100,000 ................ 3,636,440 (4,953,714) 5,649,550 Net increase in other interest-bearing deposits ........................... 41,446,103 26,674,106 29,511,403 Net increase (decrease) in treasury tax and loan note account ............. (714,688) (995,078) 472,121 Net increase (decrease) in borrowings ..................................... (337,379) 4,892,591 207,307 Issuance of common stock by pooled Company reflected in pooling-of-interests adjustment ............. 105,926 Cash dividends paid ....................................................... (2,676,398) (2,342,876) (2,275,224) Cash paid on fractional shares for stock dividend and pooling-of-interests ......................................... (40,578) ---------- ---------- ---------- Net Cash Provided By Financing Activities ...... 39,537,125 42,354,635 49,965,690 ---------- ---------- ---------- Increase (Decrease) In Cash and Cash Equivalents 18,645,642 1,014,795 (13,780,381) Cash and Cash Equivalents at Beginning of Year ................................ 45,273,177 44,258,382 58,038,763 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year ....... $ 63,918,819 $ 45,273,177 $ 44,258,382 ========== ========== ========== Non-cash Transactions Transfer of loans to other real estate .................................... $ 2,284,916 $ 862,682 $ 2,360,311 ========== ========== ========== See notes to consolidated financial statements

Notes To Consolidated Financial Statements December 31, 1995 Note A - Significant Accounting Policies The Peoples Holding Company (the Company) is a one-bank holding company, offering a diversified range of banking services to retail and commercial customers, primarily in North Mississippi, through The Peoples Bank & Trust Company (the Bank). Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany balances and transactions have been eliminated. The Company carries its investment in subsidiary at its equity in the underlying net assets. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Change in Method of Accounting for Securities: The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" on January 1, 1994. As a result, investment securities have been classified as either held-to-maturity, trading, or available-for-sale. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. Investment securities are classified as held-to-maturity when purchased if management has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Investment securities not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. The amortized cost of investment securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income from investments. Interest and dividends are included in interest income from investments. Realized gains and losses, and declines in value judged to be other-than-temporary are included in net securities gains (losses). The cost of securities sold is based on the specific identification method. Securities classified as trading are carried at fair value, with gains and losses, both realized and unrealized, reported in earnings. Revenue Recognition: Interest on loans is accrued and credited to operations based upon the principal amount outstanding. Generally, the accrual of income is discontinued when the full collection of principal is in doubt, or when the payment of principal or interest has become contractually 90 days past due unless the obligation is both well secured and in the process of collection. The Company recognizes loan origination and commitment fees in the period the loan or commitment is granted to reflect reimbursement of the related costs associated with originating those loans and commitments which are not materially different from the results which would be obtained with implementation of Statement of Financial Accounting Standards No. 91. Allowance for Loan Losses: The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed uncollectible are charged against the allowance for loan losses, and any subsequent recoveries are credited to the allowance. Beginning in 1995, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which was amended by FASB Statement No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." Under these new standards, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 is based on discounted cash flows using the loan's initial effective interest rate or fair value of the collateral for certain collateral-dependent loans. The adoption of these new standards did not have a significant effect on the allowance for loan losses or the method of income recognition for impaired loans. The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses in the loan portfolio. Management's determination of the allowance is based on an evaluation of the portfolio, past experience, current economic conditions, volume, growth and composition of the loan portfolio and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily by use of the straight-line and declining-balance methods for furniture, fixtures, and equipment and the straight-line method for premises. Leasehold improvements are amortized over the period of the leases or the estimated useful lives of the improvements, whichever is shorter. Other Real Estate: Other real estate of $1,357,051 and $230,494 at December 31, 1995 and 1994, respectively, is included in other assets and consists of properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. These properties are carried at the lower of cost or fair market value based on appraised value less estimated selling costs at the date acquired. Losses arising from the acquisition of properties are charged against the allowance for loan losses. The net cost of holding other real estate and losses on the sale of properties totaled $95,267 and $846,149 in 1995 and 1994, respectively. Unamortized Cost in Excess of Fair Value of Net Assets Acquired: Goodwill, included in other assets, represents unamortized cost in excess of fair value of net assets acquired and is being amortized on a straight-line method over 13 to 15 years. Goodwill was $4,759,183 and $5,268,228 at December 31, 1995 and 1994, respectively. Income Taxes: The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", in its financial statements for the year ended December 31, 1993. As of January 1, 1993, the cumulative effect of adopting Statement No. 109 increased net income by $686,000, or $.26 per share. Under Statement No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement No. 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. The Company and its subsidiary file a consolidated federal income tax return. The Bank provides for income taxes on a separate-return basis and remits to the Company amounts determined to be currently payable. Postretirement Benefits Other Than Pensions: During the first quarter of 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Statement No. 106 changed the practice of accounting for postretirement benefits other than pensions on a pay-as-you-go (cash) basis by requiring accrual, during the years that the employee renders the necessary service, of the expected cost of providing those benefits to an employee, the employee's beneficiaries and covered dependents. As of January 1, 1993, the cumulative effect of adopting Statement No. 106 decreased net income, net of tax effect of $84,218, by $163,482, or $.06 per share. Earnings Per Share: Earnings per share is based on the weighted average number of shares outstanding during each year adjusted retroactively for all stock dividends. Previously reported per share amounts have been restated for the effect of the acquisition of New South Capital Corporation accounted for as a pooling-of-interests in 1994. Statements of Cash Flows: Cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. During 1995, 1994, and 1993, cash paid for interest was $24,254,488, $18,230,987, and $16,891,833, respectively. During 1995, 1994, and 1993, cash paid for income taxes was $4,455,448, $2,354,158, and $2,927,410, respectively. Reclassifications: Certain reclassifications have been made to the 1994 and 1993 consolidated financial statements to conform with the 1995 presentation.

Note B - Mergers and Acquisitions Effective December 31, 1994, the Company (PHC) acquired New South Capital Corporation (NSCC) and its wholly-owned subsidiary, New South Bank, of Batesville, Mississippi, in a transaction accounted for as a pooling-of-interests. In exchange for all of the outstanding common stock of New South Capital Corporation, the Company issued 91,226 shares of its common stock. The accompanying financial statements for periods prior to the acquisition have been restated to reflect the accounts and operations of the pooled company. During 1994, the Company purchased approximately $16,500,000 of selected assets and assumed approximately $33,065,000 of deposit liabilities located in three branch offices of Security Federal Savings and Loan Association from the Resolution Trust Corporation. The purchase price has been allocated to the acquired assets and liabilities at their respective estimated fair value at the date of acquisition. Note C - Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash And Due From Banks: The carrying amount reported in the consolidated balance sheet for cash and due from banks approximates fair value. Federal Funds Sold: The carrying amount reported in the consolidated balance sheet for federal funds sold approximates fair value. Interest-Bearing Balances With Banks: The carrying amount reported in the consolidated balance sheet for interest-bearing balances with banks approximates fair value. Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. See Note E of the Notes to Consolidated Financial Statements. Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fixed-rate loan fair values, including mortgages, commercial, agricultural, and consumer loans are estimated using a discounted cash flow analysis using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Deposit Liabilities: The fair values disclosed for demand deposits, both interest-bearing and noninterest-bearing, are, by definition, equal to the amount payable on demand at the reporting date. The fair values of certificates of deposit and individual retirement accounts are estimated using a discounted cash flow based on currently effective interest rates for similar types of accounts. Treasury Tax And Loan Note Account: The carrying amounts reported in the consolidated balance sheet approximate the fair value. Borrowings: The fair value was determined by discounting the cash flow using the current market rate. Off-Balance Sheet: The fair value was determined by replacing the current rate with a market rate and applying that to the standby letters of credit and commitments.

December 31 1995 1994 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value ----------- ------------ ---------- ---------- Financial assets: Cash and due from banks ................... $ 46,918,819 $ 46,918,819 $ 45,123,177 $ 45,123,177 Federal funds sold ........................ 17,000,000 17,000,000 150,000 150,000 Interest-bearing balances with banks ....................... 8,814,411 8,814,411 188,549 188,549 Securities ................................ 217,744,325 218,491,324 212,994,410 212,169,487 Loans net of unearned income .............. 518,788,365 520,440,000 499,201,867 495,501,571 Allowance for loan losses ........ (8,815,130) (8,815,130) (8,182,801) (8,182,801) Net loans ................................. 509,973,235 511,624,870 491,019,066 487,318,770 Financial liabilities: Deposits .................................. 739,545,299 738,378,297 696,279,709 697,174,710 Treasury tax and loan note account ........ 2,400,495 2,400,495 3,115,183 3,115,183 Borrowings ................................ 4,313,109 4,235,000 4,650,488 4,299,000 Off-balance sheet: Standby letters of credit ................. 5,003,644 4,914,683 6,233,000 6,192,350 Commitments to extend credit .............. 114,747,000 113,784,627 107,778,678 105,008,148 Note D - Restrictions on Cash and Due From Banks The Bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those balances for the year ended December 31, 1995, was approximately $19,540,000. Note E - Securities The amortized cost and estimated market values of securities held-to-maturity and available-for-sale at December 31, 1995, are as follows: Securities Held-to-Maturity Amortized Gross Unrealized Estimated Cost Gains Losses Market Values ---- ----- ------ ------------- Obligations of states and political subdivisions $49,362,527 $ 1,034,250 $ (287,251) $ 50,109,526 ========== ========= ======== ==========

