UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

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

                     For fiscal year ended December 31, 2002
                        Commission file number 001-13253

                           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 Identification No.)
   incorporation or organization)

           209 Troy Street
    Tupelo, Mississippi 38802-0709                 (662) 680-1001
 ----------------------------------      ------------------------------------
   (Address of principal executive           Registrant's Telephone Number
       offices) (Zip Code)

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

   Common Stock, $5.00 Par Value                American Stock Exchange
 ----------------------------------      ------------------------------------
         (Title of Class)                      (Name of each exchange on
                                                    which registered)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
YES   X     NO
   -------    -------

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
                                             -------

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
YES   X     NO
   -------    -------

As of June 28,  2002,  the  aggregate  market value of the  registrant's  common
stock,   $5.00  par  value,   held  by  non-affiliates  of  the  registrant  was
$229,881,834.

As of February 26, 2003,  5,572,751  shares of the  registrant's  common  stock,
$5.00 par  value,  were  outstanding.  The  registrant  has no other  classes of
securities outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the Proxy  Statement  dated  March 10,  2003,  relating to the 2003
annual meeting of shareholders of The Peoples Holding Company,  are incorporated
by reference into Part III.

                           THE PEOPLES HOLDING COMPANY

                                    Form 10-K

                      For the year ended December 31, 2002

                                    CONTENTS

PART I
       Item 1.      Business
       Item 2.      Properties
       Item 3.      Legal Proceedings
       Item 4.      Submission of Matters to a Vote of Security Holders

PART II
       Item 5.      Market for Registrant's Common Equity and Related
                       Stockholder Matters
       Item 6.      Selected Financial Data
       Item 7.      Management's Discussion and Analysis of Financial Condition
                       and Results of Operations
       Item 7A.     Quantitative and Qualitative Disclosures About Market Risk
       Item 8.      Financial Statements and Supplementary Data
       Item 9.      Changes in and Disagreements with Accountants on Accounting
                       and Financial Disclosure

PART III
       Item 10.     Directors and Executive Officers of the Registrant
       Item 11.     Executive Compensation
       Item 12.     Security Ownership of Certain Beneficial Owners and
                       Management and Related Stockholder Matters
       Item 13.     Certain Relationships and Related Transactions
       Item 14.     Controls and Procedures

PART IV
       Item 15.     Exhibits, Financial Statement Schedules, and Reports on Form
                       8-K

                                     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 21E 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  our  portfolio  of  outstanding  loans,  and
competition  in the Company's  markets.  We undertake 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  (referred to herein as the "Company," we, our, or
us) was  incorporated  on  November  10,  1982  under  the laws of the  State of
Mississippi  in order to acquire all of the common  stock of The Peoples  Bank &
Trust Company, Tupelo, Mississippi (the "Bank").

Our vision is to be the  financial  services  advisor and  provider of choice in
each community we serve.  With this vision in mind,  management  reorganized the
branch  banks into  community  banks using a franchise  concept.  The  franchise
approach empowers  Community Bank Presidents to execute their own business plans
in order to achieve  our  vision.  Specific  performance  measurement  tools are
available  to assist the  presidents  in  determining  the success of their plan
implementation.  A few of the  ratios  used in  measuring  the  success of their
business  plan  include  return on average  assets  ("ROA"),  number and type of
services  provided  per  household,  fee income  shown as a percent of loans and
deposits,  efficiency  ratio,  loan and deposit growth,  net interest margin and
spread,  percentage  of  loans  past  due  in  greater  than  30,  60 and 90 day
categories, and net charge-offs to average loans.

Our vision is further validated through our core values. These values state that
(1) employees are our greatest  asset,  (2) quality is not  negotiable,  and (3)
clients' trust is foremost. Centered around these values were the development of
five different  objectives that are the focal point of our strategic plan. Those
objectives  include:  (1) client  satisfaction  and  development,  (2) financial
soundness  and  profitability,   (3)  growth,  (4)  employee   satisfaction  and
development, and (5) shareholder satisfaction and development.

Approximately  150  short  and  long-range   strategic   initiatives  have  been
identified  to  accomplish  our   objectives.   A  majority  of  the  short-term
initiatives  have been completed and  significant  progress has been made on the
long-term initiatives.

Organization

We commenced  business on July 1, 1983,  the date we acquired the Bank through a
merger.  All of our business  activities are conducted  through the Bank and the
Bank's wholly owned subsidiary,  The Peoples Insurance Agency. The Bank accounts
for substantially all of our assets and revenues.

On December 31, 2002,  we had 24 community  banks  (franchises)  with 40 banking
offices  located  throughout  Mississippi,   specifically  in  Aberdeen,  Amory,
Batesville,  Belden,  Booneville,  Calhoun City, Coffeeville,  Corinth, Grenada,
Guntown,   Hernando,  Iuka,  Louisville,  New  Albany,  Okolona,  Olive  Branch,
Pontotoc,  Saltillo,  Sardis, Shannon,  Smithville,  Southaven,  Tupelo, Verona,
Water Valley, West Point, and Winona. In addition, our insurance company offices
are located in Corinth, Louisville, and Tupelo.

All members of our Board of Directors are also members of the Board of Directors
of the Bank.  Responsibility for the management of the Bank and its subsidiaries
remains  with  the  Board  of  Directors  and  officers  of the  Bank;  however,
management  services  rendered by us to the Bank are intended to supplement  the
internal  management  of the Bank and  expand  the  scope  of  banking  services
normally offered by them.

                                       1

The Bank was  established  in February,  1904 as a  state-chartered  bank. It is
insured by the Federal Deposit Insurance Corporation.

At our core, we are a community  bank  offering a complete  range of banking and
financial  services 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.  Automated
teller machines located throughout our market area, our Internet Banking product
and our call  center  provide  24-hour  banking  services.  Accounts  receivable
financing is also available to qualified businesses.

We offer a wide variety of fiduciary  services and  administer (as trustee or in
other fiduciary or representative capacities) qualified retirement plans, profit
sharing and other  employee  benefit  plans,  personal  trusts and  estates.  In
addition to  offering  annuities,  mutual  funds and other  investment  services
through a third party  broker-dealer,  the acquisition of insurance agencies has
expanded  our product and  delivery  network to include  personal  and  business
insurance coverage. Neither we, nor the Bank, have any foreign activities.

