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 EXCHANGE ACT OF 1934 For fiscal year ended December 31, 1997 Commission file number 1-13253 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: (Title of Class) Name of each exchange on which registered - ------------------------------ ----------------------------------------- Common Stock, $5.00 Par Value American Stock Exchange 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_____ Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K will be contained in the registrant's proxy statement for its 1998 annual meeting of shareholders, which statement is incorporated by reference in Part III of this Form 10-K. Yes____ No__X__ The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 23, 1998 was $208,743,690. On March 23, 1998, there were 5,859,472 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1997 Annual Shareholders' Report are incorporated by reference into Parts I and II of this report. Portions of annual Proxy Statement dated March 23, 1998, relating to the annual meeting of shareholders of The Peoples Holding Company, are incorporated by reference into Part III.

Exhibit Index on Page 17 THE PEOPLES HOLDING COMPANY FORM 10-K For the year ended December 31, 1997 CONTENTS PART I Item 1. Business.............................................3 Item 2. Properties..........................................12 Item 3. Legal Proceedings...................................12 Item 4. Submission of Matters to a Vote of Security Holders.12 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.....................12 Item 6. Selected Financial Data.............................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......13 Item 8. Financial Statements and Supplementary Data.........13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............13 PART III Item 10. Directors and Executive Officers of the Registrant..13 Item 11. Executive Compensation..............................13 Item 12. Security Ownership of Certain Beneficial Owners and Management......................................13 Item 13. Certain Relationships and Related Transactions......13 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................14 2

PART I This Annual Report on Form 10-K may contain or incorporate by reference statements which may constitute "forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended. Prospective investors are cautioned that any such forward-looking statements are not guarantees for future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include significant fluctuations in interest rates, inflation, economic recession, significant changes in the federal and state legal and regulatory environment, significant underperformance in the Company's portfolio of outstanding loans, and competition in the Company's markets. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. 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, 1997, had 41 banking offices in Tupelo, Aberdeen, Amory, Batesville, Booneville, Calhoun City, Coffeeville, Corinth, Grenada, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Olive Branch, Plantersville, Pontotoc, Saltillo, Sardis, Shannon, Smithville, Southaven, Verona, Water Valley, West Point, and Winona, 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 primary 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, equipment leasing, 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. The Bank also offers accounts receivable factoring to qualified businesses. Neither the Registrant nor the Bank has any foreign activities. The Bank also offers to its customers the VISA and MasterCard credit cards. During 1997, the Company acquired Financial Investment Alternatives (FIA). FIA had been owned by Richard Leahy, a marketing firm, whose parent company was Lincoln National. The Company paid book value, approximately $1,000, for FIA. The subsidiary's primary business is the selling of annuities and mutual funds.

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, 1997. 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, 1997, the Registrant and its subsidiary had total assets of approximately $971,055,000 and, as such, ranked sixth in Mississippi. The Registrant receives a large part of its competition from BanCorp South, the Tupelo branch operation of Deposit Guaranty National Bank, Trustmark National Bank, and Union Planters Bank of Memphis, Tennessee. On December 31, 1997, BanCorp South, Deposit Guaranty National Bank, Trustmark National Bank, and Union Planters had total assets of approximately $4,181,000,000, $6,772,000,000, $5,545,000,000, and $18,105,000,000, respectively. 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 the business of banking, or any other transactions 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. Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed territorial restrictions for interstate bank mergers, effective May 1, 1997. Out-of-state bank holding companies may establish a bank in Mississippi only by acquiring a Mississippi bank or Mississippi bank holding company . 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 earned surplus in excess of three times the Bank's capital stock. 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, 1997, 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 investment brokers. It would earn a market rate of interest, with limited third-party 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, 1997, the Registrant and its subsidiary employed 589 persons on a full-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. 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. During 1997, the Company purchased approximately $11,032,000 in loans and $15,232,000 in deposits. Executive Officers of The Registrant The principal executive officer of the Company and its subsidiary as of December 31, 1997, is as follows: Name Age ---- --- John W. Smith 62 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. 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. 1997 COMPARED TO 1996 INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) Earning assets: Loans, net of unearned income ................ $ 5,336 $ (160) $ 5,176 Securities U. S. government securities and agencies ...... (232) 3 (229) Obligations of states and political subdivisions ....... 372 (75) 297 Mortgage-backed securities ..... 1,151 (25) 1,126 Other securities ............... (29) 6 (23) Other ............................ (343) 12 (331) -------- -------- -------- Total earning assets ............. $ 6,255 $ (239) $ 6,016 -------- -------- -------- Interest-bearing liabilities: Interest-bearing demand deposit accounts ............... $ (1,059) $ 49 $ (1,010) Savings accounts ................. 1,036 482 1,518 Time deposits .................... 1,939 345 2,284 Other ............................ 651 116 767 -------- -------- -------- Total interest-bearing liabilities .................... $ 2,567 $ 992 $ 3,559 -------- -------- -------- Change in net interest income ......................... $ 3,688 $ (1,231) $ 2,457 ======== ======== ======== (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.

1996 COMPARED TO 1995 INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) Earning assets: Loans, net of unearned income ................ $ 1,580 $ (315) $ 1,265 Securities U. S. government securities and agencies ...... 1,160 333 1,493 Obligations of states and political subdivisions ....... 440 (132) 308 Mortgage-backed securities ..... 549 27 576 Other securities ............... (18) (25) (43) Other ............................ (40) (95) (135) -------- -------- -------- Total earning assets ............. $ 3,671 $ (207) $ 3,464 -------- -------- -------- Interest-bearing liabilities: Interest-bearing demand deposit accounts ............... $ 173 $ 743 $ 916 Savings accounts ................. 58 (125) (67) Time deposits .................... 1,591 73 1,664 Other ............................ 159 (49) 110 -------- -------- -------- Total interest-bearing liabilities .................... $ 1,981 $ 642 $ 2,623 -------- -------- -------- Change in net interest income ......................... $ 1,690 $ (849) $ 841 ======== ======== ======== (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.

INVESTMENT PORTFOLIO The following table sets forth the amortized cost of securities at the dates indicated: December 31 ----------- 1997 1996 1995 --------- -------- -------- (In Thousands) U.S. Government and Agency Securities .... $ 110,684 $ 125,087 $ 99,842 Obligations of State and Political Subdivisions 59,893 52,051 45,837 Other Securities ....... 77,153 68,610 66,688 ------ ------ ------ $ 247,730 $ 245,748 $212,367 ========= ========= ======== The following table sets forth the maturity distribution in thousands and weighted average yield by maturity of securities at December 31, 1997: After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years -------- ----------- ---------- --------- U.S Government and Agency Securities ... $ 7,490 5.62% $ 88,848 6.43% $ 14,346 6.67% $ Obligations of States and Political Subdivisions . 3,071 9.08% 11,448 8.97% 33,555 7.73% 11,819 7.32% Other Securities 19,228 6.43% 52,183 6.38% 5,742 6.72% ------ ------ ----- ------ Total .......... $29,789 $152,479 $ 53,643 $ 11,819 ====== ======= ====== ====== The maturity of mortgage-backed securities, included as other securities, reflects scheduled repayments when the payment is due. Weighted average yields on tax-exempt obligations have been computed on a fully tax-equivalent basis assuming a federal tax rate of 35% 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, consumer loans, and net receivables on leased equipment, which are included in commercial, financial and agricultural loans in the consolidated financial statements) outstanding as of December 31, 1997, 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. Loans Maturing -------------------------------------------- After One After Within But Within Five One Year Five Years Years Total -------- ---------- ----- ----- Commercial, financial and agricultural $ 75,443 $ 31,781 $ 13,188 $120,412 Real estate- construction 22,285 2,041 39 24,365 -------- -------- -------- -------- $ 97,728 $ 33,822 $ 13,227 $144,777 ======== ======== ======== ======== Interest Sensitivity -------------------- Fixed Variable Rate Rate ---- ---- (In Thousands) Due after 1 but within 5 years ................. $31,082 $ 2,740 Due after 5 years ....... 13,227 ------- ------ $44,309 $ 2,740 ======= =======

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 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 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 and the regulators. If the allowance is deemed inadequate, management sets aside additional reserves by increasing the charges against income.

The following table shows the maturity of time deposits over $100,000. Less than 3 Months $ 46,449,447 3 Months- 6 Months 24,285,177 6 Months-12 Months 28,731,180 Over 12 Months 16,734,492 ------------ $ 116,200,296 ============= 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 Technology Center located in Tupelo, Mississippi houses the electronic data processing, proof, purchasing, statement rendering, and voice response operations. In addition, the Bank operated thirty (30) full-service branches, and eleven (11) limited-service branches. 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, Olive Branch, 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, 1997, 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 Hernando, 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, 1997, 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 1997. 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 25 of the Registrant's 1997 Annual Report is incorporated herein by reference. At March 20, 1998, the total number of shareholders of the Company's common stock was 2,333. The Registrant's common stock trades on the American Stock Exchange under the symbol PHC. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Financial Information" on Page 24 of the Registrant's 1997 Annual Report is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages 26 through 37 of the Registrant's 1997 Annual Report are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements are included on pages 4 through 23 of the Registrant's 1997 Annual Report and are incorporated herein by reference. The information on Page 22 of the Registrant's 1997 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 5 of the Company's definitive Proxy Statement, dated March 23, 1998, which is incorporated herein by reference. Information concerning executive officers of the Registrant and its subsidiary appears on Page 6 under the caption "Executive Officers" of the Company's definitive Proxy Statement, dated March 23, 1998, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Summary Compensation Table-Annual Compensation" on Pages 7 through 10 of the Company's definitive Proxy Statement, dated March 23, 1998, 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 3 of the Company's definitive Proxy Statement, dated March 23, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under "Transactions with Management: on Page 13 of the Company's definitive Proxy Statement, dated March 23, 1998, is incorporated herein by reference.

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. (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. (13) Annual Report to Shareholders for the year ended December 31, 1997 (23) Consent of Independent Auditors (27) Financial Data Schedule (b) No Form 8-K was filed during the quarter ended December 31, 1997. (d) Financial Statement Schedules -- None.

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 23, 1998 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) ..... /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 Frank B. Brooks, Director ..... /s/ Frank B. Brooks John M. Creekmore, Director ... /s/ John M. Creekmore Marshall H. Dickerson, Director /s/ Marshall H. Dickerson A. M. Edwards, Jr., Director .. /s/ A. M. Edwards, Jr. Eugene B. Gifford, Jr., Director ...................... /s/ Eugene B. Gifford, Jr. C. Larry Michael, Director .... /s/ C. Larry Michael Jimmy S. Threldkeld, Director . /s/ Jimmy S. Threldkeld J. Heywood Washburn, Director . /s/ J. Heywood Washburn Robert H. Weaver, Director .... /s/ Robert H. Weaver J. Larry Young, Director ...... /s/ J. Larry Young

Form 10-K--Item 14 (a) (1) and (2) 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, 1997, are incorporated by reference in Item 8. Report of Independent Auditors Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated Statements of Income--Years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Shareholders' Equity--Years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows--Years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements--December 31, 1997 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.