Securities Available-For-Sale Amortized Gross Unrealized Estimated Cost Gains Losses Market Values ---- ----- ------ ------------- U.S. Treasury securities ........... $ 70,797,698 $ 625,574 $ (86,933) $ 71,336,339 Obligations of other U.S. Government agencies and corporations . 29,044,357 531,327 29,575,684 Mortgage-backed securities ......... 58,117,693 1,010,007 (229,077) 58,898,623 Preferred stock .................... 8,564,165 8,564,165 Other debt securities .............. 6,987 6,987 ----------- --------- --------- ----------- $ 166,530,900 $ 2,166,908 $ (316,010) $ 168,381,798 =========== ========= ========= =========== The amortized cost and estimated market values of securities held-to-maturity and available-for-sale at December 31, 1994, are as follows: Securities Held-to-Maturity Amortized Gross Unrealized Estimated Cost Gains Losses Market Values ---- ----- ------ ------------- Obligations of states and political subdivisions $ 45,756,198 $ 678,839 $ (1,503,762) $ 44,931,275 ========== ======== ========== ========== Securities Available-For-Sale Amortized Gross Unrealized Estimated Cost Gains Losses Market Values ---- ----- ------ ------------- U.S. Treasury securities ........... $ 110,181,980 $ 983 $ (3,090,155) $ 107,092,808 Obligations of other U.S. Government agencies and corporations . 14,280,670 (208,016) 14,072,654 Mortgage-backed securities ......... 45,415,163 175,291 (2,226,232) 43,364,222 Preferred stock .................... 2,410,965 2,410,965 Other debt securities .............. 297,563 297,563 ----------- -------- ---------- ----------- $ 172,586,341 $ 176,274 $ (5,524,403) $ 167,238,212 ========== ======== ========== =========== The amortized cost and estimated market value of securities held-to-maturity and available-for-sale at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Estimated Amortized Market Securities Held-to-Maturity Cost Value - --------------------------- ---- ----- Due in one year or less .............. $ 2,000,134 $ 2,013,380 Due after one year through five years 11,310,780 11,690,973 Due after five years through ten years 23,824,866 24,149,942 Due after ten years .................. 12,226,747 12,255,231 ---------- ---------- $49,362,527 $50,109,526 ========== ==========

Estimated Amortized Market Securities Available-For-Sale Cost Value - ----------------------------- ---- ----- Due in one year or less .............. $ 20,887,603 $ 20,979,829 Due after one year through five years 65,508,314 66,216,832 Due after five years through ten years 13,453,125 13,722,349 ---------- ----------- 99,849,042 100,919,010 Mortgage-backed securities ........... 58,117,693 58,898,623 Preferred Stock ...................... 8,564,165 8,564,165 ----------- ----------- $166,530,900 $168,381,798 =========== =========== At December 31, 1995 and 1994, securities with an amortized cost of approximately $118,022,000and $103,979,000, respectively, were pledged to secure government, public and trust deposits. Note F - Borrowings Borrowings primarily consist of balances due to the Federal Home Loan Bank of $4,287,833 and $4,500,952 at December 31, 1995 and 1994, respectively. During 1995, the Company obtained two advances from the Federal Home Loan Bank totaling $632,000. The advances were $132,000 and $500,000, with interest rates of 6.33% and 6.73%, respectively. Maturity dates are January 3, 2011, and October 1, 2015, respectively. All advances are secured by one-to-four family first mortgages equal to the amount of outstanding aggregate advances. During 1994, the Company obtained several advances from the Federal Home Loan Bank. The advances ranged from $125,000 to $3,500,000 with interest rates from 4.84% to 6.13%. Maturity dates range from August 1, 1999, to April 1, 2007. Future minimum payments, by year and in the aggregate, related to the advances with initial or remaining terms of one year or more, consisted of the following at December 31, 1995: 1996 $ 893,706 1997 950,124 1998 998,779 1999 802,009 2000 32,355 Thereafter 610,860 --------- Total $4,287,833 ========= Note G - Loans to Related Parties Certain Bank officers and directors and their associates are customers of and have other transactions with the Bank. Related party loans and commitments are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than a normal risk of collectibility. The aggregate dollar amount of these loans was $3,990,176 and $4,664,132 at December 31, 1995 and 1994, respectively. During 1995, $1,636,157 of new loans were made and payments received totaled $2,310,113.

Note H - Allowance for Loan Losses Changes in the allowance for loan losses were as follows: Year Ended December 31 1995 1994 1993 ---- ---- ---- Balance at beginning of year ............................. $ 8,182,801 $ 6,387,902 $ 6,613,972 Charge-offs .............................................. (2,438,312) (1,095,363) (3,495,835) Recoveries ............................................... 243,994 889,252 404,235 ---------- --------- --------- Net Charge-offs ................................. (2,194,318) (206,111) (3,091,600) Provision for loan losses ................................ 2,826,647 2,001,010 2,865,530 ---------- --------- --------- Balance at End of Year $ 8,815,130 $ 8,182,801 $ 6,387,902 ========== ========= ========= At December 31, 1995, the recorded investment in loans that are considered to be impaired under Statement No. 114 was $2,874,169, of which $729,265 were on a nonaccrual basis. Included in this amount is $1,545,960 of impaired loans for which the related allowance for loan losses is $572,281, and $1,328,209 of impaired loans that do not have a specific allowance for loan losses due to sufficient collateral value. The average recorded investment in impaired loans during the year ended December 31, 1995, was approximately $2,500,000. For the year ended December 31, 1995, the Company recognized interest income on these impaired loans of $203,337, which included $44,233 of interest income recognized using the cash basis method of income recognition. Note I - Nonaccrual and Past Due Loans Nonaccrual and past due loans were as follows: December 31 1995 1994 ---- ---- Nonaccrual loans outstanding .. $ 803,237 $ 877,409 Accruing loans past due 90 days or more outstanding .. 2,626,333 1,196,464 At December 31, 1995 and 1994, there were no significant commitments to lend any of these debtors additional funds. Note J - Premises and Equipment Premises and equipment accounts are summarized as follows: December 31 1995 1994 ---- ---- Land ......................................... $ 2,796,278 $ 2,862,865 Premises ..................................... 16,522,457 16,344,040 Equipment, furniture and fixtures ............ 10,894,411 10,494,109 Construction in progress ..................... 4,193,783 238,385 ---------- ---------- 34,406,929 29,939,399 Accumulated depreciation and amortization .... (14,083,437) (13,158,433) ---------- ---------- $ 20,323,492 $ 16,780,966 ========== ========== Depreciation expense ......................... $ 1,277,530 $ 1,248,374 ========== ==========

Note K - Income Taxes Deferred income taxes included in other assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. No valuation allowance was made since the deferred assets were determined to be realizable in future years. This determination was based on the Company's earnings history with no basis for believing future performance will not continue to follow the same pattern. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1995 and 1994, are as follows: (In Thousands) 1995 1994 ---- ---- Deferred tax assets: Provision for loan losses ........................... $3,290 $2,715 Net unrealized losses on securitiesavailable-for-sale 1,818 Deferred compensation ............................... 1,052 702 Other ............................................... 199 549 ----- ----- Total deferred tax assets .................. 4,541 5,784 Deferred tax liabilities: Depreciation ........................................ 1,215 1,478 Net unrealized gains on securities available-for-sale 682 Other ............................................... 825 446 ----- ----- Total deferred tax liabilities ............. 2,722 1,924 ----- ----- Net deferred tax assets .................... $1,819 $3,860 ===== ===== Significant components of the provision for income taxes (credits) attributable to continuing operations are as follows: 1995 1994 1993 ---- ---- ---- Current Federal ............ $ 3,981,791 $ 3,421,454 $ 3,800,025 State .............. 408,505 --------- --------- --------- 4,390,296 3,421,454 3,800,025 --------- --------- --------- Deferred Federal ............ (397,904) (800,550) (733,521) State .............. (61,595) --------- -------- --------- (459,499) (800,550) (733,521) ---------- --------- --------- $ 3,930,797 $ 2,620,904 $ 3,066,504 ========= ========= ========= The reconciliation of income taxes (credits) attributable to continuing operations computed at the United States federal statutory tax rates to income tax expense is: 1995 1994 1993 ---- ---- ---- Tax at U.S. statutory rate ............... $ 4,465,800 34.0% $ 3,682,140 34.0% $ 3,494,956 34.0% Tax-exempt interest income ...... (965,064) (7.3%) (910,676) (8.4%) (755,617) (7.4%) State income tax, net of federal deduction ................... 228,961 1.7% Amortization of intangible assets 70,146 0.5% 53,292 0.5% 61,295 0.6% Dividends received deduction .... (23,152) (0.2%) (35,682) (0.3%) (24,644) (0.3%) Other items - net ............... 154,106 1.2% (168,170) (1.6%) 290,514 2.9% --------- ----- --------- ----- --------- ----- $ 3,930,797 29.9% $ 2,620,904 24.2% $ 3,066,504 29.8% ========= ===== ========= ===== ========= =====