Business Combinations and Acquisitions

On March 26, 1999, the Company merged with  Inter-City  Federal Bank for Savings
("Inter-City").  At the merger  date,  total  assets,  loans,  and  deposits for
Inter-City totaled $43,482,000,  $33,812,000 and $37,751,000,  respectively. The
Company  exchanged  347,382  shares of its common stock for all the  outstanding
common stock of Inter-City.

On June 24, 1999, the Company  purchased  Reed-Johnson  Insurance  Agency,  Inc.
("Reed-Johnson")  with the  issuance of 40,530  shares of the  Company's  common
stock. Located in Tupelo, Mississippi, Reed-Johnson was an independent insurance
agency  representing  property and casualty companies and providing personal and
business  coverage.  Reed-Johnson  operated as a wholly owned  subsidiary of The
Peoples  Bank and Trust  Company and was renamed The Peoples  Insurance  Agency,
Inc. in May, 2001.

Southern  Insurance  Group,  Inc.,  Southern  Insurance  of Corinth,  Inc.,  and
Southern Financial Services,  P.A.  (collectively,  "Southern") were acquired on
May 1, 2000 by the Company by issuing  70,500  shares of its common  stock for a
total price of approximately $1,692,000.  Southern offered property and casualty
insurance products,  life and health insurance,  and annuities and mutual funds.
The acquired  companies were merged into the Bank's  insurance  subsidiary,  The
Peoples Insurance Agency, Inc.

The Bank acquired Dominion Company, Dominion Health and Life P.A. (collectively,
"Dominion")  and Alliance  Finance  Company  ("Alliance")  on September 1, 2000.
Dominion  offered  products  similar to  Southern  and used  Alliance to finance
insurance  premiums.  The Bank  paid  $450,000  in cash for the  companies.  The
acquired companies were merged into the Bank's insurance subsidiary, The Peoples
Insurance Agency, Inc.

Competition

Vigorous  competition  exists in all major areas where we conduct  business.  We
compete  through the Bank with state and national banks in our service areas, as
well as  savings  and  loan  associations,  credit  unions,  finance  companies,
mortgage  companies,   insurance  companies,  brokerage  firms,  and  investment
companies for available loans and depository accounts. All of these institutions
compete in the delivery of services and products through availability,  quality,
and pricing. There are no dominant competitors in our market area.

For 2002, we maintained  approximately  20% of the market share in our area. Our
largest  competitor is Bancorp South with a market share of  approximately  28%.
Other  competitors,  each with less than 10% of the market share,  include Union
Planters  Bank,  AmSouth  Bank,  Merchants  and Farmers  Bank,  National Bank of
Commerce,  and Trustmark  National Bank. In addition,  there are local community
banks that compete with us on an individual market basis.

                                       2

Supervision and Regulation

Under the current regulatory  environment,  nearly every facet of our operations
is subject to  requirements  and  restrictions  imposed from  various  state and
federal  banking  laws and  regulations.  The  primary  focus of these  laws and
regulations  is on the  protection of  depositors,  the  insurance  funds of the
Federal  Deposit  Insurance  Corporation  ("FDIC"),  and the banking system as a
whole. While the following summary addresses the regulatory environment in which
we  operate,  it is not  intended  to be a  fully  inclusive  discussion  of the
statutes  and  regulations  affecting  our  operations.  The impact  from future
changes in federal or state legislation on our operations cannot be predicted.

We are a bank holding company within the meaning of the Bank Holding Company Act
of 1956,  as amended (the "Act"),  and are  registered as such with the Board of
Governors of the Federal  Reserve System (the "Board").  We are 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 us and our Bank pursuant to the
Act. The Board also has the authority  (which it has not  exercised) to regulate
provisions of certain types of our debt.

The Act  requires a 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  that is not  already  majority-owned  by such  bank
holding company.

The Act  provides  that the Board shall not approve any  acquisition,  merger or
consolidation, which would result in a monopoly or which would be in furtherance
of any  combination  or conspiracy  to  monopolize or attempt to monopolize  the
business of banking.  Neither will the Board approve any other  transactions  in
which the effect 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.  We and our Bank are subject to certain  restrictions
imposed by the Federal Reserve Act and the Federal Deposit  Insurance Act on any
extensions of credit to the Company or the Bank, on  investments in the stock or
other  securities of the Company or the Bank,  and on taking such stock or other
securities as collateral for loans of any borrower.

The Bank Holding Company Act of 1956 was recently  amended to permit  "financial
holding  companies"  to  engage  in a  broader  range  of  nonbanking  financial
activities,  such as underwriting and selling insurance,  providing financial or
investment  advice,  and dealing and making  markets in securities  and merchant
banking.  The new  legislation,  the  Gramm-Leach-Bliley  Act,  was  enacted  on
November 12, 1999,  and became  effective on March 11, 2000. In order to qualify
as a financial  holding  company,  we must  declare to the  Federal  Reserve our
intention to become a financial  holding company and certify that our depository
subsidiary meets the capitalization  management  requirements and that it has at
least a satisfactory rating under the Community Reinvestment Act. As of December
31, 2002, we had not elected to become a financial holding company.

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.

                                       3

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.

Bank holding  companies are allowed to acquire  savings  associations  under The
Financial Institutions Reform,  Recovery and Enforcement Act of 1989 ("FIRREA").
Deposit insurance premiums for banks and savings  associations were increased as
a result of  FIRREA,  and losses  incurred  by the FDIC in  connection  with the
default or assistance of troubled  federally insured financial  institutions are
required to be reimbursed by other federally insured financial institutions.

Certain  restrictions  exist regarding the ability of the Bank to transfer funds
to us 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, 2002,  the maximum  amount  available for transfer from the Bank in
the form of cash dividends and loans was 19.65% of the Bank's  consolidated  net
assets.

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
provides for increased  funding for the FDIC's  deposit  insurance  fund through
risk based  assessments  and expands the  regulatory  powers of federal  banking
agencies  to permit  prompt  corrective  actions to resolve  problems of insured
depository  institutions.  While most of the Company's  deposits are in the Bank
Insurance  Fund ("BIF"),  a small  portion of the  Company's  deposits that were
acquired  from  savings  associations  over  the  years  remain  in the  Savings
Association Insurance Fund ("SAIF").

The Community  Reinvestment  Act of 1997 ("CRA")  requires the assessment by the
appropriate regulatory authority of a financial  institution's record in meeting
the credit needs of their local communities,  including low and  moderate-income
neighborhoods,   consistent   with  the  safe  and  sound   operation  of  those
institutions.   These  factors  are  also  considered  in  evaluating   mergers,
acquisitions, and applications to open a branch or facility.

The Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept  and  Obstruct  Terrorism  Act of 2001 ("USA  Patriot  Act")  requires
financial  institutions  to  establish  anti-money  laundering  programs and due
diligence  policies,  procedures  and  controls  with  respect to bank  accounts
involving   foreign   individuals  and  certain  foreign  banks,  and  to  avoid
establishing and maintaining accounts in the United States for, or on the behalf
of, foreign banks that do not have a physical presence in any country.

The  Sarbanes-Oxley  Act of 2002 (the "Act") requires  publicly traded companies
subject  to the  Securities  Exchange  Act of 1933 or 1934 to adhere to  several
directives designed to prevent corporate misconduct. Additional duties have been
placed on officers,  directors,  auditors and attorneys of public companies. The
Act requires certifications  regarding financial statement accuracy and internal
control adequacy by chief executive  officers and chief financial  officers with
periodic reports filed with the Securities and Exchange Commission ("SEC").  The
Act also accelerates Section 16 insider reporting obligations, restricts certain
executive  officer  and  director  transactions,   imposes  new  obligations  on
corporate audit committees, and provides for enhanced review by the SEC.

Monetary Policy and Economic Controls

The  earnings  and growth of the  banking  industry,  the Bank and,  to a larger
extent,  the Company 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.

                                       4

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 our
and our Bank's future business and earnings cannot be predicted with accuracy.

Sources and Availability of Funds

The funds  essential to our and our Bank's business  consist  primarily of funds
derived from customer  deposits and  borrowings  from the Federal Home Loan Bank
and  correspondent  banks by the banking  subsidiary.  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,  2002,  we employed  587 people at the Bank and the  insurance
company  on  a  full-time  equivalent  basis.  The  Company  has  no  additional
employees; however, at December 31, 2002, four Bank employees served as officers
of the  Company  in  addition  to their  bank  positions.  Two  additional  Bank
employees were appointed to serve as officers of the Company in February 2003.

Dependence Upon a Single Customer

Neither we nor our Bank is  dependent  upon a single  customer or upon a limited
number of customers.

Available Information

Our Internet  address is  www.thepeoplesbankandtrust.com.  We make  available at
this address,  free of charge, our annual report on Form 10-K, quarterly reports
on Form  10-Q,  current  reports  on Form 8-K and  amendments  to those  reports
pursuant to Section  13(a) or 15(d) of the  Securities  Exchange  Act of 1934 as
soon as reasonably  practical after we electronically file such material with or
furnish it to, the Securities and Exchange Commission.

                                       5

Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest
          Rates and Interest Differential (In Thousands)

The following  tables set forth average balance sheet data,  including all major
categories of interest-earning assets and interest-bearing liabilities, together
with the interest  earned or interest paid and the average yield or average rate
paid on each such category for the fiscal years ended  December 31, 2002,  2001,
and 2000:

                                                                                    2002
                                                            -------------------------------------------------
                                                             Tax Equivalent     Average Balance     Yields/
                                                            Income or Expense    Sheet Amount        Rates
                                                            -----------------  -----------------  -----------
                                                                                             
 Interest-earning assets
   Loans, net of unearned income
      Commercial ..........................................      $ 33,817        $    479,515         7.05%
      Consumer ............................................        15,375             186,675         8.24%
      Other loans .........................................        12,673             170,916         7.41%
                                                            -----------------  -----------------
            Total loans, net ..............................        61,865             837,106         7.39%

   Other ..................................................           332              19,944         1.66%

   Taxable securities
      U. S. Government securities*.........................           380               6,229         6.10%
      U. S. Government agencies*...........................         3,143              60,275         5.21%
      Mortgage-backed securities ..........................         8,418             156,129         5.39%
      Trust preferred securities ..........................           428               9,433         4.54%
                                                            -----------------  -----------------
            Total taxable securities ......................        12,369             232,066         5.33%

   Tax-exempt securities
      Obligations of states and political subdivisions ....         6,667              87,920         7.58%
      Other equity securities .............................           313               4,267         7.34%
                                                            -----------------  -----------------
            Total tax-exempt securities ...................         6,980              92,187         7.57%
                                                            -----------------  -----------------
            Total securities ..............................        19,349             324,253         5.97%
                                                            -----------------  -----------------
                    Total interest-earning assets .........        81,546           1,181,303         6.90%

Cash and due from banks ...................................                            43,439
Other assets, less allowance for loan losses ..............                            81,892
                                                                               -----------------
                        Total assets ......................                      $  1,306,634
                                                                               =================
Interest-bearing liabilities
   Interest-bearing demand deposit accounts ...............         1,722        $     99,830         1.72%
   Savings and money market accounts ......................         4,357             290,132         1.50%
   Time deposits ..........................................        17,955             559,665         3.21%
                                                            -----------------  -----------------
        Total interest-bearing deposits ...................        24,034             949,627         2.53%

        Total other interest-bearing liabilities ..........         2,491              59,563         4.18%
                                                            -----------------  -----------------
                  Total interest-bearing liabilities ......        26,525           1,009,190         2.63%
Noninterest-bearing sources
   Noninterest-bearing deposits ...........................                           153,346
   Other liabilities ......................................                            16,710
   Shareholders' equity ...................................                           127,388
                                                                               -----------------
            Total liabilities and shareholders' equity ....                      $  1,306,634
                                                                               =================
Net interest income/net interest margin ...................      $ 55,021                             4.66%
                                                            =================

The average balances of non-accruing loans are included in this table.  Weighted
average yields on tax-exempt  loans and securities 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.

*U. S.  Government and some U. S. Government  Agency  Securities are tax-free in
the state of Mississippi.