Exhibit Number Description Page - ------ ----------- ---- 13 Annual Report to Shareholders ............... 18 23 Consent of Independent Auditors ............. 53

Financial Statements Consolidated Balance Sheets December 31 ----------- 1997 1996 ---- ---- Assets Cash and due from banks ............................................. $ 32,932,007 $ 38,374,641 Federal funds sold .................................................. 6,000,000 8,500,000 --------- --------- Cash and Cash Equivalents ................ 38,932,007 46,874,641 Interest-bearing balances with banks ................................ 14,972,568 1,824,031 Securities held to maturity (market value - $60,555,766 and $52,334,931 at December 31, 1997 and 1996, respectively) ... 59,893,375 52,051,251 Securities available for sale (amortized cost - $187,836,120 and $193,696,615 at December 31, 1997 and 1996, respectively) .. 188,738,354 194,058,997 Loans Commercial, financial, and agricultural .................... 120,411,789 111,686,473 Real estate - construction ................................. 24,365,187 20,650,887 Real estate - mortgage ..................................... 344,212,179 301,077,552 Consumer ................................................... 148,471,736 137,704,170 Unearned income ............................................ (9,515,511) (8,366,577) ---------- ---------- Total Loans, Net of Unearned Income ...... 627,945,380 562,752,505 Allowance for loan losses .................................. (9,103,828) (9,309,354) ---------- ---------- Net Loans ................................ 618,841,552 553,443,151 Premises and equipment, net ......................................... 23,492,657 21,559,955 Other assets ........................................................ 26,184,367 23,277,326 ---------- ---------- Total Assets ............................. $ 971,054,880 $ 893,089,352 ============= ============= Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing ........................................ $ 120,828,654 $ 118,638,526 Interest-bearing ........................................... 714,085,531 654,203,482 ----------- ----------- Total Deposits ........................... 834,914,185 772,842,008 Treasury tax and loan note account .................................. 6,101,276 6,354,142 Borrowings .......................................................... 18,454,080 11,174,638 Other liabilities ................................................... 13,434,422 12,157,744 ----------- ----------- Total Liabilities ........................ 872,903,963 802,528,532 Shareholders' Equity Common stock, $5 par value, 5,859,47200 shares authorized and 5,859,472(1) shares issued and outstanding at December 31, 1997 and 1996, respectively ................... 29,297,360 19,533,375 Additional paid-in capital .......................................... 39,875,796 39,875,796 Unrealized gains on securities available for sale, net of tax ....... 565,708 227,214 Retained earnings ................................................... 28,412,053 30,924,435 ----------- ----------- Total Shareholders' Equity ............... 98,150,917 90,560,820 ----------- ----------- Total Liabilities and Shareholders' Equity $ 971,054,880 $ 893,089,352 ============= ============= (1)After giving effect to the stock dividend payable to shareholders of record on January 1, 1998. See notes to consolidated financial statements.

Consolidated Statements Of Income Year Ended December 31 ---------------------- 1997 1996 1995 ---- ---- ---- Interest income Loans .............................................. $ 55,650,248 $ 50,580,549 $ 49,321,837 Securities: Taxable ................................... 13,056,713 12,205,952 10,097,721 Tax-exempt ................................ 2,951,042 2,764,782 2,580,554 Other .............................................. 542,769 873,630 1,008,809 ---------- ---------- ---------- Total Interest Income ... 72,200,772 66,424,913 63,008,921 Interest expense Deposits ........................................... 30,539,899 27,747,241 25,234,441 Borrowings ......................................... 1,263,599 496,584 386,764 ---------- ---------- ---------- Total Interest Expense .. 31,803,498 28,243,825 25,621,205 ---------- ---------- ---------- Net Interest Income ..... 40,397,274 38,181,088 37,387,716 Provision for loan losses ................................... 2,279,999 2,813,155 2,826,647 ---------- ---------- ---------- Net Interest Income After Provision For Loan Losses 38,117,275 35,367,933 34,561,069 Noninterest income Service charges on deposit accounts ................ 6,767,810 6,564,831 6,357,181 Fees and commissions ............................... 1,447,221 1,396,941 1,215,810 Trust revenue ...................................... 718,936 643,302 584,273 Securities gains (losses) .......................... (40,990) 110,278 (507,344) Other .............................................. 3,126,538 2,315,154 3,089,856 ---------- ---------- ---------- Total Noninterest Income 12,019,515 11,030,506 10,739,776 Noninterest expense Salaries and employee benefits ..................... 19,533,212 18,218,221 18,055,318 Net occupancy ...................................... 2,599,021 2,269,122 2,178,314 Equipment .......................................... 1,780,138 1,594,525 1,460,488 Other .............................................. 11,096,352 10,748,255 10,472,018 ---------- ---------- ---------- Total Noninterest Expense 35,008,723 32,830,123 32,166,138 ---------- ---------- ---------- Income before income taxes .................................. 15,128,067 13,568,316 13,134,707 Income taxes ................................................ 4,487,831 4,052,064 3,930,797 ---------- ---------- ---------- Net Income .............. $ 10,640,236 $ 9,516,252 $ 9,203,910 ============ ============ ============ Basic and diluted earnings per share ........................ $ 1.82 $ 1.62 $ 1.57 ============ ============ ============ Weighted average shares outstanding ......................... 5,859,472 5,859,472 5,859,472 ============ ============ ============ 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, 1995 ............. 2,604,760 $ 13,023,800 $ 29,875,796 $(3,529,765) $ 34,364,050 $ 73,733,881 Change in 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 - $.46 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 Change in unrealized gains on securities available for sale, net of tax ...................... (942,048) (942,048) Net income for 1996 ................ 9,516,252 9,516,252 Stock split effected in the form of a stock dividend ............. 1,301,915 6,509,575 (6,509,575) Payment of fractional shares for stock dividend ...... (24,183) (24,183) Cash dividends: $.50 per share ....... (2,949,621) (2,949,621) ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1996 ........... 3,906,675 19,533,375 39,875,796 227,214 30,924,435 90,560,820 Change in unrealized gains on securities available for sale, net of tax ...................... 338,494 338,494 Net income for 1997 ................ 10,640,236 10,640,236 Stock split effected in the form of a stock dividend ............. 1,952,797 9,763,985 (9,763,985) Payment of fractional shares for stock dividend ..... (28,892) (28,892) Cash dividends: $.57 per share ....... (3,359,741) (3,359,741) ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1997 ........... 5,859,472 $ 29,297,360 $ 39,875,796 $ 565,708 $28,412,053 $ 98,150,917 ========== ========== ========== ========== ========== ==========

Consolidated Statements Of Cash Flows Year Ended December 31 --------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- Operating Activities Net income ................................................................ $ 10,640,236 $ 9,516,252 $ 9,203,910 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ............................... 2,279,999 2,813,155 2,826,647 Provision for depreciation and amortization ............. 2,330,332 2,178,791 1,868,370 Net amortization of securities premiums/discounts ................................... 341,872 70,807 131,421 Gain on sale of loans ................................... (322,974) (585,304) (Gains) losses on sales/calls of securities ............. 40,990 (110,278) 507,344 Increase in other liabilities ........................... 1,276,678 1,677,659 1,192,858 Deferred income tax credits ............................. (243,132) (179,376) (459,499) (Gains) losses on sales of premises and equipment ....... 233,374 (16,222) 129,726 Increase in other assets ................................ (2,299,840) (986,023) (461,230) ----------- ----------- ----------- Net Cash Provided By Operating Activities ...... 14,277,535 14,964,765 14,354,243 ----------- ----------- ----------- Investing Activities Net (increase) decrease in balances with other banks ...................... (13,148,537) 6,990,380 (8,625,862) Proceeds from sales of securities available for sale ...................... 48,987,655 32,600,278 28,989,992 Proceeds from maturities/calls of securities held to maturity ................................................. 4,244,691 2,996,556 2,495,029 Proceeds from maturities/calls of securities available for sale ............................................... 71,321,679 54,504,983 65,464,778 Purchases of securities held to maturity .................................. (12,552,000) (9,424,079) (5,270,000) Purchases of securities available for sale ................................ (114,366,516) (114,018,090) (89,190,035) Net increase in loans ..................................................... (101,773,280) (43,981,837) (36,849,924) Proceeds from sale of loans ............................................... 33,290,229 12,690,078 Proceeds from sales of premises and equipment ............................. 61,745 122,049 169,850 Purchases of premises and equipment ....................................... (3,995,955) (2,937,264) (5,119,632) ----------- ----------- ----------- Net Cash Used In Investing Activities .......... (87,930,289) (73,147,024) (35,245,726) ----------- ----------- ----------- Financing Activities Net increase (decrease) in noninterest-bearing deposits ................... 2,190,128 1,743,607 (1,816,953) Net increase in interest-bearing deposits ................................. 59,882,049 31,553,102 45,082,543 Net increase (decrease) in treasury tax and loan note account ............. (252,866) 3,953,647 (714,688) Net increase (decrease) in borrowings ..................................... 7,279,442 6,861,529 (337,379) Cash dividends paid ....................................................... (3,359,741) (2,949,621) (2,676,398) Cash paid on fractional shares for stock dividend ......................... (28,892) (24,183) ----------- ----------- ----------- Net Cash Provided By Financing Activities ...... 65,710,120 41,138,081 39,537,125 ----------- ----------- ----------- Increase (Decrease) In Cash and Cash Equivalents (7,942,634) (17,044,178) 18,645,642 Cash and Cash Equivalents at Beginning of Year ..................................... 46,874,641 63,918,819 45,273,177 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year ....... $ 38,932,007 $ 46,874,641 $ 63,918,819 ============= ============= ============= Non-Cash Transactions Transfer of loans to other real estate .................................... $ 1,127,625 $ 1,224,148 $ 2,284,916 ============= ============= ============= See notes to consolidated financial statements.