Income taxes provided on gains (losses) on the sales of investment securities were approximately $(189,000), $1,000, and $217,000 for the years ended December 31, 1995, 1994, and 1993, respectively. Note L - Restrictions on Bank Dividends, Loans or Advances Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances. The approval of the Mississippi Department of Banking and Consumer Finance is required prior to the Bank paying dividends, which are limited to earned surplus in excess of three times the BankOs capital stock. At December 31, 1995, the unrestricted surplus was approximately $31,696,000. Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specified obligations. At December 31, 1995, the maximum amount available for transfer from the Bank to the Company in the form of loans was 11% of consolidated net assets. Note M - Employee Benefit Plans The Company and its Bank sponsor a defined benefit noncontributory pension plan generally covering all full-time employees. Effective April 1993, all employees are eligible to participate in the plan after completing a minimum of one thousand hours of service during a twelve month period. The normal retirement benefit, one-twelfth of which is payable monthly for life with 120 payments guaranteed, is determined as the sum of (A) 1.4% of average earnings, plus (B) 0.6% of average earnings in excess of covered compensation, times (C) years of service at retirement limited to 25. The Company's funding policy is to contribute annually an amount that falls within the minimum and maximum amount determined by consulting actuaries in accordance with the Employee Retirement Income Security Act of 1974. The following table sets forth the Plan's funded status and amounts recognized in the Company's consolidated balance sheet, as determined by consulting actuaries: December 31 1995 1994 ---- ---- Actuarial present value of accumulated benefits, including vested benefits of $8,041,324 and $6,699,365 at December 31, 1995 and 1994, respectively $ (8,122,371) $ (6,761,400) ========== ========== Plan assets at fair value ..................................... $ 9,350,383 $ 6,963,692 Projected benefit obligation .................................. (11,393,191) (9,559,173) ---------- --------- Projected benefit obligation in excess of plan assets (2,042,808) (2,595,481) Unrecognized net asset ........................................ (354,426) (418,483) Prior service cost not yet recognized in net periodic cost .... 708,483 770,116 Unrecognized net loss from past experience different from that assumed .......................... 1,853,592 2,119,947 ---------- --------- Prepaid (accrued) pension cost ................................ $ 164,841 $ (123,901) ========== =========

Net pension expense as determined by consulting actuaries included the following components: Year Ended December 31 1995 1994 1993 ---- ---- ---- Service costs-D benefits earned during the year $ 440,232 $ 456,660 $ 455,506 Interest cost on projected benefit obligation . 794,954 748,988 678,844 Actual return on plan assets .................. (1,696,670) 456,472 (265,861) Net amortization and deferral ................. 1,093,212 (1,051,402) (275,678) --------- --------- ------- Net pension expense ........................... $ 631,728 $ 610,718 $ 592,811 ========= ========= ======= The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8.0% and 5.0%, respectively, at December 31, 1995, and 8.5% and 5%, respectively, at December 31, 1994. The expected long-term rate of return on investments was 9.25% for 1995, 1994 and 1993. The unrecognized net asset is being recognized over 15.53 years. Plan assets consist mainly of U. S. Treasury obligations, equity securities, and other fixed income securities. The actual return was 20.8%, (6.7%), and 4.2% for years ending 1995, 1994, and 1993. In addition to providing retirement income benefits, the Company provides certain health care and life insurance to retired employees. Substantially all of the Company's employees may become eligible for these benefits if they reach normal or early retirement while working for the Company. The Company pays one-half of the health insurance premium. Up to age 70, each retired employee receives $5,000 in life insurance coverage paid entirely by the Company. The Company has accounted for its obligation related to these plans in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The following table presents the amounts recognized in the Company's balance sheet: December 31 1995 1994 ---- ---- Accumulated postretirement benefit obligation: Retirees ................................... $ (4,200) $ (8,700) Fully eligible active plan participants .... (84,800) (79,400) Other active plan participants ............. (189,600) (179,700) -------- ------- Accumulated postretirement benefit obligation ....... (278,600) (267,800) Unrecognized net gain ...................... (84,100) (56,100) -------- -------- Accrued postretirement benefit cost $(362,700) $(323,900) ======== ========

Net periodic postretirement benefit cost includes the following components: Year ended December 31 1995 1994 1993 ---- ---- ---- Service cost ................................ $ 20,600 $ 21,700 $ 22,000 Interest cost ............................... 19,600 19,300 19,300 Transition obligation ....................... 247,700 Amortization of net gain from earlier periods (2,100) ------- ------ ------- Net periodic postretirement benefit cost . $ 38,100 $ 41,000 $ 289,000 ======= ====== ======= The Company has limited its liability for the rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate ) to the rate of inflation assumed to be 4% each year. The health care cost trend rate assumption has little effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would not increase the accumulated postretirement benefit obligation nor the service and interest cost components of net periodic postretirement benefit cost as of December 31, 1995, and for the year then ended. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.0% and 8.5% at December 31, 1995 and 1994, respectively. The Company and its subsidiary also sponsor an employee stock ownership plan covering essentially all full-time employees who are 21 years of age and have completed one year of employment. Contributions are determined by the Board of Directors and may be paid either in cash or the CompanyOs common stock. Total contributions to the Plan charged to operating expenses were $400,000, $399,992, and $353,890 in 1995, 1994, and 1993, respectively. Note N - Other Noninterest Income and Expenses Components of other noninterest income and expenses which exceed 1% of total revenues were as follows: other noninterest expenses in 1995 - computer processing costs, $2,133,604; stationery and supplies, $783,625; FDIC/state banking assessment, $1,145,127; other noninterest income in 1994 - life insurance proceeds, $673,494; other noninterest expenses in 1994 - computer processing cost, $1,963,510; stationery and supplies, $640,603; other fees, $650,105; FDIC/state banking assessment, $1,851,883; 1993-FDIC/state banking assessment, $1,585,024; stationery and supplies, $577,813. Note O - Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company's normal credit policies. Collateral (e.g., securities, receivables, inventory, equipment) is obtained based on management's credit assessment of the customer. The Company's unfunded loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding at December 31, 1995, was approximately $114,747,000 and $5,003,000, respectively, compared to December 31, 1994, which was approximately $107,779,000 and $6,233,000, respectively. Market risk resulting from interest rate changes on particular off-balance sheet financial instruments may be offset by other on- or off-balance sheet transactions. Interest rate sensitivity is monitored by the Company for determining the net effect of potential changes in interest rates on the market value of both on- or off-balance sheet financial instruments.

Note P - The Peoples Holding Company (Parent Company Only) Condensed Financial Information Balance Sheets December 31 1995 1994 ---- ---- Assets Cash* ............................................. $ 31,807 $ 4,866 Interest-bearing balances with banks* ............. 81,042 Dividends receivable* ............................. 683,752 603,248 Investment in bank subsidiary* .................... 84,910,554 73,696,858 Other assets ...................................... 165 70,365 ---------- ---------- Total Assets .................... $85,707,320 $74,375,337 ========== ========== Liabilities and Shareholders' Equity Dividends payable ................................. $ 683,752 $ 603,248 Accrued interest payable and other liabilities .... 63,148 38,208 Shareholders' equity .............................. 84,960,420 73,733,881 ---------- ---------- Total Liabilities and Shareholders' Equity $85,707,320 $74,375,337 ========== ========== Statements of Income Year Ended December 31 1995 1994 1993 ---- ---- ---- Income: Dividends from bank subsidiary* ..... $ 2,776,398 $ 2,342,876 $ 2,500,224 Other dividends ..................... 59,025 45,092 53,019 Interest income from bank subsidiary* 1,042 410 --------- --------- --------- 2,836,465 2,387,968 2,553,653 Expenses: Other ............................... 213,408 184,936 80,249 --------- --------- --------- 213,408 184,936 80,249 --------- --------- --------- Income before income tax credits and equity in undistributed net income of bank subsidiary ..................... 2,623,057 2,203,032 2,473,404 Income tax credits ........................... (66,184) (57,700) (21,877) --------- --------- --------- 2,689,241 2,260,732 2,495,281 Equity in undistributed net income of bank subsidiary* .......... 6,514,669 5,948,188 5,240,011 --------- --------- --------- Net Income ........ $ 9,203,910 $ 8,208,920 $ 7,735,292 ========= ========= ========= *Eliminated in consolidation

Statements of Cash Flows Year Ended December 31 1995 1994 1993 ---- ---- ---- Operating Activities: Net income .................................................. $ 9,203,910 $ 8,208,920 $ 7,735,292 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of bank subsidiary ..................... (6,514,669) (5,948,188) (5,240,011) (Increase) decrease in dividends receivable (80,504) 77,853 (149,179) (Increase) decrease in other assets ....... 70,200 (70,200) Increase (decrease) in other liabilities .. 105,444 64,355 (18,150) --------- --------- --------- Net Cash Provided By Operating Activities . 2,784,381 2,332,740 2,327,952 Investing Activities: Increase in investment in subsidiaries ...................... (106,000) Purchase of certificates of deposit ......................... (81,042) (60,000) Proceeds from matured certificates of deposit ............... 60,000 --------- --------- --------- Net Cash Used In Investing Activities ..... (81,042) (106,000) Financing Activities: Issuance of common stock by pooled Company reflected in pooling-of-interests adjustment ................. 105,926 Cash dividends .............................................. (2,676,398) (2,342,876) (2,275,224) Payment of fractional shares on stock dividend .............. (40,578) ----------- ---------- ---------- Net Cash Used In Financing Activities ..... (2,676,398) (2,277,528) (2,275,224) ----------- ---------- ---------- Increase (Decrease) In Cash ............... 26,941 (50,788) 52,728 Cash at beginning of year ...................................... 4,866 55,654 2,926 ----------- ---------- ---------- Cash At End Of Year ....................... $ 31,807 $ 4,866 $ 55,654 =========== ========== ========== *Eliminated in consolidation