                                       6

Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest
          Rates and Interest Differential (continued)

                                                                                    2001
                                                            -------------------------------------------------
                                                             Tax Equivalent     Average Balance     Yields/
                                                            Income or Expense    Sheet Amount        Rates
                                                            -----------------  -----------------  -----------
                                                                                             
 Interest-earning assets
   Loans, net of unearned income
      Commercial ..........................................      $ 38,336        $    442,732         8.66%
      Consumer ............................................        18,089             196,378         9.21%
      Other loans .........................................        14,731             177,548         8.30%
                                                            -----------------  -----------------
            Total loans, net ..............................        71,156             816,658         8.71%

   Other ..................................................           873              23,429         3.73%

   Taxable securities
      U. S. Government securities*.........................         2,035              33,864         6.01%
      U. S. Government agencies*...........................         2,938              49,346         5.95%
      Mortgage-backed securities ..........................         6,568             103,486         6.35%
      Trust preferred securities ..........................           200               4,026         4.97%
                                                            -----------------  -----------------
            Total taxable securities ......................        11,741             190,722         6.16%

   Tax-exempt securities
      Obligations of states and political subdivisions ....         6,674              84,482         7.90%
      Other equity securities .............................           636               7,822         8.13%
                                                            -----------------  -----------------
            Total tax-exempt securities ...................         7,310              92,304         7.92%
                                                            -----------------  -----------------
            Total securities ..............................        19,051             283,026         6.73%
                                                            -----------------  -----------------
                    Total interest-earning assets .........        91,080           1,123,113         8.11%

Cash and due from banks ...................................                            40,146
Other assets, less allowance for loan losses ..............                            74,036
                                                                               -----------------
                        Total assets ......................                      $  1,237,295
                                                                               =================
Interest-bearing liabilities
   Interest-bearing demand deposit accounts ...............         2,083        $     77,113         2.70%
   Savings and money market accounts ......................         6,701             263,581         2.54%
   Time deposits ..........................................        30,542             580,247         5.26%
                                                            -----------------  -----------------
        Total interest-bearing deposits ...................        39,326             920,941         4.27%

        Total other interest-bearing liabilities ..........         1,596              29,347         5.44%
                                                            -----------------  -----------------
                  Total interest-bearing liabilities ......        40,922             950,288         4.31%
Noninterest-bearing sources
   Noninterest-bearing deposits ...........................                           144,073
   Other liabilities ......................................                            18,306
   Shareholders' equity ...................................                           124,628
                                                                               -----------------
            Total liabilities and shareholders' equity ....                      $  1,237,295
                                                                               =================
Net interest income/net interest margin ...................      $ 50,158                             4.47%
                                                            =================

The average balances of non-accruing loans are included in this table.  Weighted
average yields on tax-exempt  loans and securities 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.

*U. S.  Government and some U. S. Government  Agency  Securities are tax-free in
the state of Mississippi.

                                       7

Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest
          Rates and Interest Differential (continued)

                                                                                    2000
                                                            -------------------------------------------------
                                                             Tax Equivalent    Average Balance      Yields/
                                                            Income or Expense    Sheet Amount        Rates
                                                            -----------------  -----------------  -----------
                                                                                             
 Interest-earning assets
   Loans, net of unearned income
      Commercial ..........................................      $ 38,014        $    418,969         9.07%
      Consumer ............................................        19,196             209,969         9.14%
      Other loans .........................................        16,314             187,650         8.69%
                                                            -----------------  -----------------
            Total loans, net ..............................        73,524             816,588         9.00%

   Other ..................................................           459               7,546         6.08%

   Taxable securities
      U. S. Government securities*.........................         2,832              49,530         5.72%
      U. S. Government agencies*...........................         3,046              48,817         6.24%
      Mortgage-backed securities ..........................         5,693              89,987         6.33%
      Trust preferred securities ..........................           290               3,777         7.68%
                                                            -----------------  -----------------
            Total taxable securities ......................        11,861             192,111         6.17%

   Tax-exempt securities
      Obligations of states and political subdivisions ....         6,719              85,048         7.90%
      Other equity securities .............................           324               3,256         9.95%
                                                            -----------------  -----------------
            Total tax-exempt securities ...................         7,043              88,304         7.98%
                                                            -----------------  -----------------
            Total securities ..............................        18,904             280,415         6.74%
                                                            -----------------  -----------------
                    Total interest-earning assets .........        92,887           1,104,549         8.41%

Cash and due from banks ...................................                            39,299
Other assets, less allowance for loan losses ..............                            53,409
                                                                               -----------------
                        Total assets ......................                      $  1,197,257
                                                                               =================
Interest-bearing liabilities
   Interest-bearing demand deposit accounts ...............         2,475        $     71,373         3.47%
   Savings and money market accounts ......................         9,078             273,217         3.32%
   Time deposits ..........................................        30,616             545,583         5.61%
                                                            -----------------  -----------------
        Total interest-bearing deposits ...................        42,169             890,173         4.74%

        Total other interest-bearing liabilities ..........         1,963              43,396         4.52%
                                                            -----------------  -----------------
                  Total interest-bearing liabilities ......        44,132             933,569         4.73%
Noninterest-bearing sources
   Noninterest-bearing deposits ...........................                           141,094
   Other liabilities ......................................                             4,690
   Shareholders' equity ...................................                           117,904
                                                                               -----------------
            Total liabilities and shareholders' equity ....                      $  1,197,257
                                                                               =================
Net interest income/net interest margin ...................      $ 48,755                             4.41%
                                                            =================

The average balances of non-accruing loans are included in this table.  Weighted
average yields on tax-exempt  loans and securities 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.

*U. S.  Government and some U. S. Government  Agency  Securities are tax-free in
the state of Mississippi.

                                       8

Table 2 - Volume/Rate Analysis
(In Thousands)

The following  table sets forth for The Peoples Holding  Company,  for the years
ended December 31 as indicated,  a summary of the changes in interest earned and
interest paid resulting from changes in volume and rates.

                                                                               2002 Compared To 2001
                                                                     ----------------------------------------
                                                                       Increase (Decrease) Due To Changes In
                                                                     ----------------------------------------
                                                                        Volume          Rate        Net (1)
                                                                     ------------  -------------  -----------
                                                                                           
Interest income:
Loans, net of unearned income ....................................     $ 1,746       $ (10,954)     $ (9,208)

Securities
   U. S. Government and agency securities ........................        (977)           (420)       (1,397)
   Obligations of states and political subdivisions ..............         173            (219)          (46)
   Mortgage-backed securities ....................................       3,341          (1,491)        1,850
   Trust preferred and Federal Home Loan Bank securities .........         269             (41)          228
   Other equity securities .......................................        (210)            (24)         (234)

Other ............................................................        (130)           (411)         (541)
                                                                     ------------  -------------  -----------
Total interest-earning assets ....................................       4,212         (13,560)       (9,348)

Interest expense:
Interest-bearing demand deposit accounts .........................         613            (974)         (361)
Savings and money market accounts ................................         675          (3,019)       (2,344)
Time deposits ....................................................      (1,083)        (11,504)      (12,587)
Borrowed funds ...................................................       1,643            (748)          895
                                                                     ------------  -------------  -----------
Total interest-bearing liabilities ...............................       1,848         (16,245)      (14,397)
                                                                     ------------  -------------  -----------
Change in net interest income ....................................     $ 2,364       $   2,685      $  5,049
                                                                     ============  =============  ===========

(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.