Notes To Consolidated Financial Statements December 31, 1997 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). The accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the financial services industry. 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. Securities: 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. 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 as a separate component of shareholders' equity. The amortized cost of securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts. Such amortization is included in interest income from securities. Interest and dividends are included in interest income from securities. Realized gains and losses, as well as 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. 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 or interest 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. This method is not materially different from the results which would be obtained had the Company implemented Statement of Financial Accounting Standards (SFAS) No. 91, "Accounting for Non-refundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." 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. The allowance for loan losses related to loans that are identified for evaluation in accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which was amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," 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 allowance for loan losses is maintained at a level believed adequate by management to absorb inherent 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 method for furniture, fixtures, equipment, and 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 $774,265 and $622,406 at December 31, 1997 and 1996, 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. 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 $150,050, $409,590, and $95,267 for the years ending December 31, 1997, 1996, and 1995, 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 the straight-line method over 13 to 15 years. Goodwill was $5,885,806 and $4,250,139 at December 31, 1997 and 1996, respectively. Total amortization of intangible assets was $562,198 for year ending December 31, 1997, and $583,817 for years ending December 31, 1996 and 1995, respectively. Mortgage Servicing Rights: Beginning in 1996, the Company adopted the provisions of SFAS No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." SFAS No. 122 requires capitalization of purchased as well as internally originated mortgage servicing rights based on the fair value of the mortgage servicing rights relative to the loan as a whole. Mortgage servicing rights are amortized in proportion to, and over the period of estimated net servicing income. SFAS No. 122 was amended by SFAS No. 125, mentioned below. The fair value of mortgage servicing rights is determined using assumptions that market participants would use in estimating future net servicing income. Mortgage servicing rights are stratified by loan type (government or conventional) and interest rate for purposes of measuring impairment on a quarterly basis. An impairment loss is recognized to the extent by which the unamortized capitalized mortgage servicing rights for each stratum exceeds the current fair value. Other Accounting Pronouncements: During the first quarter of 1996, the Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides new accounting and reporting standards for sales, securitization, and servicing of receivables and other financial assets and extinguishments of liabilities. The provisions of the Statement are to be applied to transactions occurring after December 31, 1996, even for transfers of assets pursuant to securitization transactions that previously were established. The adoption of this Statement did not have a material effect on the Company's consolidated financial condition or results of operations. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Statement was developed in response to financial statement users' concerns about the increasing number of items that bypass the income statement, such as changes in value of available-for-sale securities, and the effort required to analyze them. Because this Statement addresses how supplemental financial information is disclosed in annual and interim reports, the adoption will have no material impact on the consolidated financial statements. SFAS No. 130 will become effective in 1998. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the reporting of financial information from operating segments, using the management approach, in annual and interim financial statements. This Statement requires that financial information be reported on the basis that it is reported internally for evaluating segment performance and deciding how to allocate resources to segments. Because this Statement addresses how supplemental financial information is disclosed in annual and interim reports, the adoption will have no material impact on the consolidated financial statements. SFAS No. 131 will become effective in 1998. Income Taxes: Income taxes are accounted for under the liability method. 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.

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. Earnings Per Share: In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." Statement No. 128 simplifies the calculation of earnings per share (EPS) standards, and is effective for both interim and annual periods ending after December 15, 1997. Earnings per share is based on the weighted average number of shares outstanding during each year adjusted retroactively for all stock dividends. In December 1997, the Company declared a three-for-two stock split effected in the form of a fifty percent stock dividend to shareholders of record on January 1, 1998. Previously reported per share amounts have been restated for this stock dividend. All earnings per share amounts for all periods presented have been restated to conform to SFAS No. 128 requirements. 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 1997, 1996, and 1995, cash paid for interest was $31,348,894, $27,950,528, and $24,254,488, respectively. During 1997, 1996, and 1995, cash paid for income taxes was $5,090,739, $3,244,535, and $4,455,448, respectively. Reclassifications: Certain reclassifications have been made to the 1996 and 1995 consolidated financial statements to conform with the 1997 presentation. Note B - Acquisitions Effective October 1997, the Company purchased approximately $11,036,000 of selected assets and assumed approximately $15,232,000 of deposit liabilities from one branch office of Magnolia Federal Bank for Savings located in Grenada, Mississippi. Goodwill of approximately $2,123,000 was recorded in connection with this 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. 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 based on 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 ----------------------------------------------------------------- 1997 1996 ------------------------------ ------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------- ------------- ------------- ------------- Financial assets Cash and due from banks .......... $ 32,932,007 $ 32,932,007 $ 38,374,641 $ 38,374,641 Federal funds sold ............... 6,000,000 6,000,000 8,500,000 8,500,000 Interest-bearing balances with banks .............. 14,972,568 14,972,568 1,824,031 1,824,031 Securities ....................... 248,631,729 249,294,120 246,110,248 246,393,928 Loans net of unearned income ..... 627,945,380 629,981,000 562,752,505 565,252,000 Allowance for loan losses (9,103,828) (9,103,828) (9,309,354) (9,309,354) ----------- ----------- ----------- ----------- Net loans ........................ 618,841,552 620,877,172 553,443,151 555,942,646 Financial liabilities Deposits ......................... 834,914,185 834,438,185 772,842,008 771,759,484 Treasury tax and loan note account 6,101,276 6,101,276 6,354,142 6,354,142 Borrowings ....................... 18,454,080 18,447,000 11,174,638 10,927,000 Off-balance sheet Standby letters of credit ........ 11,703,017 11,715,738 9,450,429 9,165,903 Commitments to extend credit ..... 162,751,474 164,556,994 127,257,000 127,918,790 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, 1997, was approximately $12,953,000. Note E - Securities The amortized cost and estimated market values of securities held to maturity and available for sale at December 31, 1997, are as follows: Securities Held to Maturity ------------------------------------------------------------------ Amortized Gross Unrealized Gross Unrealized Estimated Cost Gains Losses Market Values ------------- ---------------- ----------------- -------------- Obligations of states and political subdivisions..... $ 59,893,375 $ 985,552 $ (323,161) $ 60,555,766 ============= ============= ============= ============= Securities Available For Sale ------------------------------------------------------------------ Amortized Gross Unrealized Gross Unrealized Estimated Cost Gains Losses Market Values ------------- ---------------- ----------------- -------------- U.S. Treasury securities ........... $ 70,634,451 $ 351,741 $ (11,134) $ 70,975,058 Obligations of other U.S. Government agencies and corporations . 40,049,109 116,328 (35,969) 40,129,468 Mortgage-backed securities ......... 74,265,395 572,156 (90,888) 74,746,663 Preferred stock .................... 2,887,165 2,887,165 ----------- ----------- ----------- ----------- $ 187,836,120 $ 1,040,225 $ (137,991) $ 188,738,354 ============= ============= ============= =============

The amortized cost and estimated market values of securities held to maturity and available for sale at December 31, 1996, are as follows: Securities Held to Maturity ------------------------------------------------------------------ Amortized Gross Unrealized Gross Unrealized Estimated Cost Gains Losses Market Values ------------- ---------------- ----------------- -------------- Obligations of states and political subdivisions..... $ 52,051,251 $ 699,365 $ (415,685) $ 52,334,931 ============= ============= ============= ============= Securities Available For Sale ------------------------------------------------------------------ Amortized Gross Unrealized Gross Unrealized Estimated Cost Gains Losses Market Values ------------- ---------------- ----------------- -------------- U.S. Treasury securities ........... $ 77,953,440 $ 171,339 $ (138,917) $ 77,985,862 Obligations of other U.S. Government agencies and corporations . 47,133,089 153,717 (146,837) 47,139,969 Mortgage-backed securities ......... 65,887,321 609,182 (286,102) 66,210,401 Preferred stock .................... 2,722,765 2,722,765 ----------- ----------- ----------- ----------- $ 193,696,615 $ 934,238 $ (571,856) $ 194,058,997 ============= ============= ============= ============= The amortized cost and estimated market value of securities held to maturity and available for sale at December 31, 1997, 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 ................. $ 3,071,018 $ 3,097,127 Due after one year through five years ... 11,448,418 11,650,701 Due after five years through ten years .. 33,555,847 33,996,337 Due after ten years ..................... 11,818,092 11,811,601 ----------- ----------- $ 59,893,375 $ 60,555,766 ============= ============= Estimated Amortized Market Securities Available for Sale Cost Value - ----------------------------- ------------- ------------- Due in one year or less ................. $ 7,490,121 $ 7,467,343 Due after one year through five years ... 88,848,180 89,263,059 Due after five years through ten years .. 14,345,259 14,374,124 ----------- ----------- 110,683,560 111,104,526 Mortgage-backed securities .............. 74,265,395 74,746,663 Preferred stock ......................... 2,887,165 2,887,165 ----------- ----------- $ 187,836,120 $ 188,738,354 ============= =============

At December 31, 1997 and 1996, securities with an amortized cost of approximately $157,285,000 and $140,895,000, respectively, were pledged to secure government, public, and trust deposits. Note F - Deposits Deposit accounts are summarized as follows: December 31 -------------------------- 1997 1996 -------------------------- Noninterest-bearing ...................... $120,828,654 $118,638,526 Interest-bearing DDA ..................... 70,907,118 50,313,113 Savings accounts ......................... 44,770,644 43,798,995 Money Market accounts .................... 139,583,898 141,138,850 Certificates of deposit exceeding $100,000 106,952,104 89,435,562 Other time deposits ...................... 351,871,767 329,516,962 ----------- ----------- Total ........................... $834,914,185 $772,842,008 ============ ============ At December 31, 1997, the approximate scheduled maturities of time deposits are as follows: (In Thousands) 1998 ............................ $ 361,345 1999 ............................ 54,132 2000 ............................ 24,617 2001 ............................ 13,672 2002 and thereafter ............. 5,058 --------- Total ........................... $ 458,824 =========== Note G - Borrowings Borrowings primarily consist of balances due to the Federal Home Loan Bank of $18,451,547 and $11,168,601 at December 31, 1997 and 1996, respectively. During 1997, the Company obtained the following advances, totaling $9,400,000, with corresponding interest rates and maturity dates from the Federal Home Loan Bank. All advances are secured by one-to-four family first mortgages equal to the amount of outstanding aggregate advances. Advance Amount Interest Rate Maturity Date -------------- ------------- ---------------- $ 5,000,000 6.44% February 1, 2007 400,000 6.44% August 3, 2009 500,000 6.34% November 1, 2007 3,500,000 6.46% January 1, 2018 ---------- $ 9,400,000 =========== During 1996, the Company obtained two advances from the Federal Home Loan Bank totaling $8,092,000. These advances were $3,092,000 and $5,000,000, with interest rates of 6.41% and 6.20%, respectively. Maturity dates are May 1, 2006 and November 8, 2001, respectively. Future minimum payments, by year and in the aggregate, related to the Federal Home Loan Bank advances with initial or remaining terms of one year or more, consisted of the following at December 31, 1997: 1998 ......................... $ 2,347,965 1999 ......................... 2,169,150 2000 ......................... 1,419,618 2001 ......................... 4,334,363 2002 ......................... 3,460,751 Thereafter ................... 4,719,700 ----------- Total ........................ $ 18,451,547 ============