Note Q - Quarterly Results of Operations (Unaudited) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 1995 and 1994: Three Months Ended Mar 31 June 30 Sept 30 Dec 31 ------ ------- ------- ------ 1995 Interest income .......... $14,712,503 $15,745,106 $16,192,532 $16,358,780 Interest expense ......... 5,606,144 6,318,404 6,608,905 7,087,752 Net interest income ...... 9,106,359 9,426,702 9,583,627 9,271,028 Provision for loan losses 600,000 600,000 922,306 704,341 Noninterest income ....... 2,031,591 2,391,707 3,564,764 2,583,053 Noninterest expenses ..... 7,891,742 7,618,316 8,417,552 8,069,867 Income before income taxes 2,646,208 3,600,093 3,808,533 3,079,873 Income taxes ............. 758,101 1,059,954 1,171,772 940,970 Net income ............... 1,888,107 2,540,139 2,636,761 2,138,903 Earnings per share ....... $ .72 $ .98 $ 1.01 $ .82 1994 Interest income .......... $12,111,492 $13,113,544 $13,674,616 $14,169,801 Interest expense ......... 4,396,038 4,649,344 4,818,345 5,026,354 Net interest income ...... 7,715,454 8,464,200 8,856,271 9,143,447 Provision for loan losses 500,229 500,228 500,305 500,248 Noninterest income ....... 2,501,182 2,425,146 2,376,082 2,396,008 Noninterest expenses ..... 7,291,352 7,724,631 7,934,904 8,096,069 Income before income taxes 2,425,055 2,664,487 2,797,144 2,943,138 Income taxes ............. 425,103 536,084 840,66 819,055 Net income ............... 1,999,952 2,128,403 1,956,482 2,124,083 Earnings per share ....... $ .77 $ .82 $ .75 $ .81 The amounts presented for the first three quarters of 1994 do not equal amounts previously reported in Form 10-Q due to restatement of results after the pooling-of-interests discussed in Note B. Note R - Contingent Liabilities Various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company and its subsidiary. In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on the consolidated financial statements.

Report Of Independent Auditors Board of Directors and Shareholders The Peoples Holding Company Tupelo, Mississippi We have audited the accompanying consolidated balance sheets of The Peoples Holding Company and subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Peoples Holding Company and subsidiary at December 31, 1995 and 1994, and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, in 1994 the Company changed its method of accounting for certain investment securities and in 1993 changed its method of accounting for income taxes and postretirement benefits. Memphis, Tennessee /s/ Ernst & Young LLP January 17, 1996

Selected Financial Information (Not covered by the Accountants' Report) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- For the year ended December 31: Interest Income ............ $63,008,921 $53,069,453 $48,439,225 $51,270,958 $ 57,437,770 Interest Expense ........... 25,621,205 18,890,081 16,963,155 20,676,034 29,786,414 Provision for Loan Losses .. 2,826,647 2,001,010 2,865,530 4,401,001 2,888,938 Noninterest Income ......... 10,571,115 9,698,418 9,353,490 7,862,593 7,703,632 Noninterest Expense ........ 31,997,477 31,046,956 27,684,752 25,771,388 24,003,557 Income Before Taxes ........ 13,134,707 10,829,824 10,279,278 8,285,128 8,462,493 Income Taxes ............... 3,930,797 2,620,904 3,066,504 2,131,465 1,871,102 Cumulative Effect of Changes in Accounting Principles 522,518 Net Income ................. 9,203,910 8,208,920 7,735,292 6,153,663 6,591,391 Per Common Share: Net Income ................ $ 3.53 $ 3.15 $ 2.97 $ 2.36 $ 2.53 Book Value at December 31 . 32.62 28.31 27.43 25.33 23.77 Market Value at December 31 44.00 35.00 33.60 24.33 22.12 Cash Dividends Declared and Paid ......... 1.03 0.90 0.84 0.81 0.76 Total at Year-End: Loans, Net of Unearned Income $518,788,365 $499,201,867 $436,644,945 $405,893,604 $413,011,064 Allowance for Loan Losses 8,815,130 8,182,801 6,387,902 6,613,972 5,762,429 Securities .............. 217,744,325 212,994,410 231,741,575 193,523,989 168,807,551 Assets .................. 841,699,408 787,066,488 739,311,816 680,656,022 667,398,720 Deposits ................ 739,545,299 696,279,709 655,545,060 603,983,574 590,649,184 Borrowings .............. 4,313,109 4,650,488 259,797 292,674 279,073 Shareholders' Equity .... 84,960,420 73,733,881 71,438,180 65,978,112 61,927,960 Selected Ratios: Return on Average: Total Assets ......... 1.13% 1.05% 1.07% 0.90% 0.99% Shareholders' Equity . 11.45% 11.24% 11.24% 9.57% 10.99% Average Shareholders' Equity to Average Assets .... 9.83% 9.34% 9.52% 9.38% 9.03% At December 31: Shareholders' Equity to Assets ............ 10.09% 9.37% 9.66% 9.69% 9.28% Tier 1 Leverage ............... 9.67% 9.22% 9.52% 9.48% 9.07% Risk-Based Capital Ratios Tier 1 ............... 14.87% 14.86% 17.40% 14.70% 14.26% Total (8.00% Required) 16.14% 16.12% 18.65% 15.95% 15.62% Allowance for Loan Losses to Total Loans ....... 1.70% 1.64% 1.46% 1.63% 1.40% Allowance for Loan Losses to Nonperforming Loans 257.03% 394.57% 137.15% 128.12% 98.91% Nonperforming Loans to Total Loans .......... .66% .42% 1.07% 1.27% 1.41% Dividend Payout ............... 29.08% 29.03% 29.41% 34.18% 30.23%

Market Value Of Stock By Quarters The public market for The Peoples Holding Company common stock is limited. The stock is currently listed in the NASDAQ exchange and is traded in the local over-the-counter market. Bid and offer prices have been reported daily by Morgan Keegan & Company, Inc., J.J.B. Hilliard & W. L. Lyons, Inc. (Hilliard Lyons), and Sterne, Agee, and Leach, Inc., market makers of the shares of The Peoples Holding Company common stock. High and low prices are reflective of actual trades as reported in the NASDAQ Stock Bulletin. At December 31, 1995, there were approximately 2,300 shareholders of record. DIVIDENDS PRICES PERIOD PER SHARE LOW HIGH ------ --------- --- ---- 1995 1st Quarter $.2400 $36.25 $40.00 2nd Quarter .2625 37.25 41.16 3rd Quarter .2625 38.50 46.50 4th Quarter .2625 42.75 48.00 1994 1st Quarter $ .22 $34.08 $39.36 2nd Quarter .22 37.44 43.27 3rd Quarter .23 36.25 42.50 4th Quarter .23 35.00 39.50

Management's Discussion And Analysis Of Financial Condition And Results Of Operations Overview The Peoples Holding Company (the Company) is a one-bank holding company incorporated under the laws of the state of Mississippi. The Company was incorporated in February 1904 and is the sixth largest bank holding company located in the state. The Peoples Bank & Trust Company (the Bank) is a wholly-owned subsidiary of the Company which operates forty-one branches located in North and North Central Mississippi. The Company's banking subsidiary provides a wide range of banking and financial services to its customers. Those include lending services for commercial, consumer, and real estate loans; depository services for checking, savings, money market, IRA's and certificate of deposit accounts; and fiduciary services. The Bank maintains credit card services and is the issuer of the Mississippi State University and Delta State University affinity cards. In addition the Bank has a number of automated teller machines located throughout its market area that provide 24-hour banking services along with 24-hour access to customer account information through a voice response system. The purpose of this discussion is to focus on important factors affecting the Company's financial condition and results of operations. Reference should be made to the consolidated financial statements (including the notes thereto) and the selected financial data in this report for an understanding of the following discussion and analysis. All applicable information has been restated to include the pooling-of-interests consummated December 31, 1994. All per share data is adjusted to reflect all stock dividends declared through December 31, 1995. The Company ended 1995 with assets totaling $841,699,408, up from the prior year total of $787,066,488. This represented a 6.9% growth. Earnings were up 12.1% from the previous year with net income surpassing $9,200,000. During 1994, the Company purchased selected assets and assumed certain deposit liabilities located in three branch offices of Security Federal Savings and Loan Association (Security Federal) from the Resolution Trust Corporation. Effective December 31, 1994, the Company merged with New South Capital Corporation (New South) and its wholly-owned subsidiary, New South Bank, in a transaction accounted for as a pooling-of-interests. Financial Condition Review The Company emphasizes the importance of employing a high percentage of its assets in an earning capacity. Utilization of the Company's earning assets is a major factor in generating profitability. The Company employs the largest portion of its earning assets in loans. Loans, net of unearned income, comprised 61.6% and 63.4% of the total assets at December 31, 1995 and 1994, respectively. Loan growth was 3.9% for 1995, maintaining a proportionate mix in the various loan categories as compared to 1994. Total loans increased 14.3% during 1994. Of the $62,556,922 growth in 1994, approximately $36,686,000 was attributable to the acquisition of the three branches of Security Federal Savings and Loan Association and the pooling of New South Bank. An increase in the demand for consumer and mortgage loans increased as the economy improved and unemployment dropped. The table on page 30 sets forth loans outstanding, according to loan type, at the date indicated. The major factor affecting comparability with prior year's balances is due to a reclassification of the loan portfolio following a computer conversion in January 1992. Prior to the conversion, certain mortgages were classified as commercial.