                                       9

Table 2 - Volume/Rate Analysis (continued)

                                                                               2001 Compared To 2000
                                                                     ----------------------------------------
                                                                       Increase (Decrease) Due To Changes In
                                                                     ----------------------------------------
                                                                        Volume          Rate        Net (1)
                                                                     ------------  -------------  -----------
                                                                                           
Interest income:
Loans, net of unearned income ....................................     $    51       $  (2,383)     $ (2,332)

Securities
   U. S. Government and agency securities ........................        (835)            (38)         (873)
   Obligations of states and political subdivisions ..............         (28)            140           112
   Mortgage-backed securities ....................................         854              20           874
   Trust preferred and Federal Home Loan Bank securities .........          19            (109)          (90)
   Other equity securities .......................................         330            (103)          227

Other ............................................................         966            (552)          414
                                                                     ------------  -------------  -----------
Total interest-earning assets ....................................       1,357          (3,025)       (1,668)

Interest expense:
Interest-bearing demand deposit accounts .........................         199            (591)         (392)
Savings and money market accounts ................................        (320)         (2,057)       (2,377)
Time deposits ....................................................       1,945          (2,019)          (74)
Borrowed funds ...................................................        (636)            269          (367)
                                                                     ------------  -------------  -----------
Total interest-bearing liabilities ...............................       1,188          (4,398)       (3,210)
                                                                     ------------  -------------  -----------
Change in net interest income ....................................     $   169       $   1,373      $  1,542
                                                                     ============  =============  ===========

(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.

                                       10

Table 3 - Investment Portfolio
(In Thousands)

The following  table sets forth the amortized  cost of  investments in (1) U. S.
Treasury and other U. S. agencies and corporations, (2) obligations of states of
the  U.  S.  and  political  subdivisions,   and  (3)  other  securities  as  of
December 31, 2002, 2001, and 2000:

                                                       2002          2001          2000
                                                   -----------   -----------   -----------
                                                                       
Held to maturity:
U. S. Treasury and other U. S. agencies ..........  $   --        $   --        $    --
Obligations of state and political subdivisions*..      --            --           85,658
Other securities .................................      --            --             --
                                                   -----------   -----------   -----------
   Total .........................................  $   --        $   --        $  85,658
                                                   ===========   ===========   ===========

                                                       2002          2001          2000
                                                   -----------   -----------   -----------
Available for sale:
U. S. Treasury and other U. S. agencies ..........  $  50,931     $  66,029     $  98,998
Obligations of state and political subdivisions*..     92,464        84,709          --
Other securities .................................    192,204       123,097        94,023
                                                   -----------   -----------   -----------
   Total .........................................  $ 335,599     $ 273,835     $ 193,021
                                                   ===========   ===========   ===========

*The Company  classified all obligations of state and political  subdivisions as
held to maturity prior to 2001. As allowed upon adoption of Financial Accounting
Standards  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities,"  the Company  transferred  all securities  from held to maturity to
available for sale.

The  following  table sets forth the  maturity  distribution  in  thousands  and
weighted average yield by maturity of securities at December 31, 2002:

                                                       After One               After Five
                                 Within                But Within              But Within                After
                                One Year               Five Years              Ten Years               Ten Years
                         ---------------------   ---------------------   ---------------------   ---------------------
                                                                                       
Available for Sale:
U. S. Treasury
  and agency
  securities ...........  $ 12,024     4.71%      $ 30,853     5.86%      $  8,054     3.26%      $   --        --
Obligations of
  state and political
  subdivisions .........     4,196     7.45%        25,280     7.26%        45,550     6.71%        17,438     6.86%
Mortgage-backed
  securities ...........    35,666     5.49%       135,683     5.48%         4,655     6.62%         4,315     2.75%
Trust preferred
  securities ...........      --        --           6,792     5.36%          --        --            --        --
Other equity
  securities ...........     3,893     7.70%         1,200     6.78%          --        --            --        --
                         ----------              ----------              ----------              ----------
               Total ...  $ 55,779                $199,808                $ 58,259                $ 21,753
                         ==========              ==========              ==========              ==========

The  maturity  of  mortgage-backed  securities,  included  as other  securities,
reflects  scheduled  repayments  based upon the anticipated  average life of the
securities.

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.

Yields on available for sale securities are based on amortized cost.

                                       11

Table 4 - Loan Portfolio
(In Thousands)

The following table sets forth loans, net of unearned income,  outstanding as of
December 31, 2002, which, based on remaining scheduled  repayments of principal,
are due in the periods indicated.

                                                         Loan Maturities
                                -------------------------------------------------------------------
                                                     After One         After
                                     Within         But Within          Five
                                    One Year        Five Years         Years             Total
                                ---------------  ---------------  ---------------  ----------------
                                                                            
Commercial, financial and
   agricultural ...............   $   93,077         $  42,433        $   3,947         $ 139,457
Lease financing ...............        7,061             8,277             --              15,338
Real estate - construction ....       30,664             6,163              314            37,141
Real estate - mortgage ........      224,830           253,175           96,465           574,470
Installment loans to
   individuals ................       28,418            65,937            2,547            96,902
                                ---------------  ---------------  ---------------  ----------------
                                  $  384,050         $ 375,985        $ 103,273         $ 863,308
                                ===============  ===============  ===============  ================

The following  table sets forth the fixed and variable rate loans maturing after
one year for all loans as of December 31, 2002:
                                                     Interest Sensitivity
                                                 ---------------------------
                                                    Fixed        Variable
                                                     Rate          Rate
                                                 ------------  -------------
Due after 1 but within 5 years .................  $ 365,009     $   10,975
Due after 5 years ..............................    102,747            527
                                                 ------------  -------------
                                                  $ 467,756     $   11,502
                                                 ============  =============

Table 5 - Deposits
(In Thousands)

The  following  table shows the  maturity of time  certificates  of deposits and
other time deposits over $100 at December 31, 2002:

             Less than 3 Months .............. $  45,396
             3 Months-6 Months ...............    55,361
             6 Months-12 Months ..............    26,852
             Over 12 Months ..................    58,311
                                               -----------
                                               $ 185,920
                                               ===========