Note H - Loans to Related Parties Certain Bank executive 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 $2,806,735 and $4,362,612 at December 31, 1997 and 1996, respectively. During 1997, $2,486,325 of new loans were made and payments received totaled $4,042,202. Total deposits for these related parties at December 31, 1997, were approximately $1,795,000. Note I - Allowance for Loan Losses Changes in the allowance for loan losses were as follows: Year Ended December 31 ----------------------------------------- 1997 1996 1995 ------------ ------------ ----------- Balance at beginning of year .................. $ 9,309,354 $ 8,815,130 $ 8,182,801 Charge-offs ................................... (3,043,631) (2,592,719) (2,438,312) Recoveries .................................... 558,106 273,788 243,994 ---------- ---------- ---------- Net Charge-offs ...................... (2,485,525) (2,318,931) (2,194,318) Provision for loan losses ..................... 2,279,999 2,813,155 2,826,647 ---------- ---------- ---------- Balance at End of Year $ 9,103,828 $ 9,309,354 $ 8,815,130 =========== =========== =========== Impaired loans recognized in conformity with SFAS No. 114, as amended by SFAS No. 118, were as follows: Year Ended December 31 ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Impaired loans with a related allowance for loan losses .................. $ 2,486,432 $ 2,945,766 $ 1,545,960 Impaired loans without a specific allowance for loan losses .................. 890,779 1,057,699 1,328,209 --------- --------- --------- Total impaired loans .......................... $ 3,377,211 $ 4,003,465 $ 2,874,169 =========== =========== =========== Specific allowance for loan losses for impaired loans ......................... $ 778,298 $ 733,660 $ 572,281 Average recorded investment in impaired loans . $ 3,690,000 $ 3,439,000 $ 2,500,000 Interest income recognized using the accrual basis of income recognition ........ $ 236,676 $ 335,785 $ 159,104 Interest income recognized using the cash basis of income recognition ........... 18,633 70,108 44,233 --------- --------- --------- Total interest income recognized on impaired loans .................... $ 255,309 $ 405,893 $ 203,337 =========== =========== ===========

Note J - Nonaccrual and Past Due Loans Nonaccrual and past due loans were as follows: December 31 ---------------------------- 1997 1996 ------------ ------------ Nonaccrual loans outstanding ................... $ 1,070,380 $ 1,654,650 Accruing loans past due 90 days or more outstanding ......................... 3,466,099 2,747,244 At December 31, 1997 and 1996, there were no significant commitments to lend any of these debtors additional funds. Note K - Premises and Equipment Premises and equipment accounts are summarized as follows: December 31 ---------------------------- 1997 1996 ------------ ------------ Land ....................................... $ 5,185,199 $ 3,801,414 Premises ................................... 19,422,698 18,641,997 Equipment, furniture, and fixtures ......... 13,879,871 13,220,979 Construction in progress ................... 1,009,488 842,360 ----------- ----------- 39,497,256 36,506,750 Accumulated depreciation and amortization .. (16,004,599) (14,946,795) ----------- ----------- $ 23,492,657 $ 21,559,955 ============ ============ Depreciation expense ....................... $ 1,768,134 $ 1,594,525 ============ ============ Note L - 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 recognized as the deferred tax assets were determined to be realizable in future years. This determination was based on the CompanyOs 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, 1997 and 1996, are as follows: (In Thousands) ---------------------- 1997 1996 ---------------------- Deferred tax assets Allowance for loan losses ............... $ 3,396 $ 3,474 Deferred compensation ................... 1,298 1,181 Other ................................... 267 203 ------ ------ Total deferred tax assets ............ 4,961 4,858 ------ ------ Deferred tax liabilities Depreciation ............................ 1,245 1,244 Net unrealized gains on securities available for sale ................... 337 135 Other ................................... 793 934 ------ ------ Total deferred tax liabilities ....... 2,375 2,313 ------ ------ Net deferred tax assets at end of year $ 2,586 $ 2,545 ========= =========

Significant components of the provision for income taxes (credits) are as follows: 1997 1996 1995 ----------- ----------- ----------- Current Federal ................ $ 4,311,449 $ 3,902,276 $ 3,981,791 State .................. 419,514 329,164 408,505 ---------- ---------- ---------- 4,730,963 4,231,440 4,390,296 ---------- ---------- ---------- Deferred Federal ................ (210,541) (155,331) (397,904) State .................. (32,591) (24,045) (61,595) ---------- ---------- ---------- (243,132) (179,376) (459,499) ---------- ---------- ---------- $ 4,487,831 $ 4,052,064 $ 3,930,797 =========== =========== =========== The reconciliation of income taxes (credits) computed at the United States federal statutory tax rates to the provision for income taxes is: 1997 1996 1995 ------------------------ ----------------------- ----------------------- Tax at U.S. statutory rate ............ $ 5,294,823 35.0% $ 4,748,911 35.0% $ 4,597,147 35.0% Tax-exempt interest income ......... (1,200,501) (7.9%) (1,046,562) (7.7%) (965,064) (7.3%) State income tax, net of federal deduction ....................... 251,500 1.7% 198,327 1.5% 225,492 1.7% Amortization of intangible assets .. 57,990 0.4% 70,996 0.5% 70,146 0.5% Dividends received deduction ....... (11,297) (0.1%) (15,941) (0.1%) (23,152) (0.2%) Other items - net .................. 95,316 0.6% 96,333 0.7% 26,228 0.2% ---------- ------ ---------- ------ ---------- ------ $ 4,487,831 29.7% $ 4,052,064 29.9% $ 3,930,797 29.9% =========== ====== =========== ====== =========== ====== Income taxes provided on gains (losses) on the sales of securities were approximately $(14,000), $37,000, and $(189,000) for the years ended December 31, 1997, 1996, and 1995, respectively. Note M - 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 Bank's capital stock. At December 31, 1997, the unrestricted surplus was approximately $82,090,000. 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, 1997, the maximum amount available for transfer from the Bank to the Company in the form of loans was 11% of consolidated net assets. There were no loans outstanding from the Bank to the Company at December 31, 1997. Note N - Employee Benefit Plans The Company and its Bank sponsor a defined benefit noncontributory pension plan, The Peoples Bank & Trust Company Amended and Restated Pension Plan (the Plan), generally covering all full-time employees completing a minimum of one thousand hours of service during a twelve month period. The plan is not open to new participants after December 31, 1996. Effective August 1, 1996, an early retirement window was implemented. Effective December 31, 1996, future benefit accruals were eliminated, and the benefits were frozen as of that date. The curtailment and early retirement window were accounted for under the provisions of SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." 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 is at least equal to the minimum amount determined by consulting actuaries in accordance with the Employee Retirement Income Security Act of 1974.

There were significant matters affecting comparability of net periodic pension cost and other information for the year ended December 31, 1996. The SFAS No. 88 cost for the early retirement window was $451,871. The curtailment reduced the projected benefit obligation by $3,538,619. All unrecognized gain/loss, transition assets, and prior service cost were recognized. The SFAS No. 88 impact for the curtailment was an increase to income of $728,762. The following table sets forth the Plan's funded status and amounts recognized in the Company's consolidated balance sheets, as determined by consulting actuaries: December 31 ----------------------------- 1997 1996 ------------- ------------- Actuarial present value of accumulated benefits, all of which are vested at December 31, 1997 and 1996 .............................. $(11,236,839) $ (9,600,413) ============ ============ Plan assets at fair value .................................. $ 12,095,863 $ 10,946,421 Projected benefit obligation ............................... (11,236,839) (9,600,413) ----------- ----------- Plan assets in excess of projected benefit obligation ... 859,024 1,346,008 Prior service cost not yet recognized in net periodic cost . 349,600 Unrecognized net loss from past experience different from that assumed ............................. 177,870 ----------- ----------- Prepaid pension cost ....................................... $ 1,386,494 $ 1,346,008 ============ ============ Net pension expense (income), as determined by consulting actuaries, included the following components: Year Ended December 31 ----------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Service costs-D benefits earned during the year . $ $ 543,211 $ 440,232 Interest cost on projected benefit obligation ... 788,562 917,668 794,954 Actual return on plan assets .................... (1,669,291) (401,706) (1,696,670) Net amortization and deferral ................... 840,243 (440,174) 1,093,212 ---------- ---------- ---------- Net pension expense(income) ..................... $ (40,486) $ 618,999 $ 631,728 =========== =========== =========== 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 7.5% and 5.0%, respectively at December 31, 1997, and 8.0% and 5.0%, respectively at December 31, 1996. The expected long-term rate of return on investments was 8.0% for 1997 and 9.25% for 1996 and 1995. Plan assets consist mainly of U. S. Treasury obligations and equity securities. The actual return was 17.5%, 5.6%, and 20.8% for years ending 1997, 1996, and 1995, respectively. Effective January 1, 1997, the Company adopted two defined contribution plans: a money purchase pension plan and a 401(k) plan. The money purchase pension plan is a noncontributory pension plan. The Company contributes 5% of compensation for each participant annually into this plan. The Company contributed $650,976 to the money purchase pension plan in 1997. The 401(k) plan is a contributory plan. Employees may contribute up to 10% of pre-tax earnings into this plan. In addition, the Company provides for a matching contribution up to 3% of compensation for each employee who has attained age 21 and completes a year of service and is employed on the last day of the plan year. The Company contributed $368,448 to the 401(k) plan in 1997. The Company and its subsidiary also sponsor an employee stock ownership plan covering substantially 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 in either cash or the Company's common stock. Total contributions to the Plan charged to operating expenses were $100,000, $325,000, and $400,000 in 1997, 1996, and 1995, respectively.

In addition to providing retirement income benefits, the Company provides certain health care or 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 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The following table presents the amounts recognized in the Company's consolidated balance sheets, as determined by consulting actuaries: December 31 ------------------------- 1997 1996 ----------- ----------- Accumulated postretirement benefit obligation Retirees .................................... $ (105,648) $ (78,983) Fully eligible active plan participants ..... (98,460) (205,452) Other active plan participants .............. (238,314) (125,056) --------- --------- Accumulated postretirement benefit obligation .. (442,422) (409,491) Unrecognized net gain ....................... (31,204) (41,587) --------- --------- Accrued postretirement benefit cost ...... $ (473,626) $ (451,078) ========== ========== Net periodic postretirement benefit cost, as determined by consulting actuaries, includes the following components: Year ended December 31 ----------------------------------- 1997 1996 1995 --------- --------- --------- Service cost .................................. $ 24,852 $ 23,288 $ 20,600 Interest cost ................................. 31,772 27,086 19,600 Amortization of net gain from earlier periods . (47) (2,450) (2,100) Special termination benefits cost ............. 43,823 -------- -------- -------- Net periodic postretirement benefit cost ... $ 56,577 $ 91,747 $ 38,100 ========= ========= ========= A curtailment resulted from special termination benefits offered in 1996, in the form of an early retirement window, to employees who would attain a certain age and number of service years by December 31, 1996. The effect of the curtailment decreased the unrecognized net gain by $56,696 and resulted in special termination benefits expense of $43,823. 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, 1997, and for the year then ended. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% and 8.0% at December 31, 1997 and 1996, respectively. Note O - Other Noninterest Expenses Components of other noninterest expenses which exceed 1% of total revenues were as follows: 1997 1996 1995 ----------- ----------- ----------- Noninterest Expense Computer processing cost ........ $ 2,739,829 $ 2,388,267 $ 2,133,604 FDIC/state banking assessments .. 786,358 1,145,127 Stationery and supplies ......... 783,625