1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Commercial, financial, and agricultural ............... $ 104,032,841 $ 95,921,379 $ 103,061,684 $ 130,610,697 $ 145,606,537 Real estate - construction .......... 16,850,556 18,188,860 25,967,773 15,280,136 12,941,094 Real estate - mortgage .............. 259,918,417 253,153,672 220,363,067 191,861,073 186,964,488 Consumer ............................ 149,218,137 143,948,292 97,095,734 77,844,541 79,336,554 Unearned income ..................... (11,231,586) (12,010,336) (9,843,313) (9,702,843) (11,837,609) ------------ ----------- ----------- ----------- ----------- Total loans, net of unearned income ... $ 518,788,365 $ 499,201,867 $ 436,644,945 $ 405,893,604 $ 413,011,064 ============ =========== =========== =========== =========== The securities portfolio is used to provide term investments, to provide a source of meeting liquidity needs, and to supply securities to be used in collateralizing public funds. The types of securities purchased and the terms of those securities depend on management's assessment of future economic conditions. The securities portfolio was up 2.2% at December 31, 1995, compared to December 31, 1994. The increase in the securities portfolio is due mainly to the effect of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which resulted in an increase in the net unrealized gain on securities classified as available-for-sale in December 31, 1995, of $7,199,027. The securities portfolio represented 25.9% and 27.1% of assets at the end of 1995 and 1994, respectively. Total securities were down 8.1% at December 31, 1994, from 1993. The largest change came from a decrease in mortgage-backed securities, and the implementation of SFAS No. 115, which resulted in a net unrealized loss on securities of $5,348,129. Management continues to evaluate the Company's tax position in order to maximize earnings from investment securities. The Company was not in an alternative minimum tax position during 1995 or 1994. Note E of the Notes to the Consolidated Financial Statements provides details of the securities portfolio. Federal funds sold provide a significant source of liquidity. These funds consist of day-to-day loans to correspondent banks. Federal funds sold totaled $17,000,000 and $150,000, at December 31, 1995 and 1994, respectively. The changes in these balances between periods is typical of fluctuations caused by changes in deposits, loans, and securities. Nonearning assets include cash and due from banks, premises and equipment, and other assets. Cash and due from banks represented 5.6% and 5.7% of total assets at December 31, 1995 and 1994, respectively. These funds are available for meeting day-to-day cash requirements inclusive of reserves required to be held by the Federal Reserve Bank. Premises and equipment was $20,323,492 and $16,780,966 at December 31, 1995 and 1994, respectively. The increase in premises and equipment in 1995 is due to the construction of a new 21,000 square foot Technology Center designed to house the electronic data processing, proof, purchasing, statement rendering, and voice response operations. Included in the cost is the purchase of new power proof machines and imaging equipment which allows the Company to offer its customers imaged account statements. The increase in premises and equipment in 1994 is partially due to the acquisition of the Security Federal and New South branches. Other assets were $20,925,126 and $20,810,320 at December 31, 1995 and 1994, respectively. The major accounts in this category are interest earned not collected, prepaid expenses, intangible assets, deferred taxes, and other real estate owned. Interest earned not collected totaled $8,321,434, up from $6,895,188 at the end of 1994. Other real estate was $1,357,051 and $230,494 at the end of 1995 and 1994, respectively. The increase is due to several large parcels recently transferred to other real estate.

Intangible assets, resulting from bank acquisitions, totaled $4,759,183 and $5,268,228 at December 31, 1995 and 1994, respectively. The Company recorded a premium on deposits purchased from Security Federal during 1994. The majority of the intangibles is being amortized over a period from 13 to 15 years. Total asset growth for 1995 and 1994 was 6.9% and 6.5%, respectively. Growth in assets for 1995 and 1994 is quite typical of banks across the nation. The Company relies on deposits as its major source of funds. Noninterest-bearing deposits were $116,894,919 and $118,711,872 at December 31, 1995 and 1994, respectively. This represented 13.9% and 15.1% of total assets for 1995 and 1994, respectively. The decrease is due to noninterest-bearing deposits being transferred to interest-bearing deposits as a result of depositors utilizing new certificate of deposit products. Interest bearing deposits were $622,650,380 and $577,567,837 at December 31, 1995 and 1994, respectively, or a 7.8% increase over 1994. The largest growth contributing to this increase came from certificates of deposit under $100,000. The increase is due to deposits obtained as a result of new certificate of deposit products. The Company maintains a note account with the Federal Reserve Bank for which tax deposits are accepted. The account is secured through pledging of securities. On December 31, 1995, the balance in the treasury tax and loan account was $2,400,495, down from $3,115,183 at the end of 1994. This account fluctuates based on the amount of securities pledged to secure the account and the frequency with which the Federal Reserve Bank draws on those funds. During 1995, the Company received advances from the Federal Home Loan Bank (FHLB) totaling $632,000. The balance due to the FHLB at December 31, 1995 and 1994, was $4,287,833 and $4,500,952, respectively. These advances are the result of asset/liability management decisions matching certain earning assets (first mortgages and consumer loans) against these advances at positive rate spreads. Other liabilities totaling $10,480,085 and $9,287,227 at December 31, 1995 and 1994, respectively, include accrued interest, accrued expenses, current taxes, and dividends payable. Accrued interest payable totaled $4,154,065 and $2,787,348 at December 31, 1995 and 1994, respectively. Risk Management The management of risk is an on-going process. Risks that are associated with the Company include credit, interest rate, and liquidity risks. Credit Risk Inherent in any lending activity is credit risk, that is, the risk of loss should a borrower or trading counterparty default. The Company's credit risk is monitored and managed by a Loan Committee and a Loss Management Committee. Credit quality and policies are major concerns of these committees. The Company tries to maintain diversification within its loan portfolio in order to minimize the effect of economic conditions within a particular industry. The allowance for loan losses is available to absorb potential credit losses from the entire loan portfolio. The appropriate level of the allowance is based on a quarterly analysis of the loan portfolio and represents an amount that management deems adequate to provide for potential losses, including losses on loans assessed as impaired under FAS 114, "Accounting by Creditors for Impairment of a Loan." The balance of these loans determined as impaired and their related allowance is included in management's estimation and analysis of the allowance for loan losses. The analysis includes the consideration of such factors as the risk rating of individual credits, the size and diversity of the loan portfolio, economic conditions, prior loss experience, and the results of periodic credit reviews by internal loan review, the regulators, and the Company's independent accounting firm. If the allowance is deemed inadequate, management sets aside additional reserves by increasing the charges against income.

The allowance for loan losses was $8,815,130 and $8,182,801 at December 31, 1995 and 1994, respectively. This represents an allowance to year-end loans of 1.70% and 1.64%, respectively. Management deems this allowance adequate for future potential loan losses. The table below reflects the activity in the allowance for loan losses for the years ended December 31. Allowance for Loan Losses 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- For the year ended December 31: Balance at Beginning of Year ........... $ 8,182,801 $ 6,387,902 $ 6,613,972 $ 5,762,429 $ 5,241,944 Provision for Loan Losses ..... 2,826,647 2,001,010 2,865,530 4,401,001 2,888,938 Charge-Offs: Commercial, Financial, and Agricultural .. 1,286,161 174,051 2,595,750 3,097,115 962,136 Real Estate - Mortgage 93,452 237,104 1,022,573 Consumer ............. 1,058,699 684,208 900,085 785,961 910,535 --------------------------------------------------------------------- Total Charge-Offs ............. 2,438,312 1,095,363 3,495,835 3,883,076 2,895,244 Recoveries: Commercial, Financial, and Agricultural .. 101,116 562,303 150,087 119,217 168,210 Real Estate - Mortgage 6,631 148,866 187,993 Consumer ............. 136,247 178,083 254,148 214,401 170,588 --------------------------------------------------------------------- Total Recoveries .............. 243,994 889,252 404,235 333,618 526,791 --------------------------------------------------------------------- Net Charge-Offs ............... 2,194,318 206,111 3,091,600 3,549,458 2,368,453 --------------------------------------------------------------------- Balance at End of Year ................. $ 8,815,130 $ 8,182,801 $ 6,387,902 $ 6,613,972 $ 5,762,429 ===================================================================== Loan Loss Analysis: Loans - Average ............... $513,670,074 $463,594,744 $422,041,326 $409,694,187 $404,013,545 Loans - Year End .............. 518,788,365 499,201,867 436,644,945 405,893,604 413,011,064 Net Charge-offs ............... 2,194,318 206,111 3,091,600 3,549,458 2,368,453 Allowance for Loan Losses ..... 8,815,130 8,182,801 6,387,902 6,613,972 5,762,429 Ratios: Net Charge-offs to: Loans - Average ......... .43% .04% .73% .87% .59% Allowance for Loan Losses 24.89% 2.52% 48.40% 53.67% 41.10% Allowance for Loan Losses to: Loans - Year End ........ 1.70% 1.64% 1.46% 1.63% 1.40% Nonperforming Loans ..... 257.03% 394.57% 137.15% 128.12% 98.91% Nonperforming Loans to: Loans - Year End .66% .42% 1.07% 1.27% 1.41% Loans - Average .67% .45% 1.10% 1.26% 1.44%