The following table shows the average  balances and average rates of deposits at
December 31:

                                                     2002                  2001                  2000
                                            --------------------- --------------------- ---------------------
                                               Average     Rate      Average     Rate      Average     Rate
                                            ------------ -------- ------------ -------- ------------ --------
                                                                                     
Noninterest-bearing demand deposits ....... $   153,346     -- %  $   144,073     -- %  $   141,094     -- %
Interest-bearing demand deposits ..........      99,830    1.72        77,113    2.70        71,373    3.47
Savings and money market deposits .........     290,132    1.50       263,581    2.54       273,217    3.32
Time deposits .............................     559,665    3.21       580,247    5.26       545,583    5.61
                                            ------------          ------------          ------------
Total ..................................... $ 1,102,973    2.18%  $ 1,065,014    3.69%  $ 1,031,267    4.09%
                                            ============          ============          ============

                                       12

Short-term Borrowings
(In Thousands)

The average  balances of short-term  borrowings  for 2002,  2001,  and 2000 were
$4,093, $4,775, and $11,259 at weighted average rates of 1.26%, 3.33%, and 6.15%
respectively.

ITEM 2. PROPERTIES
(In Thousands)

The main  offices of the Company  and the Bank are  located at 209 Troy  Street,
Tupelo,  Mississippi.  Various  departments of the Bank occupy each floor of the
five-story  building.  The  Technology  Center,  also located in Tupelo,  houses
electronic  data  processing,  document  preparation,   document  imaging,  loan
servicing,  and deposit  operations.  In addition,  the Bank operates forty (40)
branches throughout north and north central Mississippi.  The Bank has seven (7)
branches in Tupelo;  three (3) branches in Booneville;  two (2) branches each in
Amory,  Corinth,  Louisville,  Pontotoc,  and West Point; one (1) branch each in
Aberdeen,  Batesville,  Belden,  Calhoun City,  Coffeeville,  Grenada,  Guntown,
Hernando,  Iuka, New Albany, Okolona, Olive Branch,  Saltillo,  Sardis, Shannon,
Smithville, Southaven, Verona, Water Valley, and Winona. The Insurance divisions
have one (1) office each in Corinth, Louisville, and Tupelo.

The Bank owns the main offices located at 209 Troy Street,  Tupelo,  Mississippi
as well as thirty-seven  (37) of the branch office sites.  The Bank leases three
locations for use in conducting  banking  activities as well as various  storage
facilities.  The Peoples Insurance Agency leases one location for conducting its
business.  The aggregate  annual rental for all leased  premises during the year
ending December 31, 2002 was $111.

It is  anticipated  that by May, 2003,  construction  will be complete and a new
branch will be  operational  in  Pontotoc,  Mississippi.  The new branch will be
located on Highway 15, a major  thoroughfare in Pontotoc County and will replace
the existing  drive-through office. Also,  construction on a new branch facility
in Horn Lake,  Mississippi,  which is in our  DeSoto  County  market,  should be
complete by November,  2003.  Both new facilities and the land on which they are
constructed  will be owned by the Bank.  Renovations  to our  existing  Veterans
branch located in Tupelo should be completed  during the fourth quarter of 2003.
Plans are also underway to lease a facility in the newly  developed Fair Park in
Tupelo to house our Financial Services division.  The facilities currently owned
or occupied  under lease by the Company or the Bank are considered by management
to be suitable and adequate for their intended purposes.

ITEM 3. LEGAL PROCEEDINGS

There are no pending legal  proceedings,  other than ordinary routine litigation
incidental  to the  business,  to which the  Company or the Bank or any of their
subsidiaries is a party or to which any of their property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were  submitted to the Company's  security  holders during the fourth
quarter of 2002.

                                       13

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information and Dividends

The public  market for the  Company's  common  stock is limited.  The  Company's
common stock trades on the American  Stock Exchange under the ticker symbol PHC.
On February  26,  2003,  the Company had  approximately  2,600  shareholders  of
record.

The following  table sets forth (i) the high and low sales price reported on the
American Stock Exchange for the Company's common stock for each quarterly period
for the fiscal years ended  December  31, 2002 and 2001,  and (ii) the amount of
cash dividends declared during each quarterly period during such fiscal years:

                                                      Prices
                            Dividends      ----------------------------
                            Per Share          Low             High
                           -----------     ------------   -------------
2002
1st Quarter ..............   $ .25          $ 31.38          $ 38.71
2nd Quarter ..............     .26            33.81            40.47
3rd Quarter ..............     .26            37.81            41.95
4th Quarter ..............     .27            39.40            43.97

2001
1st Quarter ..............   $ .23          $ 15.81          $ 19.31
2nd Quarter ..............     .24            17.60            32.77
3rd Quarter ..............     .24            30.05            34.51
4th Quarter ..............     .25            32.27            37.75

The Company declares  dividends on a quarterly  basis.  Funds for the payment of
cash  dividends  are obtained  from  dividends  received by the Company from the
Bank. Accordingly,  the declaration and payment of cash dividends by the Company
depend  upon the Bank's  earnings  and  financial  condition,  general  economic
conditions, compliance with regulatory requirements, and other factors.

                                       14

ITEM 6.  SELECTED FINANCIAL DATA
 (Unaudited)
 (In Thousands, Except Share Data)

                                            2002         2001         2000         1999         1998
                                        ------------ ------------ ------------ ------------ ------------
                                                                              
Year ended December 31:
Interest income .......................  $   78,418   $   87,766   $   89,434   $   83,500   $   81,280
Interest expense ......................      26,525       40,922       44,132       37,342       37,434
Provision for loan losses .............       4,350        4,790        6,373        3,192        2,591
Noninterest income ....................      27,442       24,389       18,529       19,476       14,461
Noninterest expense ...................      50,496       46,747       42,474       41,480       39,338
                                        ------------ ------------ ------------ ------------ ------------
Income before income taxes ............      24,489       19,696       14,984       20,962       16,378
Income taxes ..........................       6,819        5,109        3,800        6,182        4,697
                                        ------------ ------------ ------------ ------------ ------------
Income before cumulative effect
   of accounting change ...............      17,670       14,587       11,184       14,780       11,681
Cumulative effect of accounting change.      (1,300)        --           --           --           --
                                        ------------ ------------ ------------ ------------ ------------
Net income ............................  $   16,370   $   14,587   $   11,184   $   14,780   $   11,681
                                        ============ ============ ============ ============ ============