Note P - 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 managementOs 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, 1997, were approximately $162,751,000 and $11,703,000, respectively, compared to December 31, 1996, which were approximately $127,257,000 and $9,450,000, 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 Q - Regulatory Matters The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the BankOs financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios. All banks are required to have core capital (Tier I) of at least 4% of risk-weighted assets (as defined), 4% of average assets (as defined), and total capital of 8% of risk-weighted assets (as defined). Management believes, as of December 31, 1997, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios of 10%, 6%, and 5%, respectively. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank's actual capital amounts and applicable ratios are as follows: (In Thousands) --------------------- Actual --------------------- Amount Ratio -------- ----- As of December 31, 1997 Total Capital ................ $ 99,223 15.7% (to Risk Weighted Assets) Tier I Capital ............... $ 91,315 14.5% (to Risk Weighted Assets) Tier I Capital ............... $ 91,315 9.9% (to Average Assets) As of December 31, 1996 Total Capital ................ $ 92,734 16.4% (to Risk Weighted Assets) Tier I Capital ............... $ 85,618 15.1% (to Risk Weighted Assets) Tier I Capital ............... $ 85,618 9.9% (to Average Assets)

Note R - The Peoples Holding Company (Parent Company Only) Condensed Financial Information Balance Sheets December 31 ---------------------------- 1997 1996 ------------ ------------ Assets Cash* .......................................... $ 58,909 $ 36,840 Interest-bearing balances with banks* .......... 86,454 Dividends receivable* .......................... 859,468 781,335 Investment in bank subsidiary* ................. 98,242,880 90,508,062 Other assets ................................... 165 165 ----------- ----------- Total Assets ................................ $ 99,161,422 $ 91,412,856 ============ ============ Liabilities and ShareholdersO Equity Dividends payable .............................. $ 859,468 $ 781,335 Accrued interest payable and other liabilities . 151,037 70,701 Shareholders' equity ........................... 98,150,917 90,560,820 ----------- ----------- Total Liabilities and Shareholders' Equity .. $ 99,161,422 $ 91,412,856 ============ ============ Statements of Income Year Ended December 31 ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Income Dividends from bank subsidiary* ....... $ 3,359,741 $ 3,049,624 $ 2,776,398 Other dividends ....................... 46,109 41,126 59,025 Other income .......................... 1,113 Interest income from bank subsidiary* . 2,341 1,904 1,042 ---------- ---------- ---------- 3,409,304 3,092,654 2,836,465 Expenses Other ................................. 251,389 177,129 213,408 ---------- ---------- ---------- Income before income tax credits and equity in undistributed net income of bank subsidiary ....................... 3,157,915 2,915,525 2,623,057 Income tax credits ...................... (85,997) (61,171) (66,184) ---------- ---------- ---------- 3,243,912 2,976,696 2,689,241 Equity in undistributed net income of bank subsidiary* ............ 7,396,324 6,539,556 6,514,669 ---------- ---------- ---------- Net Income $10,640,236 $ 9,516,252 $ 9,203,910 =========== =========== =========== *Eliminated in consolidation.

Statements of Cash Flows Year Ended December 31 ---------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Operating Activities Net income ............................................. $ 10,640,236 $ 9,516,252 $ 9,203,910 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of bank subsidiary ................................ (7,396,324) (6,539,556) (6,514,669) Increase in dividends receivable .................... (78,133) (97,583) (80,504) Decrease in other assets ............................ 70,200 Increase in other liabilities ....................... 158,469 105,136 105,444 ----------- ----------- ----------- Net Cash Provided By Operating Activities ........... 3,324,248 2,984,249 2,784,381 Investing Activities Maturity (purchase) of certificates of deposit ......... 86,454 (5,412) (81,042) ----------- ----------- ----------- Net Cash Provided By (Used In) Investing Activities . 86,454 (5,412) (81,042) Financing Activities Cash dividends ......................................... (3,359,741) (2,949,621) (2,676,398) Payment of fractional shares on stock dividend ......... (28,892) (24,183) ----------- ----------- ----------- Net Cash Used In Financing Activities ............... (3,388,633) (2,973,804) (2,676,398) ----------- ----------- ----------- Increase In Cash .................................... 22,069 5,033 26,941 Cash At Beginning Of Year .............................. 36,840 31,807 4,866 ----------- ----------- ----------- Cash At End Of Year ................................. $ 58,909 $ 36,840 $ 31,807 ============ ============ ============ *Eliminated in consolidation.

Note S - Quarterly Results of Operations (Unaudited) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 1997 and 1996: Three Months Ended ------------------------------------------------------ Mar 31 June 30 Sept 30 Dec 31 ------------ ------------ ------------ ------------ 1997 Interest income ...................... $ 17,258,691 $ 17,907,845 $ 18,370,441 $ 18,663,795 Interest expense ..................... 7,433,241 7,868,223 8,155,783 8,346,251 Net interest income .................. 9,825,450 10,039,622 10,214,658 10,317,544 Provision for loan losses ............ 570,000 570,000 569,999 570,000 Noninterest income ................... 2,850,427 2,858,052 3,059,405 3,251,631 Noninterest expense .................. 8,351,949 8,626,310 9,099,332 8,931,132 Income before income taxes ........... 3,753,928 3,701,364 3,604,732 4,068,043 Income taxes ......................... 1,152,762 1,070,975 1,057,456 1,206,638 Net income ........................... 2,601,166 2,630,389 2,547,276 2,861,405 Basic and diluted earnings per share . $ .44 $ .45 $ .44 $ .49 1996 Interest income ...................... $ 16,260,326 $ 16,486,406 $ 16,727,894 $ 16,950,287 Interest expense ..................... 6,945,864 6,929,623 7,014,053 7,354,285 Net interest income .................. 9,314,462 9,556,783 9,713,841 9,596,002 Provision for loan losses ............ 630,225 630,225 634,358 918,347 Noninterest income ................... 2,734,474 2,541,640 2,685,249 3,069,143 Noninterest expense .................. 8,105,266 8,249,881 8,500,789 7,974,187 Income before income taxes ........... 3,313,445 3,218,317 3,263,943 3,772,611 Income taxes ......................... 1,005,977 955,447 985,198 1,105,442 Net income ........................... 2,307,468 2,262,870 2,278,745 2,667,169 Basic and diluted earnings per share . $ .39 $ .39 $ .39 $ .45 The above per share amounts reflect the three-for-two stock split effected in the form of a stock dividend to shareholders of record on January 1, 1998. Note T - Contingent Liabilities Various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company and the Bank. 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.

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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 , and the consolidated results of their operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Memphis, Tennessee January 22, 1998

Selected Financial Information (Not covered by Report of Independent Auditors) 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- For the year ended December 31 Interest Income ............. $ 72,200,772 $ 66,424,913 $ 63,008,921 $ 53,069,453 $ 48,439,225 Interest Expense ............ 31,803,498 28,243,825 25,621,205 18,890,081 16,963,155 Provision for Loan Losses ... 2,279,999 2,813,155 2,826,647 2,001,010 2,865,530 Noninterest Income .......... 12,019,515 11,030,506 10,739,776 9,828,683 9,470,239 Noninterest Expense ......... 35,008,723 32,830,123 32,166,138 31,177,221 27,801,501 Income Before Taxes ......... 15,128,067 13,568,316 13,134,707 10,829,824 10,279,278 Income Taxes ................ 4,487,831 4,052,064 3,930,797 2,620,904 3,066,504 Cumulative Effect of Changes in Accounting Principles .. 522,518 Net Income .................. 10,640,236 9,516,252 9,203,910 8,208,920 7,735,292 Per Common Share(1) Net Income .................. $ 1.82 $ 1.62 $ 1.57 $ 1.40 $ 1.32 Book Value at December 31 ... 16.75 15.46 14.50 12.58 12.19 Market Value at December 31 . 35.67 24.50 19.55 15.55 14.93 Cash Dividends Declared and Paid .................. .57 .50 .46 .40 .37 Total at Year-End Loans, Net of Unearned Income ........... $ 627,945,380 $ 562,752,505 $ 522,313,747 $ 502,047,831 $ 439,876,598 Allowance for Loan Losses ... 9,103,828 9,309,354 8,815,130 8,182,801 6,387,902 Securities .................. 248,631,729 246,110,248 214,218,943 210,148,446 228,509,922 Assets ...................... 971,054,880 893,089,352 841,699,408 787,066,488 739,311,816 Deposits .................... 834,914,185 772,842,008 739,545,299 696,279,709 655,545,060 Borrowings .................. 18,454,080 11,174,638 4,313,109 4,650,488 259,797 Shareholders' Equity ........ 98,150,917 90,560,820 84,960,420 73,733,881 71,438,180 Selected Ratios Return on Average Total Assets .............. 1.14% 1.10% 1.13% 1.05% 1.07% Shareholders' Equity ...... 11.25% 10.88% 11.45% 11.24% 11.24% Average Shareholders' Equity to Average Assets ......... 10.15% 10.07% 9.83% 9.34% 9.52% At December 31 Shareholders' Equity to Assets ............... 10.11% 10.14% 10.09% 9.37% 9.66% Tier 1 Leverage ........... 9.86% 9.91% 9.67% 9.22% 9.52% Risk-Based Capital Ratios Tier 1 .................. 14.46% 15.10% 14.87% 14.86% 17.40% Total (8.00% Required) .. 15.71% 16.35% 16.14% 16.12% 18.65% Allowance for Loan Losses to Total Loans .......... 1.45% 1.65% 1.69% 1.63% 1.45% Allowance for Loan Losses to Nonperforming Loans .. 200.68% 211.50% 257.03% 394.57% 137.15% Nonperforming Loans to Total Loans ............. .72% .78% .66% .42% 1.07% Dividend Payout ........... 31.85% 31.25% 29.08% 29.03% 29.41% (1)Per common share amounts restated for SFAS No. 128 and the stock split.