The Company's net charge-offs for 1995 and 1994 were $2,194,318 and $206,111, respectively. This represented a net charge-offs to average loans ratio of .43% and .04% for the two years. The increase in net charge-offs for 1995 compared to 1994 is due to several large customers which, after diligent collection efforts, required charge-off. During 1994, an individual loan recovery accounted for a significant portion of the decrease in net charge-offs along with the improvement in the quality of the loan portfolio. Nonperforming loans are those on which the accrual of interest has stopped or the loan is contractually past due 90 days. Generally, the accrual of income is discounted when the full collection of principal is in doubt, or when the payment of principal or interest has been contractually 90 days past due unless the obligation is both well secured and in the process of collection. The following table shows the principal amounts of nonaccrual and restructured loans at December 31 in the years indicated. 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Nonperforming Loans Nonaccruing .................... $ 803,237 $ 877,409 $1,605,076 $ 931,084 $ 984,278 Accruing Loans Past Due 90 Days Or More ....... 2,626,333 1,196,464 3,052,371 4,231,404 4,841,781 ------------------------------------------------------------- Total Nonperforming Loans ........ 3,429,570 2,073,873 4,657,447 5,162,488 5,826,059 Restructured Loans Balance Outstanding ... 243,230 259,945 278,416 3,139,551 3,210,538 ------------------------------------------------------------- Total Nonperforming Loans Including Restructured ......... $3,672,800 $2,333,818 $4,935,863 $8,302,039 $9,036,597 ============================================================= The following table presents the interest income on restructured loans, if these loans had been current in accordance with their original terms, and the amount of interest income on these loans that was included in income for the periods indicated: 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Gross Amount Of Interest That Would Have Been Recorded At The Original Rate .........$ $ 3,498 $ 10,784 $ 284,267 $ 443,980 Interest That Was Recognized In Income .................... 16,281 $ 20,529 $ 18,500 $ 255,557 $ 257,267 ------------------------------------------------------- Favorable (Unfavorable) Impact On Gross Income ..............$ 16,281 $ 17,031 $ 7,716 $ (28,710) $(186,713) ======================================================= Nonperforming loans totaled $3,429,570 and $2,073,873 at December 31, 1995 and 1994, respectively. These loans represented .67% and .45% of average loans for 1995 and 1994. The allowance for loan losses to nonperforming loans was 257.0% and 394.6% for the two years. The increase in nonperforming loans for 1995 is due to an increase in loans over 90 days past due compared to 1994. The increase is due to loan growth and various economic conditions affecting loan payoffs. Loans that are considered to be nonperforming are closely monitored by management and the Loss Management Committee. The decrease in 1994 in nonperforming loans is attributable to an improvement in credit quality and management's commitment to monitor loan performance.

Real estate acquired through the satisfaction of loan indebtedness is recorded at the lower of cost or fair market value based on appraised value, less estimated selling cost at date acquired. Any deficiency between the loan balance and the purchase price of the property is charged to the allowance for loan losses. Subsequent sales of the property may result in gains or losses to the Company. Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower's financial condition. Such concessions may include a reduction in interest rates, or a deferral of interest or principal payments. Loans that had been restructured due to cash flow requirements totaled $243,230 and $259,945 at December 31, 1995 and 1994, respectively. The Company's loan review staff monitors the performance of these loans. Interest Rate Risk The Company has an Asset/Liability Committee which is duly authorized by the Board of Directors to monitor the position of the Company and to make decisions relating to that process. The Asset/Liability Committee's goal is to maximize net interest income while providing the Company with an acceptable level of market risk due to changes in interest rates. Rate sensitivity analysis is performed on a monthly basis and shows the Company's gap position. A positive gap exists when more rate-sensitive assets are repriced than rate-sensitive liabilities within a defined period. A negative gap exists when more rate-sensitive liabilities are repriced than rate-sensitive assets within a defined period. The mismatches between rate-sensitive assets and rate-sensitive liabilities are evaluated and segregated into monthly, quarterly, annually, two years, three years, and five years and over pools. The Asset/Liability Committee's target is to have a cumulative gap position at the six month period of less than a positive 5%, and greater than a negative 30%. According to the schedule on page 37, the Company will reprice approximately $102,113,000 more rate-sensitive liabilities than assets during the first six months of 1996, resulting in a negative gap of 12.15%. At December 31, 1996, the Company will have repriced approximately $100,617,000 more of rate-sensitive liabilities than rate-sensitive assets. This results in a cumulative one-year negative gap of 11.97%. The securities portfolio is one of the primary sources for positioning the Company's interest rate risk exposure. The interest rate forecast coupled with the economic forecast provides tools for management in making decisions about future short- and long-term interest rates. From this information, decisions will be made whether to invest short or long term. Consideration is also given to liquidity needs before long-term investments are made. In addition to evaluating the gap position, the Company performs interest rate shocks on its securities portfolio to evaluate the effect of positive or negative changes in interest rates. Rate shocks were performed at year end from -4% to +4%. The effect of the interest rate shock was evaluated by management in order to determine the future investment strategy of the Company. Liquidity Risk Liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Core deposits are a major source of funds used to meet cash flow needs. Maintaining the ability to acquire these funds as needed in a variety of money markets is the key to assuring liquidity. The Company has worked toward lowering its dependence on other public funds. This has added more stability to the CompanyOs core deposit base, reducing the dependence on highly liquid assets. Approximately 92% of the Company's deposits are composed of accounts with balances less than $100,000. When evaluating the movement of these funds, even during large interest rate changes, it is apparent that the Company continues to attract deposits that can be used to meet cash flow needs. Other sources available for meeting the Company's liquidity needs include available-for-sale securities. The available-for-sale portfolio is composed of securities with a readily available market that can be used to convert to cash if the need arises. In addition, the Company maintains a federal funds position that provides day-to-day funds to meet liquidity needs and may also obtain advances from the Federal Home Loan Bank to meet liquidity needs.. Repayments and maturities of loans provide a substantial source of liquidity. The Company has approximately 73% of loans maturing within the next twelve months.

Capital Resources Total shareholders' equity of the Company was $84,960,420 and $73,733,881 at December 31, 1995 and 1994, respectively. Shareholders' equity grew 15.2% during 1995 and 3.2% during 1994. The growth in capital for both years was attributable to earnings less dividends declared. In addition, the effect of SFAS No. 115 increased capital by $4,699,027 in 1995 compared to 1994 and reduced capital at December 31, 1994, by $3,529,765. Shareholders' equity as a percentage of assets was 10.1% and 9.4% at December 31, 1995 and 1994, respectively. The Federal Reserve Board, the FDIC, and the OCC have issued guidelines for governing the levels of capital that banks are to maintain. Those guidelines specify capital tiers which include the following classification: Tier 1 Risk- Total Risk- Leverage Capital Tiers Based Capital Based Capital Ratio - ------------- ------------- ------------- ----- Well capitalized ............. 6% or above 10% or above 5% or above Adequately capitalized ....... 4% or above 8% or above 4% or above Undercapitalized ............. Less than 4% Less than 8% Less than 4% Significantly undercapitalized Less than 3% Less than 6% Less than 3% Critically undercapitalized .. 2% or less The Company met the guidelines for a well capitalized bank for both 1995 and 1994. At December 31, 1995, the total Tier 1 and total risk-based capital was $78.6 million and $85.2 million, respectively. Risk-weighted assets were $528.0 and $481.3 million at December 31, 1995 and 1994, respectively. Tier 1 and total risk-based capital at December 31, 1994, were $71.6 million and $77.6 million, respectively. 1995 1994 ---- ---- Shareholders' equity .... 10.09% 9.37% Tier 1 leverage ......... 9.67% 9.22% Risk-based capital ratios Tier 1 ......... 14.87% 14.86% Total .......... 16.14% 16.12% Cash dividends have increased each year since 1990. (See selected financial information for the previous five years.) Book value per share was $32.62 and $28.31 at December 31, 1995 and 1994, respectively. Management places significant emphasis on internal growth of capital. The increase in capital for both years, excluding the effects of SFAS No. 115, was internally generated due to a retention of earnings of 71.0% during 1995 and 1994, respectively. Results of Operations Net income for the Company was $9,203,910, $8,208,920, and $7,735,292 for 1995, 1994, and 1993, respectively. Net income increased $994,990, or 12.1%, over 1994. Earnings for 1994 were up $473,628, or 6.1%, from the 1993 earnings. Earnings per share was $3.53, $3.15, and $2.97 for 1995, 1994, and 1993, respectively. Return on average assets for 1995, 1994, and 1993 was 1.13%, 1.05%, and 1.07%, respectively. The improvement in earnings for 1995 over the prior two years was due to several factors, including an increase in net interest margin, an increase of 10% in noninterest income over 1994 which included the reversal of a lender liability lawsuit judgment of approximately $575,000 rendered against the Bank in 1991, coupled with an increase of 3% in noninterest expenses, excluding income taxes. The improvement in earnings for 1994 over 1993 was largely attributable to improvement in loan quality. The increase in 1993 earnings compared to 1992 is attributable to improvement in loan quality and the cumulative effect of adopting changes in method of accounting for income taxes and postretirement benefits other than pensions.