Per Common Share:
Income before cumulative effect
   of accounting change ...............  $     3.15   $     2.48   $     1.83   $     2.38   $     1.88
Cumulative effect of accounting change.        (.23)        --           --           --           --
                                        ------------ ------------ ------------ ------------ ------------
Net income ............................  $     2.92   $     2.48   $     1.83   $     2.38   $     1.88
                                        ============ ============ ============ ============ ============

Book value at December 31 .............  $    23.82   $    21.66   $    20.09   $    18.71   $    17.80

Closing price on the AMEX
   at December 31 .....................       40.75        37.00        18.00        28.88        32.31
Cash dividends declared and
   paid - the Company .................        1.04          .96          .88          .84          .72
Cash dividends declared and
   paid-Inter-City ....................        --           --           --           --            .36

At December 31:
Loans, net of unearned income .........  $  863,308   $  827,696   $  815,854   $  799,085   $  729,156
Securities ............................     344,781      277,293      278,574      266,744      293,639
Assets ................................   1,344,512    1,254,727    1,211,940    1,162,959    1,107,795
Deposits ..............................   1,099,048    1,063,055    1,046,605      978,958      960,295
Borrowings ............................      91,806       47,326       24,549       51,269       22,476
Shareholders' equity ..................     132,778      123,582      121,661      116,089      110,209

                                       15

ITEM 6. SELECTED FINANCIAL DATA  (continued)

                                            2002         2001         2000         1999         1998
                                        ------------ ------------ ------------ ------------ ------------
                                                                              
Selected Ratios
Return on average:
   Total assets .......................       1.25%        1.18%         .93%        1.29%        1.09%
   Shareholders' equity ...............      12.85%       11.70%        9.49%       13.19%       10.85%

Before cumulative effect of
 accounting change, return on average:
   Total assets .......................       1.35%        1.18%         .93%        1.29%        1.09%
   Shareholders' equity ...............      13.87%       11.70%        9.49%       13.19%       10.85%

Average shareholders' equity to
   average assets .....................       9.75%       10.07%        9.85%        9.77%       10.07%

At December 31:
Shareholders' equity
   to assets ..........................       9.88%        9.85%       10.04%        9.98%        9.95%
Allowance for loan losses to total
   loans, net of unearned income ......       1.41%        1.37%        1.29%        1.26%        1.34%
Allowance for loan losses
   to nonperforming loans .............     338.22%      178.63%      147.89%      126.47%      261.95%
Nonperforming loans to total
   loans, net of unearned income ......        .42%         .77%         .87%        1.00%         .51%
Dividend payout .......................      35.59%       38.52%       47.76%       35.24%       36.89%

                                       16

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS
(In Thousands, Except Share Data)

Overview

Economy

The year 2002 faced its own  challenges as the economy began its slow  recovery.
The  threat  of war with  Iraq  kept  consumers  spending  more  conservatively,
corporations  holding back on expansion,  and Americans  watching as fuel prices
increased. At its November meeting, the Federal Reserve Bank, concerned with the
slow  recovery and the need for a stimulus,  dropped the discount  rate 50 basis
points to .75%.  This was the only  change in rates  for the year.  The  federal
funds rate followed the 50 basis point decline,  falling to 1.25% with the prime
interest rate changing from 4.75% to 4.25%.

On the national front,  growth in Gross Domestic  Product ("GDP") ranged from 5%
in the first quarter to .7% for the fourth quarter.  Consumer sentiment was down
from  earlier  months in the year as it dropped  from a high of 96.9 in May to a
low of 80.6 in October. The index ended the year at 86.7. The unemployment rate,
fluctuating  between  5.6% and 6%,  ended  the year at 6% as major  corporations
continued to lay off workers.

A positive sign of the recovery was the industrial  production growth. While the
nation experienced negative growth during the first half of the year, production
rebounded to 2.1% by the end of 2002.  In  addition,  the  Institute  for Supply
Management ("ISM") index improved to 54.7, up from prior months of approximately
49. This factor's  importance  lies in its measurement of whether the economy is
growing or  contracting.  A ratio of 50 or greater  is  indicative  of a growing
economy. Still lagging, however, was the capital utilization that hovered around
75.5%.  This is  indicative  of slow  corporate  spending on plant and equipment
until the economy improves and sales volumes rise.

While the economy of north Mississippi is diversified,  furniture  manufacturing
is an important element.  By the end of 2002, housing starts,  permits,  and new
home sales were up. Normally,  furniture  orders follow the housing market.  The
major  housing  growth  areas for the  Company  are  located  in Lee and  DeSoto
Counties.

Unemployment  rates within our market ranged from 3.8% to  approximately  12% at
year-end.  The  unemployment  rates,  where we have our  largest  presence,  are
currently below the national average. Lee County, the corporate headquarters for
the  Company,  as  well  as  surrounding  counties,  saw a 5%  increase  in both
manufacturing and non-manufacturing jobs during 2002.

In  addition,  we are  located  in  two  of  the  top  five  retail  markets  in
Mississippi,  with  2002  sales  up .8% and  14.7% in Lee and  DeSoto  Counties,
respectively.  It is  expected  that  growth  for 2003  will be 3.4% and  26.5%,
respectively, for those counties.

Critical Accounting Policies

Our financial  statements  are prepared using  accounting  estimates for various
accounts.  Wherever  feasible,  we utilize  third-party  information  to provide
management with estimates.  Although  independent  third parties are utilized to
assist us in the  estimation  process,  management  evaluates  the results,  and
challenges assumptions used and other factors which could impact the estimation.
Following  are some of the more  significant  estimates  used in  preparing  our
financial statements.

The critical accounting policy that is most important to the presentation of our
financial  statements  relates  to the  allowance  for  loan  loss  and  related
provision.  See our  discussion  in the  Credit  Risk  section  of  Management's
Discussion and Analysis of Financial Condition and Results of Operations.

Other  real  estate is carried at lower of cost or fair  market  value  based on
appraisals by certified  appraisers.  Property values are assessed  periodically
for impairment.

                                       17

Our health  insurance  administrator  is Blue  Cross-Blue  Shield.  Coverage  is
self-funded up to a set stop loss per employee. We maintain an accrued liability
that includes  estimated  claims to be paid.  The accrued  liability  account is
evaluated  at  year-end  for  adequacy  using  a lag  analysis  provided  by the
administrator. This data is used to calculate an estimated amount to be paid for
2002 during 2003.