The public market for The Peoples Holding Company common stock is limited. Effective August 18, 1997, the stock began trading on the American Stock Exchange under the ticker symbol PHC. Previously, the stock was listed on the National Association of Securities Dealers Automated Quotations system (NASDAQ) and was traded in the local over-the-counter market. High and low prices for the first and second quarter of 1997 and all of 1996 are reflective of actual trades as reported in the NASDAQ Stock Bulletin. High and low prices for the third and fourth quarters of 1997 are reflective of actual trades as reported by the American Stock Exchange. Dividends per share and market prices have been adjusted to reflect the fifty percent stock dividend issued in 1998. At December 31, 1997, there were approximately 2,400 shareholders of record. DIVIDENDS PRICES PERIOD PER SHARE LOW HIGH ---------------- --------- ------- ------- 1997 1st Quarter .... $ .133 $ 23.66 $ 26.00 2nd Quarter .... .147 23.83 26.67 3rd Quarter .... .147 25.67 28.67 4th Quarter .... .147 27.50 37.00 1996 1st Quarter .... $ .117 $ 21.78 $ 23.56 2nd Quarter .... .127 22.83 24.00 3rd Quarter .... .127 23.33 24.67 4th Quarter .... .133 23.67 25.33

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 41 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, the Delta State University, and the State of Mississippi Department of Wildlife, Fisheries & Parks 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. During the last quarter of 1997, the Company acquired Financial Investment Alternatives, Inc. This subsidiary offers annuities and mutual funds. 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 per share data is restated to reflect all stock dividends declared through December 31, 1997. The Company ended 1997 with assets totaling $971,054,880, up from the prior year total of $893,089,352. This represented a 8.73% growth compared to 6.1% for 1996. Earnings were up 11.81% from the previous year with net income surpassing $10,640,000. Effective October 1997, the Company purchased approximately $11,036,000 of assets and assumed approximately $15,232,000 of deposit liabilities from one branch office of Magnolia Federal Bank for Savings located in Grenada, Mississippi. Goodwill of approximately $2,123,000 was recorded regarding the acquisition. 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 64.7% and 63.0% of the total assets at December 31, 1997 and 1996, respectively. Overall loan growth in 1997 was 11.58%, with the most significant percentage growth in real estate-construction and real estate-mortgage loans, while commercial and consumer loans increased proportionately. The increase in real estate loans was mainly due to the growth in the residential market and the offering of new mortgage products. Total loans increased 7.74% during 1996, with the most significant growth in real estate-construction and real estate-mortgage loans. The table below sets forth loans outstanding, according to loan type, at December 31: 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Commercial, financial, and agricultural ............ $ 120,411,789 $ 111,686,473 $ 107,558,223 $ 98,767,393 $ 106,293,337 Real estate - construction . 24,365,187 20,650,887 16,850,556 18,188,860 25,967,773 Real estate - mortgage ..... 344,212,179 301,077,552 259,918,417 253,153,672 220,363,067 Consumer ................... 148,471,736 137,704,170 149,218,137 143,948,292 97,095,734 Unearned income ............ (9,515,511) (8,366,577) (11,231,586) (12,010,336) (9,843,313) ------------ ------------ ------------ ------------ ------------ Total loans, net of unearned income ....... $ 627,945,380 $ 562,752,505 $ 522,313,747 $ 502,047,881 $ 439,876,598 ============= ============= ============= ============= =============

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 increased $2,521,481 or 1.02%, at December 31, 1997, compared to December 31, 1996. The most significant increase is in obligations of states and political subdivisions, which increased 15.07%. Mortgage-backed securities increased 12.89% in 1997 compared to 1996. All other investment categories decreased slightly with the exception of preferred stock, which increased $164,400 or 6.04% in 1997 compared to 1996. The securities portfolio was up $31,891,305 or 14.89% at December 31, 1996, compared to December 31, 1995. The most significant increase was in obligations of other U.S. Government agencies and corporations, which increased 59.38%. All other investment categories increased slightly with the exception of preferred stock, which decreased 68.20%. The securities portfolio represented 25.61% and 27.56% of assets at December 31, 1997 and 1996, respectively. Management continues to evaluate the Company's tax position in order to maximize earnings from securities. The Company was not in an alternative minimum tax position during 1997 or 1996. 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 $6,000,000 and $8,500,000 at December 31, 1997 and 1996, respectively. The changes in these balances between periods are typical of fluctuations in the availability of funds 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 3.39% and 4.30% of total assets at December 31, 1997 and 1996, respectively. These funds are available for meeting day-to-day cash requirements inclusive of reserves required to be held by the Federal Reserve Bank. During 1996, the Company implemented changes, allowed by The Federal Reserve Bank regarding reserve requirements, thereby increasing the utilization of earning assets. The balance in cash may fluctuate significantly based on bank activity. Net premises and equipment were $23,492,657 and $21,559,955 at December 31, 1997 and 1996, respectively. During 1997, the Company consolidated two aging branches in Grenada to a new facility, consolidated the Water Valley branches into one branch and constructed a new branch in Aberdeen. Another branch is nearing completion in Tupelo. The consolidation and construction of new branches were completed to improve services to the respective communities. The increase from 1996 compared to 1995 is due to additions of equipment for the Technology Center which was constructed in 1995. The Technology Center is designed to house the electronic data processing, proof, purchasing, statement rendering, and voice response operations. Other assets were $26,184,367 and $23,277,326 at December 31, 1997 and 1996, respectively. The major accounts in this category are interest earned not collected, prepaid expenses, intangible assets, deferred taxes, cash surrender value of insurance, and other real estate owned. Interest earned not collected at December 31, 1997, totaled $8,990,338, down from $9,112,058 at the end of 1996. Prepaid expenses were $1,632,712 and $1,761,528 at December 31, 1997 and 1996, respectively. Intangible assets, resulting from bank acquisitions, totaled $5,885,806 and $4,250,139 at December 31, 1997 and 1996, respectively. These intangibles are being amortized over a period of 13 to 15 years. The increase at December 31, 1997 compared to December 31, 1996, is due to the acquisition of one branch office of Magnolia Federal Bank for Savings. Capitalized mortgage servicing rights totaled $462,191 and $224,593 at December 31, 1997 and 1996, respectively. The increase corresponds to the increase in residential mortgage loans. During 1996, the Company capitalized $226,248 to implement FASB Statement No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income. Cash surrender value of insurance equaled $4,593,024 and $3,772,620 at December 31, 1997 and 1996, respectively. The Company maintains life insurance policies on key members of management and records the resulting cash surrender value.

The Company relies on deposits as its major source of funds. Noninterest-bearing deposits were $120,828,654 and $118,638,526 at December 31, 1997 and 1996, respectively. This represented 12.44% and 13.28% of total assets at December 31, 1997 and 1996, respectively. The increase of 1.85% for 1997 compared to 1996, and the increase of 1.50% for 1996 compared to 1995, is due to most depositors utilizing interest-bearing products. Interest-bearing deposits were $714,085,531 and $654,203,482 at December 31, 1997 and 1996, respectively, or a 9.15% increase over 1996. The largest growth contributing to this increase came from interest-bearing demand deposit accounts and certificates of deposits exceeding $100,000. The Magnolia Federal Bank for Savings branch office acquisition accounted for an increase of approximately $15,232,000 in 1997. The remaining growth in interest-bearing deposits is due to internal growth. Interest-bearing deposits at December 31, 1996, increased 5.1% over 1995. 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, 1997, the balance in the treasury tax and loan note account was $6,101,276, down from $6,354,142 at the end of 1996. 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 1997, the Company received advances from the Federal Home Loan Bank (FHLB) totaling $9,400,000. The balance due to the FHLB at December 31, 1997 and 1996 was $18,451,547 and $11,168,601, 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. Note G of the Notes to the Consolidated Financial Statements provides details of the borrowings from the FHLB. Other liabilities totaling $13,434,422 and $12,157,744 at December 31, 1997 and 1996, respectively, include accrued interest, accrued expenses, current taxes payable, and dividends payable. Accrued interest payable totaled $4,901,966 and $4,449,007 at December 31, 1997 and 1996, respectively. Accrued retirement plan costs totaled $1,074,560 and $571,818 at December 31, 1997 and 1996, respectively. The increase in the accrued retirement plan in 1997 compared to 1996 is mainly due to the establishment of the two defined contribution plans in 1997. 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 inherent credit losses in 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 inherent losses, including losses on loans assessed as impaired under SFAS No. 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. If the allowance is deemed inadequate, management sets aside additional reserves by increasing the charges against income. The allowance for loan losses was $9,103,828 and $9,309,354 at December 31, 1997 and 1996, respectively. This represents a ratio of allowance to year-end loans of 1.45% and 1.65%, respectively. Management deems this allowance adequate for inherent loan losses.

The Company's net charge-offs for 1997 and 1996 were $2,485,525 and $2,318,931, respectively. This represented a net charge-offs to average loans ratio of .42% and .43% for the years ending December 31, 1997 and 1996, respectively. Management continues to monitor loans and utilize diligent collection efforts. 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 discontinued when the full collection of principal or interest 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 table below reflects the activity in the allowance for loan losses for the years ended December 31: Allowance for Loan Losses 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Balance at Beginning of Year .... $ 9,309,354 $ 8,815,130 $ 8,182,801 $ 6,387,902 $ 6,613,972 Provision for Loan Losses .... 2,279,999 2,813,155 2,826,647 2,001,010 2,865,530 Charge-Offs Commercial, Financial, and Agricultural .......... 248,390 273,494 1,286,161 174,051 2,595,750 Real Estate - Construction . 228,392 Real Estate - Mortgage ..... 666,502 246,722 93,452 237,104 Consumer ................... 1,900,347 2,072,503 1,058,699 684,208 900,085 ----------- ----------- ----------- ----------- ----------- Total Charge-Offs ............ 3,043,631 2,592,719 2,438,312 1,095,363 3,495,835 Recoveries Commercial, Financial, and Agricultural .......... 73,379 53,867 101,116 562,303 150,087 Real Estate - Construction . 67,475 Real Estate - Mortgage ..... 196,897 48,594 6,631 148,866 Consumer ................... 220,355 171,327 136,247 178,083 254,148 ----------- ----------- ----------- ----------- ----------- Total Recoveries ............. 558,106 273,788 243,994 889,252 404,235 ----------- ----------- ----------- ----------- ----------- Net Charge-Offs .............. 2,485,525 2,318,931 2,194,318 206,111 3,091,600 ----------- ----------- ----------- ----------- ----------- Balance at End of Year .......... $ 9,103,828 $ 9,309,354 $ 8,815,130 $ 8,182,801 $ 6,387,902 ============= ============= ============= ============= ============= Loan Loss Analysis Loans - Average .............. $ 589,557,220 $ 533,547,898 $ 516,784,193 $ 466,137,177 $ 425,157,580 Loans - Year End ............. 627,945,380 562,752,505 522,313,747 502,047,881 439,876,598 Net Charge-offs .............. 2,485,525 2,318,931 2,194,318 206,111 3,091,600 Allowance for Loan Losses .... 9,103,828 9,309,354 8,815,130 8,182,801 6,387,902 Ratios Net Charge-offs to Loans - Average ............ .42% .43% .42% .04% .73% Allowance for Loan Losses .. 27.30% 24.91% 24.89% 2.52% 48.40% Allowance for Loan Losses to Loans - Year End ........... 1.45% 1.65% 1.69% 1.63% 1.45% Nonperforming Loans ........ 200.68% 211.49% 257.03% 394.57% 137.15% Nonperforming Loans to Loans - Year End ........... .72% .78% .66% .41% 1.06% Loans - Average ............ .77% .83% .66% .44% 1.10%