Net interest income is the largest component of net income for the Company. It is an effective measurement of how well management has balanced the interest sensitive assets and liabilities and is the difference between the interest earned on earning assets and the cost paid on interest bearing liabilities. Net interest income was $37,387,716, $34,179,372, and $31,476,070, for 1995, 1994, and 1993, respectively. This increase over the three-year period was the result of management's ability to maximize earnings through changes in interest rates and increased volume in earnings assets. Loan interest income was $49,138,054 and $39,913,585 for the years ended December 31, 1995 and 1994, respectively. The increase in 1995 was due to growth and repricing of loans which increased the yield from 8.61% to 9.58%. Loan interest income was $39,913,585 for 1994, up $4,168,243 or 11.7% from the prior year. The increase in interest was the result of repricing loans during a period of rising interest rates during 1994 in which the prime rate rose to 8.5% at December 31, 1994. The average balance of loans for 1994 was greater than 1993. The yield increased 14 basis points from 8.47% in 1993 to 8.61%. Economic conditions continued to improve in the market area of the Company. Loan interest income for 1993 totaling $35,745,342 was down from 1992 by $2,448,584 or 6.4%. The prime interest rate during 1993 was 6%. The decrease in loan interest income for 1993 is due to a decrease in the yield of 85 basis points from 1992. Interest income from securities was $12,862,058, $12,647,530, and $12,075,535, for 1995, 1994, and 1993, respectively. Interest income for 1995 increased 1.7% even though the average balance decreased $20.9 million from 1994. The decrease in average balance and increase in yield was due to managementOs strategy to sell lower yielding securities and invest in securities yielding a higher rate. The tax equivalent yield on securities for 1995 was 89 basis points higher than 1994, due in part to management's decision to sell these securities. The increase in income for 1994 was attributable to an increase in the average balances of securities of approximately $24.0 million. The tax equivalent yield dropped from 6.27% in 1993 to 5.95% in 1994. In 1993 earnings from investment securities dropped due to a decrease in the yield from 7.18% on a tax equivalent basis to 6.27%. The average balance of those securities increased approximately $22.8 million over 1992. The tax equivalent yield on average earning assets was 8.70%, 7.64%, and 7.59%, for 1995, 1994, and 1993, respectively.

Rate Sensitivity Balance Sheet December 31, 1995 3rd and 1st Qtr 2nd Qtr 4th Qtr 1-3 Years 3-5 Years 5 Years (In Thousands) 1996 1996 1996 1997-1998 1999-2000 and over Total - -------------- ---- ---- ---- --------- --------- -------- ----- Assets: Securities U.S. Government and Agency Securities ....... $ $ 10,301 $ 10,580 $ 64,340 $ 1,168 $13,453 $ 99,842 Other Securities ................. 8,754 2,374 7,305 35,958 7,509 4,788 66,688 Obligations of States and Political Subdivisions .. 488 1,060 1,670 6,565 6,151 33,429 49,363 Loans Fixed ............................ 84,955 55,588 80,757 110,490 21,852 9,278 362,920 Variable ......................... 135,161 5,350 15,202 155 155,868 Federal Funds Sold ........................ 17,000 17,000 Interest-Bearing Balances with Banks ....................... 8,814 8,814 Other Assets .............................. 80,035 80,035 ------------------------------------------------------------------------------ Total Assets ............ $ 255,172 $ 74,673 $115,514 $217,508 $ 36,680 $140,983 $ 840,530 ============================================================================== Liabilities: Demand Deposit Accounts ................... $ $ $ $ $ $116,895 $ 116,895 Interest Bearing DDA ...................... 139,570 139,570 Savings and Money Market Accounts ......................... 103,805 103,805 Certificates of Deposit (< $100,000) ..................... 82,410 46,735 85,096 42,213 6,743 95 263,292 Time Deposits (> $100,000) ..................... 24,897 17,674 18,642 10,363 1,516 73,092 Individual Retirement Accounts(<$100,000) .............. 7,741 6,344 9,887 15,335 3,247 337 42,891 Other Borrowed Funds ...................... 2,590 192 393 1,677 1,862 6,714 Other Liabilities ......................... 10,480 10,480 Realized Equity ........................... 83,791 83,791 ------------------------------------------------------------------------------ Total Liabilities and Equity $ 361,013 $ 70,945 $114,018 $ 69,588 $ 13,368 $211,598 $ 840,530 ============================================================================== GAP ...................................... $(105,841) $ 3,728 $ 1,496 $147,920 $ 23,312 $(70,615) GAP / Total Assets ....................... (12.59%) .44% .18% 17.60% 2.77% (8.40%) Cumulative GAP ........................... (105,841) (102,113) (100,617) 47,303 70,615 Cumulative GAP / Total Assets ............ (12.59%) (8.40%) (11.97%) 5.63% 8.40% This analysis excludes the impact of SFAS No. 115 which resulted in an unrealized gain on securities available-for-sale of $1.851 million, a deferred tax liability of $.682 million, and an increase in equity of $1.169 million.

The major source of funds for the Company is deposits. Deposits represented 87.9%, 88.5%, and 88.7% of the total assets at December 31, 1995, 1994, and 1993, respectively. Interest-bearing accounts funded 74.0%, 73.4%, and 75.2% of the assets for those three years. The cost of funds is reflected in interest expense. Interest expense was $25,621,205, $18,890,081, and $16,963,155 for the three-year period. The increase in interest expense for 1995 is due to an increase in the average balance of interest-bearing deposits of approximately $24.0 million and an increase in the interest cost of 99 basis points. The cost of interest-bearing liabilities increased from 3.05% in 1993 to 3.21% in 1994. The most significant reduction in interest expense occurred between 1993 and 1992. The cost of interest-bearing liabilities dropped 84 basis points. The net interest margin reflects the portion of the yield on earning assets that remains after the accrual of all interest expense. Net interest margin was 5.27% on a tax equivalent basis for 1995, comparable to 4.99% for 1994. The net interest margin was 5.0% for 1993. The increase in the net interest margin for 1995 is due to managementOs repricing strategy and changes in product mix. The provision for loan losses was $2,826,647 for 1995, up from $2,001,010 for 1994 or 41%. The increase in the provision is the result of management's efforts to obtain an allowance for loan losses to net loans ratio of 1.75%. At December 31, 1995 and 1994, the allowance for loan losses to net loans was 1.70% and 1.64%, respectively. During 1995, the FDIC premium refund of approximately $426,000 was used to increase the provision for loan losses. None of this refund was added to net income for 1995. The provision for 1994 decreased $864,520 from the 1993 provision of $2,865,530, while the 1993 provision decreased $1,535,471 from 1992. The reduction in 1994 and 1993 was due to an improvement in the quality of the loan portfolio over the applicable prior year. Noninterest income totaled $10,571,115, $9,698,418, and $9,353,490 for the years ended December 31, 1995, 1994, and 1993, respectively. This represented 28.3%, 28.4%, and 29.7% of net interest income for the applicable year. Included in noninterest income are service charges on deposit accounts, fees and commissions, trust department revenue, securities gains and losses, trading securities gains and losses, and other income. Service charges were up $407,795, or 7.1%, in 1995 compared to 1994. This increase is due to deposit growth for 1995. Service charges on deposit accounts were up $669,417, or 13.1%, in 1994 from 1993. This increase is attributable to the acquisition of three branches from Security Federal, the merger with New South and the introduction of new products. Service charges for 1993 increased $427,084 over 1992 due to the acquisition of branches from Sunburst Corporation. Fees and commissions were $1,215,810, $1,265,031, and $1,256,543, for 1995, 1994, and 1993, respectively. Fees have remained stable over the years presented. Securities losses totaled $507,344 for 1995 compared to gains in 1994 and 1993 of $2,701 and $524,622, respectively. The losses in securities for 1995 were due to restructuring the portfolio, enabling the Company to reinvest funds to achieve greater yields for 1995 and beyond. Other income was $3,089,856, $2,100,036, and $1,846,539, for 1995, 1994, and 1993. The increase in other income for 1995 compared to 1994 is due to a gain on the sale of mortgage loans of approximately $585,000, as well as the reversal of a lender liability lawsuit judgment of approximately $575,000. Other income was up for 1994 and 1993 due to the acquisition and gains on the sale of mortgage loans. Noninterest expenses include salaries and employee benefits, net occupancy, equipment, income taxes, and other. The total for these expenses for 1995, 1994, and 1993 were $35,928,274, $33,667,860, and $30,751,256, respectively. Noninterest expenses for 1995 were up 6.7%. In 1994 and 1993 expenses were up 9.5% and 10.2%, respectively.