The following table shows the principal amounts of nonaccrual and restructured loans at December 31: 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Nonperforming Loans Nonaccruing .................. $ 1,070,380 $ 1,654,650 $ 803,237 $ 877,409 $ 1,605,076 Accruing Loans Past Due 90 Days Or More ............ 3,466,099 2,747,244 2,626,333 1,196,464 3,052,371 ----------- ----------- ----------- ----------- ----------- Total Nonperforming Loans ...................... 4,536,479 4,401,894 3,429,570 2,073,873 4,657,447 Restructured Loans Balance Outstanding ........ 202,743 223,850 243,230 259,945 278,416 ----------- ----------- ----------- ----------- ----------- Total Nonperforming Loans Including Restructured ....... $ 4,739,222 $ 4,625,744 $ 3,672,800 $ 2,333,818 $ 4,935,863 ============= ============= ============= ============= ============= 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: 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Gross Amount Of Interest That Would Have Been Recorded At The Original Rate ........ $ $ $ $ 3,498 $ 10,784 Interest That Was Recognized In Income ................... $ 15,037 $ 16,477 $ 16,281 $ 20,529 $ 18,500 ---------- ---------- ---------- ---------- ---------- Favorable Impact On Gross Income ................ $ 15,037 $ 16,477 $ 16,281 $ 17,031 $ 7,716 ============= ============= ============= ============= ============= Nonperforming loans totaled $4,536,479 and $4,401,894 at December 31, 1997 and 1996, respectively. These loans represented .77% and .83% of average loans for 1997 and 1996, respectively. The allowance for loan losses to nonperforming loans was 200.68% and 211.49% at December 31, 1997 and 1996, respectively. Loans that are considered to be nonperforming are closely monitored by management and the Loss Management Committee. 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 costs. 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 have been restructured due to cash flow requirements totaled $202,743 and $223,850 at December 31, 1997 and 1996, respectively. The Company's loan review staff monitors the performance of these loans. Interest Rate Risk The Company has an Asset/Liability Committee (ALCO) 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 ALCO'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.

Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Company's exposure to differential changes in interest rates between assets and liabilities is shown in the Company's Maturity and Rate Sensitivity Analysis (GAP Analysis). Another test measures the impact on net interest income and on net portfolio value (NPV) of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. Following are the estimated impacts of immediate changes in interest rates at the specified levels at December 31, 1997. Percentage Change In: ---------------------------- Change In Interest Rates Net Interest Net Portfolio (In Basis Points) Income (1) Value (2) - ------------------------- ------------ ------------- +400 .............. (5.4)% (7.0)% +300 .............. (2.2)% (4.7)% +200 .............. 0.9% (2.6)% +100 .............. 0.3% (1.3)% -100 .............. (1.0)% 0.8% -200 .............. (2.3)% (2.1)% -300 .............. (4.6)% (5.9)% -400 .............. (5.3)% (13.0)% (1) The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the net interest income in the various rate scenarios. (2) The percentage change in this column represents net portfolio value of the Company in a stable interest rate environment versus the net portfolio value in the various rate scenarios. The Company's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company's net interest income and capital, while structuring the Company's asset-liability structure to obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest rate risk. The results of the interest rate shock is within the limits set by the Board of Directors. The Company continually evaluates interest rate risk management opportunities, including the possible use of derivative financial instruments. Management believes that hedging instruments currently available are not cost-effective, and therefore, has focused its efforts on increasing the CompanyOs yield-cost spread through retail growth opportunities. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposits decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the ALCO could undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presented in the computation of net interest income and NPV. Actual values may differ from those projections presented, should market conditions vary from assumptions used in the calculation of net interest income and the net portfolio value. 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.

Approximately 87% 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 or the treasury tax and loan note account, in order to meet liquidity needs. Repayments and maturities of loans provide a substantial source of liquidity.The Company has approximately 66% of loans maturing within the next twelve months. Capital Resources Total shareholders' equity of the Company was $98,150,917 and $90,560,820 at December 31, 1997 and 1996, respectively. Shareholders' equity grew 8.38% during 1997 and 6.59% during 1996. The growth in capital for both years was attributable to earnings less dividends declared. In 1997, the Company raised dividends in the second quarter. In addition, the effect of SFAS No. 115 increased capital in 1997 by $338,494 and decreased capital by $942,048 in 1996. Shareholders' equity as a percentage of assets was 10.11% and 10.14% at December 31, 1997 and 1996, 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 1997 and 1996. At December 31, 1997, the total Tier 1 and total risk-based capital was $91.3 million and $99.2 million, respectively. Risk-weighted assets less excess allowance for loan losses were $631.4 and $569.3 at December 31, 1997 and 1996, respectively. Tier 1 and total risk-based capital at December 31, 1996, were $85.6 million and $92.7 million, respectively. See Note Q of the Consolidated Financial Statements for capital ratios. In December 1997, the Company declared a fifty percent stock dividend to shareholders of record on January 1, 1998. Applicable per share and book value information have been restated for the stock dividend. Cash dividends have increased each year since 1990 (see selected financial information for the previous five years). During 1997, the Company raised cash dividends during the second quarter; in 1996, cash dividends were raised in the second and fourth quarters. Book value per share was $16.75 and $15.46 at December 31, 1997 and 1996, 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 68% and 69% during 1997 and 1996, respectively. Results of Operations Net income for the Company was $10,640,236, $9,516,252, and $9,203,910, for 1997, 1996, and 1995, respectively. In 1997, net income increased $1,123,984, or 11.81%, over 1996. In 1996, net income increased $312,342, or 3.39%, over 1995. Earnings per share were $1.82, $1.62, and $1.57, for the years ending December 31, 1997, 1996, and 1995, respectively. Return on average assets for 1997, 1996, and 1995 was 1.14%, 1.10%, and 1.13%, respectively. The increase in 1997 earnings compared to 1996 is the result of an increase of $2,216,186, or 5.80%, in net interest income, a decrease in the provision for loan losses of $533,156, or 18.95%, an increase in noninterest income of $989,009, or 8.97%, coupled with an increase in noninterest expenses of $2,178,600, or 6.64%. Net income for 1997 is the result of customary banking services.

The decrease in 1996 return on average assets compared to 1995 is due to several factors. First, a one-time assessment by the Federal Deposit Insurance Corporation (FDIC) totaling $239,868, to re-capitalize the Savings Association Insurance Fund (SAIF) was recorded in 1996. The Company's net interest margin declined in 1996 compared to 1995 from 5.27% to 5.05% due to a change in the composition of interest-bearing assets and interest-bearing liabilities and the interest rates associated with those changes. Also, during 1996, the Company curtailed its defined benefit pension plan, introducing a defined contribution plan and a 401(k) plan. The curtailment of the defined benefit plan, combined with the impact of FASB Statement No. 122 resulted in income of $315,313 after taxes. Management also strengthened the allowance for loan losses by increasing the provision for loan losses, over the normal accrual, by $142,335 after taxes. The result of the non-recurring transactions was an increase in after-tax income of $172,978. But in 1995, the Company realized a reversal of a lender liability lawsuit judgment of approximately $366,000 after taxes rendered against the Bank in 1991 and recorded a gain on the sale of mortgage loans of approximately $367,000 after taxes. 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 $40,397,274, $38,181,088, and $37,387,716, for the years ending December 31, 1997, 1996, and 1995, 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. Net interest income, on a tax equivalent basis, for the year ending December 31, 1997, increased approximately $3,688,000 due to increases in the volume of earning assets and costing liabilities and decreased approximately $1,231,000 due to changes in interest rates. The Company experienced the most significant volume increase in loans and time deposits. The most significant interest rate changes involved savings and time deposits. Loan interest income was $55,650,248, $50,580,549, and $49,321,837, for the years ended December 31, 1997, 1996, and 1995, respectively. The increase in 1997 was due to increase in average volume over 1996 of approximately $5,336,000, while the decrease in tax-equivalent yield from 9.49% in 1997 compared to 9.52% in 1996, resulted in a decrease of approximately $160,000 in interest income. The increase for loan interest income in 1996 over 1995 was due to growth in the average loan balance of approximately $16,764,000, resulting in an increase in interest income of approximately $1,580,000 and repricing of loans which lowered interest income by approximately $315,000. The repricing of loans lowered the tax-equivalent yield from 9.55% in 1995 to 9.52% in 1996. Interest income from securities was $16,007,755, $14,970,734, and $12,678,275 for the years ending December 31, 1997, 1996, and 1995, respectively. The increase in interest income in 1997 compared to 1996 is due to an increase in the average balance of approximately $17.7 million, while the tax equivalent yield on securities has decreased in 1997 to 6.85% from 6.88% in 1996. The effect of the increase in average volume resulted in an increase in tax-equivalent interest income of approximately $1,262,000 and the change in yield decreased tax-equivalent interest income by approximately $91,000. Interest income from securities for 1996 increased 18.08% due to the average balance increasing $31.8 million from 1995. The tax equivalent yield on securities for 1996 was 4 basis points higher than 1995. The tax equivalent yield on average earning assets was 8.64%, 8.62%, and 8.70%, for 1997, 1996, and 1995, respectively. The major source of funds for the Company is deposits. Deposits represented 85.98% and 86.54% of the total assets at December 31, 1997, and 1996, respectively. Interest-bearing accounts funded 73.54% and 73.25% of the assets for those two years. The cost of funds is reflected in interest expense. Interest expense for deposits and borrowings was $31,803,498, $28,243,825, and $25,621,205, for the years ended December 31, 1997, 1996, and 1995, respectively. The increase in interest expense in 1997 compared to 1996 is due to an increase in the average balance of deposits of approximately $51.9 million, which increased interest expense by approximately $2,567,000. The change in interest rate from 4.32% in 1996 to 4.51% in 1997, resulted in a increase in interest expense of approximately $992,000.

The increase in interest expenses for 1996 compared to 1995 is due to an increase in the average balance of interest-bearing liabilities of approximately $42.3 million and an increase in the cost of interest-bearing liabilities of 13 basis points. The change in interest expense from 1996 compared to 1995 of $2,622,620 is due to an increase of approximately $1,981,000 due to volume and approximately $642,000 increase in interest expense due to interest rate change. 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 on a tax equivalent basis was 4.95%, 5.06%, and 5.27% for the years ending December 31, 1997, 1996, and 1995, respectively. The decrease in net interest margin since 1995 is due to management's decision to reprice products in response to competition, while increasing net interest income through increased volume. The provision for loan losses was $2,279,999, $2,813,155, and $2,826,647 for 1997, 1996, and 1995, respectively. The decrease in provision is in response to stabilized net charge-offs and the adequacy of the allowance for loan losses. The provision for loan losses for 1996 was relatively stable compared to 1995 due to the adequacy of the allowance for loan losses. Noninterest income totaled $12,019,515, $11,030,506, and $10,739,776, for the years ended December 31, 1997, 1996, and 1995, respectively. This represented 29.75%, 28.99%, and 28.73% of net interest income for the applicable year. Included in noninterest income are service charges on deposit accounts, fees and commissions, trust revenue, securities gains and losses, and other income. Service charges increased $202,979, or 3.09%, in 1997 compared to 1996 due to the acquisition of approximately $15,232,000 in deposit accounts from Magnolia Federal Bank for Savings. Service charges were up $207,650, or 3.27%, in 1996 compared to 1995. This increase is due to deposit growth for 1996. Fees and commissions were $1,447,221, $1,396,941, and $1,215,810 for 1997, 1996, and 1995, respectively. Fees have remained stable over the years presented. Securities losses in 1997 totaled $40,990 compared to securities gains of $110,278 for 1996 and losses in 1995 of $507,344. The gains and losses in the portfolio are a result of strategies implemented in the securities portfolio to increase liquidity and future income. Other income was $3,126,538, $2,315,154, and $3,089,856 for 1997, 1996, and 1995, respectively. The increase in 1997 compared to 1996 is due to an increase in document preparation fees of approximately $454,000, an increase of approximately $148,000 in merchant discount revenue, and an increase in fees of approximately $70,000 related to credit card services. The decrease in other income for 1996 compared to 1995, is mainly due to a gain on the sale of mortgage loans of approximately $585,000 in 1995, and the reversal of a lender liability lawsuit judgment of approximately $575,000 in 1995. Noninterest expenses include salaries and employee benefits, net occupancy, equipment, income taxes, and other noninterest expenses. The totals for these expenses for the years ending December 31, 1997, 1996, and 1995 were $39,496,554, $36,882,187, and $36,096,935, respectively. Noninterest expenses for 1997 were up 7.09% compared to 1996. In 1996, noninterest expenses increased 2.18% compared to 1995. Salaries and employee benefits, representing a major portion of the Company's operating expenses, have increased 7.22%, 0.90%, and 8.65% during 1997, 1996, and 1995, 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 in 1997 versus 1996 is due to additional staffing related to acquisitions and internal growth of the Company. Also, employee benefit plan costs increased approximately $617,000 related to implementation of a money purchase pension plan and a 401(k) plan, whereby an employee can contribute up to 10% of salary, and the Company will match up to 3% of the employee's contribution.

During 1997, the Company adopted a Stakeholder performance compensation program, wherein rewards reconcile directly with performance related to profit, growth, quality and productivity. During 1996 and 1995, another incentive program was utilized. The cash incentive for 1997, 1996, and 1995 was approximately $775,000, $552,000, and $686,000, respectively, which also increased salaries and benefits in 1997, 1996, and 1995. During 1996, the Company offered an early retirement plan to employees who had attained a certain number of years of service and age. The slight increase in salaries in 1996 compared to 1995 is reflective of these retirees. Net occupancy expense includes charges for repairs, janitorial, depreciation, rental, and other expenses related to occupancy. Expenses for 1997, 1996, and 1995 were $2,599,021, $2,269,122, and $2,178,314, respectively. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company recognized a loss of approximately $226,000 related to the consolidation of branch offices in Grenada and Water Valley and construction of a new branch in Aberdeen. The new branches were constructed to improve service in these locations. Equipment expenses include computer equipment rental, repairs, and depreciation. These expenses totaled $1,780,138, $1,594,525, and $1,460,488 for 1997, 1996, and 1995, respectively. The increase in 1997 and 1996 is due to depreciation and expenses incurred in completing the Technology Center and new branches previously mentioned. Other expenses for 1997, 1996, and 1995 were $11,096,352, $10,748,255, and $10,472,018, respectively. The increase in 1997 compared to 1996 is due to normal increases in cost due to inflation and approximately $296,000 increase in other fees. Other expenses in 1996 increased over 1995 mainly due to a one-time assessment by the FDIC to re-capitalize the SAIF fund. This assessment, as previously discussed, was $239,868. As the year 2000 approaches, an issue impacting all companies has emerged regarding how existing application software programs and operating systems can accommodate this date value. The "year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Management is in the process of working with its software vendors to assure that the Company is prepared for the year 2000. While the Company believes its planning efforts are adequate to address its year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely will be converted on a timely basis and will not have a material effect on the Company. Management does not believe that the Company will incur significant operating expenses or be required to invest heavily in computer system improvements to be year 2000 compliant. Income tax expense for 1997, 1996, and 1995 was $4,487,831, $4,052,064, and $3,930,797, respectively. The increase in income taxes for 1997 and 1996 compared to 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 29.7%, 29.9%, and 29.9% for 1997, 1996, and 1995, respectively. Note L of the Notes to Consolidated Financial Statements provides further details of the provision for income taxes. 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: Stuart Johnson, Executive Vice President, The Peoples Bank & Trust Company, P. O. Box 709, Tupelo, MS 38802-0709.

1997 --------------------------------------- Income Average Or Balance Sheet Expense Amounts Yields/Rates --------------------------------------- Earning assets Loans, net of unearned income Commercial .............................................. $ 25,943,762 $282,261,656 9.25% TE Consumer ................................................ 17,657,841 183,863,151 9.60% Other loans ............................................. 12,048,645 123,432,413 9.87% TE ----------- ----------- Total Loans, Net . 55,650,248 589,557,220 9.49% TE Other ........................................................ 542,769 10,102,014 5.37% Taxable securities U.S. Government securities ................................ 4,522,330 76,992,738 6.07% TE U.S. Government agencies .................................. 3,074,304 48,026,429 6.52% TE Mortgage-backed securities ................................ 5,249,312 79,689,863 6.59% Other securities .......................................... 210,767 2,821,961 8.06% TE ----------- ----------- Total Taxable Securities . 13,056,713 207,530,991 6.40% TE Tax-exempt securities Obligations of states and political subdivisions .......... 2,951,042 53,559,067 8.61% TE ----------- ----------- Total Securities . 16,007,755 261,090,058 6.85% TE Total Earning Assets . 72,200,772 860,749,292 8.64% TE Cash and due from banks ...................................... 34,137,241 Other assets, less allowance for loan losses ................. 37,270,688 ----------- Total Assets . $932,157,221 ============ Interest-bearing liabilities Interest-bearing demand deposit accounts .................. 1,855,171 $ 56,379,020 3.29% Savings and money market accounts ......................... 5,751,653 196,011,244 2.93% Time deposits ............................................. 22,933,075 432,264,069 5.31% ----------- ----------- Total Interest-Bearing Deposits . 30,539,899 684,654,333 4.46% Total Other Interest-Bearing Liabilities . 1,263,599 21,257,682 5.94% ----------- ----------- Total Interest-Bearing Liabilities . 31,803,498 705,912,015 4.51% Noninterest-bearing sources Noninterest-bearing deposits .............................. 119,356,517 Other liabilities ......................................... 12,292,577 Shareholders' equity ...................................... 94,596,112 ----------- Total Liabilities and ShareholdersO Equity . $932,157,221 ============ Net interest income/net interest margin ................... $ 40,397,274 4.95% TE ============ TE - Ratios have been calculated on a tax equivalent basis.

1996 --------------------------------------- Income Average Or Balance Sheet Expense Amounts Yields/Rates --------------------------------------- Earning assets Loans, net of unearned income Commercial .............................................. $ 23,797,048 $259,223,178 9.23%TE Consumer ................................................ 18,245,294 187,520,391 9.73% Other loans ............................................. 8,538,207 86,804,329 9.91%TE ----------- ----------- Total Loans, Net . 50,580,549 533,547,898 9.52%TE Other ........................................................ 873,630 16,492,352 5.30% Taxable securities U.S. Government securities ................................ 4,843,727 83,009,995 6.03%TE U.S. Government agencies .................................. 3,013,416 45,725,003 6.68%TE Mortgage-backed securities ................................ 4,122,903 62,214,102 6.63% Other securities .......................................... 225,906 3,177,515 7.87%TE ----------- ----------- Total Taxable Securities . 12,205,952 194,126,615 6.41%TE Tax-exempt securities Obligations of states and political subdivisions .......... 2,764,782 49,249,802 8.76%TE ----------- ----------- Total Securities . 14,970,734 243,376,417 6.88%TE ----------- ----------- Total Earning Assets . 66,424,913 793,416,667 8.62%TE Cash and due from banks ...................................... 40,844,620 Other assets, less allowance for loan losses ................. 34,459,380 ----------- Total Assets . $868,720,667 ============ Interest-bearing liabilities Interest-bearing demand deposit accounts .................. 2,865,108 $ 88,600,845 3.23% Savings and money market accounts ......................... 4,233,226 159,557,047 2.65% Time deposits ............................................. 20,648,907 395,826,585 5.22% ----------- ----------- Total Interest-Bearing Deposits . 27,747,241 643,984,477 4.31% Total Other Interest-Bearing Liabilities . 496,584 10,009,063 4.96% ----------- ----------- Total Interest-Bearing Liabilities . 28,243,825 653,993,540 4.32% Noninterest-bearing sources Noninterest-bearing deposits .............................. 116,633,921 Other liabilities ......................................... 10,598,454 Shareholders' equity ...................................... 87,494,752 ----------- Total Liabilities and ShareholdersO Equity . $868,720,667 ============ Net interest income/net interest margin ................... $ 38,181,088 5.06%TE ============

1995 --------------------------------------- Income Average Or Balance Sheet Expense Amounts Yields/Rates --------------------------------------- Earning assets Loans, net of unearned income Commercial .............................................. $ 22,195,292 $238,390,733 9.36%TE Consumer ................................................ 18,645,037 193,146,649 9.65% Other loans ............................................. 8,481,508 85,246,811 9.84%TE ----------- ----------- Total Loans, Net . 49,321,837 516,784,193 9.55%TE Other ........................................................ 1,008,809 17,189,987 5.87% Taxable 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 Securities . 10,097,721 167,345,403 6.22%TE Tax-exempt securities Obligations of states and political subdivisions .......... 2,580,554 44,268,670 9.05%TE ----------- ----------- Total Securities . 12,678,275 211,614,073 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 and money market accounts ......................... 2,434,007 99,392,823 2.45% Time deposits ............................................. 18,985,385 365,213,540 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 ShareholdersO Equity . $817,933,430 ============ Net interest income/net interest margin ................... $ 37,387,716 5.27%TE ============

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 22, 1998, included in the 1997 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 The Peoples Holding Company our report dated January 22, 1998, with respect to the consolidated financial statements of The Peoples Holding Company incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ Ernst & Young LLP Memphis, Tennessee March 26, 1998

9 1,000 YEAR DEC-31-1997 DEC-31-1997 32,932 14,973 6,000 0 188,738 59,893 60,556 627,945 9,104 971,055 834,914 6,101 13,434 18,454 0 0 29,297 68,854 971,055 55,650 16,008 543 72,201 30,540 31,803 40,397 2,280 (41) 35,009 15,128 15,128 0 0 10,640 1.82 1.82 4.95 1,070 3,466 203 0 9,309 3,044 558 9,104 9,104 0 8,326