Salaries and benefits, representing a major portion of the Company's operating expenses, have increased approximately 8.7% and 9.2% during 1995 and 1994, respectively. Management monitors these costs through the implementation of a performance evaluation system. Jobs are graded according to levels of difficulty using a point system which provides for salary adjustments through specified ranges. Employee performance, in relation to goal achievement, is a major factor contributing to the employee's salary increase. The increase is due to merit increases of approximately 4.5% and 4.2% in 1995 and 1994, respectively, and increases in additional staffing due to acquisitions. Included in salaries is an incentive plan adopted by the Board of Directors. The cash incentive for 1995, 1994, and 1993 was $685,912, $158,111, and $335,615, respectively, which also increased salaries and benefits in 1995. Net occupancy expense includes charges for repairs, janitorial, depreciation, rental, and other expenses related to occupancy. Expenses for 1995, 1994, and 1993 were $2,178,314, $2,150,588, and $1,993,189, respectively. Net occupancy expenses have remained stable over the three-year period. Equipment expenses include computer equipment rental, repairs, and depreciation. These expenses totaled $1,460,488, $1,149,827, and $1,047,365 for 1995, 1994, and 1993, respectively. The increase in 1995 is due to expenses incurred in completing the Technology Center. Other expenses for 1995, 1994, and 1993 were $10,303,357, $11,128,930, and $9,419,781, respectively. The decrease in 1995 is mainly due to a reduction in the third quarter of the FDIC premium from $.23 to $.04 per $100 of deposits. This significant reduction is afforded only to those banks that are considered to be well capitalized as defined through regulation. The increase in other expenses for 1994 was due to losses sustained by the Company in liquidating certain parcels of other real estate held. The increase in 1993 was due to expenses incurred to make the acquisition of branches. Income tax expense for 1995, 1994, and 1993 was $3,930,797, $2,620,904, and $3,066,504. The increase in income taxes for 1995 is due to increased profits and the Company paying state of Mississippi taxes after a net operating loss carryforward was depleted in the first quarter of 1995. The effective tax rate was approximately 5% for state income taxes. Effective tax rates were 29.9%, 24.2%, and 29.8%. Note K of the Notes to Consolidated Financial Statements provides further details of the provision for income taxes. The Company adopted SFAS No. 109 and SFAS No. 106 during 1993 resulting in an increase to earnings after taxes of $522,518. Refer to Note A regarding new accounting statements adopted by the Company in 1993. Impact of Inflation and Changing Prices The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Management believes the most significant impact on financial results stems from the Company's ability to react to changes in interest rates. Therefore, management is constantly monitoring the Company's rate sensitivity. SEC Form 10-K A copy of the annual report on Form 10-K, as filed with the Securities and Exchange Commission, may be obtained without charge by directing a written request to: Wayne Conwill, Vice President, The Peoples Holding Company, P. O. Box 709, Tupelo, MS 38802-0709.

Three Year Statistical Summary 1995 Income Average Or Balance Sheet Expense Amounts Yields/Rates ------- ------- ------------ Earning assets: Loans, net of unearned income: Commercial ................................................ $ 22,011,507 $235,276,614 9.36% Consumer .................................................. 18,801,477 193,146,649 9.73% Other loans ............................................... 8,325,070 85,246,811 9.83% TE ------------------------- Total Loans, Net ......................... 49,138,054 513,670,074 9.58% TE Other ................................................................................ 1,008,809 17,189,987 5.87% Taxable investment and trading securities: U.S. Government securities ................................ 4,922,559 90,215,062 5.74% TE U.S. Government agencies .................................. 1,369,710 19,808,620 7.01% TE Mortgage-backed securities ................................ 3,547,259 53,937,225 6.58% Other securities .......................................... 258,193 3,384,496 8.63% TE ------------------------- Total Taxable Investment and Trading Securities .................... 10,097,721 167,345,403 6.22% TE Tax-exempt securities: Obligations of states and political subdivisions .......... 2,764,337 47,382,789 9.03% TE ------------------------- Total Investment and Trading Securities .. 12,862,058 214,728,192 6.84% TE ------------------------- Total Earning Assets ..................... 63,008,921 745,588,253 8.70% TE Cash and due from banks .............................................................. 42,604,018 Other assets, less allowance for loan losses ......................................... 29,741,159 ----------- Total Assets ............................. $817,933,430 =========== Interest-bearing liabilities: Interest-bearing demand deposit accounts .................................... 3,815,049 $140,218,166 2.72% Savings accounts ............................................................ 2,434,008 99,392,823 2.45% Time deposits ............................................................... 18,985,384 365,213,540 5.20% ------------------------- Total Interest-Bearing Deposits .......... 25,234,441 604,824,529 4.17% Total Other Interest-Bearing Liabilities . 386,764 6,881,101 5.62% ------------------------- Total Interest-Bearing Liabilities ....... 25,621,205 611,705,630 4.19% Noninterest-bearing sources: Noninterest-bearing deposits ................................................ 115,846,458 Other liabilities ........................................................... 9,977,481 Shareholders' equity ........................................................ 80,403,861 ----------- Total Liabilities and Shareholders' Equity $817,933,430 =========== Net interest income/net interest margin ..................................... $ 37,387,716 5.27%TE ========== TE - Ratios have been calculated on a tax equivalent basis

1994 Income Average Or Balance Sheet Expense Amounts Yields/Rates ------- ------- ------------ Earning assets: Loans, net of unearned income: Commercial .............................................$ 17,683,325 $218,147,929 8.11% Consumer .............................................. 14,289,174 155,593,089 9.18% Other loans ........................................... 7,941,086 89,853,726 8.84% -------------------------- Total Loans, Net 39,913,585 463,594,744 8.61% Other .............................................................................. 508,338 13,363,563 3.80% Taxable investment and trading securities: U.S. Government securities ............................ 6,200,816 124,081,994 5.00% U.S. Government agencies ................................... 885,201 12,768,507 6.93% Mortgage-backed securities ............................. 2,828,152 51,220,241 5.52% Other securities 174,155 3,862,621 5.90%TE -------------------------- Total Taxable Investment and Trading Securities ................. 10,088,324 191,933,363 5.36%TE Tax-exempt securities: Obligations of states and political subdivisions .........2,559,206 43,702,000 8.87%TE -------------------------- Total Investment and Trading Securities ... 12,647,530 235,635,363 5.95%TE -------------------------- Total Earning Assets 53,069,453 712,593,670 7.64% Cash and due from banks ............................................................... 43,446,045 Other assets, less allowance for loan losses .......................................... 25,604,012 ------------ Total Assets .............................. $781,643,727 ============ Interest-bearing liabilities: Interest-bearing demand deposit accounts ....................................3,697,980 $161,066,313 2.30% Savings accounts ............................................................2,403,042 106,033,460 2.27% Time deposits ..............................................................12,386,018 313,749,274 3.95% -------------------------- Total Interest-Bearing Deposits ........... 18,487,040 580,849,047 3.18% Total Other Interest-Bearing Liabilities .. 403,041 8,342,756 4.83% -------------------------- Total Interest-Bearing Liabilities ........ 18,890,081 589,191,793 3.21% Noninterest-bearing sources: Noninterest-bearing deposits ................................................. 111,663,641 Other liabilities ........................................................... 7,746,773 Shareholders' equity ......................................................... 73,041,520 ------------ Total Liabilities and Shareholders' Equity $781,643,727 ============ Net interest income/net interest margin $ 34,179,372 4.99%TE ========== TE - Ratios have been calculated on a tax equivalent basis

1993 Income Average Or Balance Sheet Expense Amounts Yields/Rates ------- ------- ------------ Earning assets: Loans, net of unearned income: Commercial ..................................................$ 17,357,030 $221,681,068 7.83% Consumer .................................................... 12,326,579 126,679,135 9.73% Other loans ................................................. 6,061,733 73,681,123 8.23% ------------------------- Total Loans, Net ........................... 35,745,342 422,041,326 8.47% Other .................................................................................. 618,348 19,991,545 3.09% Taxable investment and trading securities: U.S. Government securities .................................. 5,271,348 100,152,565 5.26% U.S. Government agencies .................................... 906,769 12,425,571 7.30% Mortgage-backed securities .................................. 3,509,565 61,223,623 5.73% Other securitie ............................................. 145,057 2,762,231 6.60%TE ------------------------ Total Taxable Investment and Trading Securities ...................... 9,832,739 176,563,990 5.59%TE Tax-exempt securities: Obligations of states and political subdivisions ............ 2,242,796 35,026,031 9.70%TE ------------------------- Total Investment and Trading Securities .... 12,075,535 211,590,021 6.27%TE ------------------------- Total Earning Assets ....................... 48,439,225 653,622,892 7.59%TE Cash and due from banks ................................................................ 42,633,082 Other assets, less allowance for loan losses ........................................... 26,440,043 ----------- Total Assets ............................... $722,696,017 =========== Interest-bearing liabilities: Interest-bearing demand deposit accounts ...................................... 3,832,758 $170,331,137 2.25% Savings accounts .............................................................. 2,616,800 91,569,907 2.86% Time deposits ................................................................. 10,386,896 290,040,324 3.58% ------------------------- Total Interest-Bearing Deposits ............ 16,836,454 551,941,368 3.05% Total Other Interest-Bearing Liabilities ... 126,701 4,097,013 3.09% ------------------------- Total Interest-Bearing Liabilities ......... 16,963,155 556,038,381 3.05% Noninterest-bearing sources: Noninterest-bearing deposits .................................................. 90,185,490 Other liabilities ............................................................. 7,667,384 Shareholders' equity .......................................................... 68,804,762 ----------- Total Liabilities and Shareholders' Equity $722,696,017 =========== Net interest income/net interest margin $ 31,476,070 5.00%TE ========== TE - Ratios have been calculated on a tax equivalent basis

EXHIBIT 23 THE PEOPLES HOLDING COMPANY CONSENT OF INDEPENDENT AUDITORS We consent to the incoporation by reference in this Annual Report (Form 10-K) of The Peoples Holding Company of our report dated January 17, 1996, included in the 1995 Annual Report to Shareholders of The Peoples Holding Company. We also consent to the incorporation by reference in the Registration Statement (Form S-3 No. 33-20108) of our report dated January 17, 1996, with respect to the consolidated financial statements of The Peoples Holding Company incorporated herein by reference. /s/ Ernst & Young LLP Memphis, Tennessee March 28, 1996

9 1000 YEAR DEC-31-1995 DEC-31-1995 46919 8814 17000 0 168382 49362 50110 518788 8815 841699 739545 2400 10480 4313 13024 0 0 71937 841699 49138 12862 1009 63009 25234 25621 37388 2827 (507) 31997 13135 13135 0 0 9204 3.53 3.53 5.27 803 2626 0 2874 8183 2438 244 8815 8815 0 0