William M. Mercer, Inc. prepares actuarial  valuations of our pension cost under
FASB  Statement  No. 87, as modified  by FASB  Statement  No. 132,  and our post
retirement  health cost under FASB  Statement No. 106. The discount rate used in
the 2002 valuation was 6.75%,  down from 7.50% in 2001. Actual plan assets as of
December 31, 2002 were used in the calculation and the expected long-term return
on plan assets  assumed for this  valuation was 8.00%.  The pension plan covered
under FASB Statement No. 87 was curtailed as of December 31, 1996.

We  currently  have a defined  contribution  pension  plan,  which  requires the
Company to contribute 5.00% of each qualified employee's salary to the plan. The
accrual for that plan is based on actual qualified salaries for 2002. The 401(k)
expense was calculated in the same manner.

We believe we employ  appropriate  methods  for these  calculations  that should
closely  approximate  the actual  cost.  We review the  calculated  results  for
reasonableness,  and compare those  calculations  to prior period costs. We also
consider the effect of current economic conditions on the calculations.

Performance Results

Record results were achieved in 2002 as earnings per share increased 17.74% over
2001.  Earnings per share before the cumulative  effect of an accounting  change
improved  27.02%  over  2001.  The  significant   factor   contributing  to  the
improvement is the effort dedicated to implementing and monitoring our strategic
plan.  Through our strategic  plan, the management  team laid the foundation for
improving credit quality,  raising net interest margin,  controlling noninterest
expenses, increasing noninterest income, and capital management. Despite the low
interest  rates  and  generally  sluggish  economic  environment,   we  employed
strategies to improve net interest income. Those strategies included a proactive
approach to pricing of both assets and liabilities,  continued  restructuring of
our investment portfolio, and pursuit of loan growth.

In the first quarter of 2002, the Company completed the transitional  impairment
test required by FASB Statement No. 142, "Goodwill and Intangible  Assets." As a
result of this test,  we  recorded a goodwill  impairment  charge of $1,300 as a
cumulative effect of a change in accounting  principle.  The Company  identified
its reporting units as banking operations and insurance  operations for purposes
of measuring impairment of goodwill. The insurance operations are a wholly owned
subsidiary of the Bank. The impairment was specific to the insurance subsidiary.
The fair value of the insurance  reporting unit was estimated using the expected
present value of future cash flows. Because the insurance subsidiary acquisition
was a  tax-free  exchange,  there  was no tax  offset  to  the  impairment  cost
recorded.  The annual impairment test updated as of December 31, 2002, indicated
no additional impairment.

Net  income  before  the  cumulative   effect  of  the  accounting   change  was
approximately  10%  greater  than  projected  in the  2002  strategic  plan.  In
addition,  we  increased  our net  interest and  noninterest  income  10.78% and
12.52%,  respectively,  over 2001. While  noninterest  expense  increased 8.02%,
largely  attributable  to normal salary  increases,  incentive  bonuses,  health
insurance,  pension costs,  professional fees, and depreciation costs associated
with technology,  the net overhead ratio  (noninterest  expense less noninterest
income,  all divided by average assets)  declined from 1.82% in 2001 to 1.77% in
2002.

                                       18

A historical look at key performance indicators is presented below.

                            2002       2001       2000       1999       1998
                         ---------  ---------  ---------  ---------  ---------
  EPS* ................. $  3.15    $  2.48    $  1.83    $  2.38    $  1.88
  EPS GROWTH* ..........   27.02%     35.52%    (23.11%)    26.60%      6.21%
  ROA* .................    1.35%      1.18%       .93%      1.29%      1.09%
  ROE* .................   13.87%     11.70%      9.49%     13.19%     10.85%

*Amounts above exclude  Cumulative Effect of Accounting  Change.  Including this
effect, EPS, ROA & ROE were $2.92, 1.25%, and 12.85%,  respectively.  EPS growth
reflects changes from the immediately preceding year.

Total assets  increased to  $1,344,512 at  December 31,  2002, up 7.16% over the
prior year, primarily from loans and securities. Moderate growth in deposits and
capital, along with a higher volume of debt, funded this growth.

The Company has an ongoing stock  repurchase  program under which 129,947 shares
were purchased  during 2002 at an average price of $36.09 per share. The closing
price of a single  share of common  stock on the  American  Stock  Exchange  was
$40.75 on December  31,  2002,  an increase of 10.14% over the price at December
31, 2001 and an increase of 126.39% over the closing price at December 31, 2000.

Results of Operations

Net interest  income,  the difference  between interest earned on assets and the
cost  of  interest-bearing  liabilities,  is the  largest  component  of our net
income, comprising 49.02% of total revenue. The primary concerns in managing net
interest  income  are the mix and the  repricing  of  rate-sensitive  assets and
liabilities. We have experienced marked improvement in this area over the course
of the last two years for  several  reasons.  First and  foremost  was the asset
liability  management  committee's  assertiveness in making pricing decisions to
enhance net interest  income.  Further  enhancing  net  interest  margin was the
effect of changing the mix in our  investment  portfolio  that began in 2001 and
continued in 2002. Finally, we increased our emphasis on loan growth as a result
of recognizing that we must improve our loan to deposit ratio in order to become
a high performing  bank. We added two seasoned lenders to our team in the DeSoto
County  market,  located in the Memphis MSA, and two in the Lee County  (Tupelo)
market.  One of the new employees in the DeSoto County market will be working in
the capacity as an advisor to all our lenders in that area to improve our market
share.

Net interest income on a tax equivalent  basis increased  $4,863 or 9.70%,  from
$50,158 in 2001 to $55,021 in 2002. Of the tax equivalent  increase,  $2,346 was
due to the favorable growth in net earning assets with an increase of $2,517 due
to changes in interest  rates.  The tax equivalent  yield on earnings  decreased
from  8.11%  to  6.90%,  or 121  basis  points.  The  cost  of  interest-bearing
liabilities decreased from 4.31% in 2001 to 2.63% in 2002, or 168 basis points.

The  improvement in net interest  income was directly  attributable  to both the
asset-liability  committee's  approach to proactively pricing its earning assets
and  interest-bearing  liabilities and the negative gap position of those assets
and  liabilities.  As interest  bearing  deposits and loans were  repriced,  the
asset-liability  committee  carefully  monitored  the effect of that  repricing.
During 2002, we had more rate sensitive  liabilities  being repriced than assets
which  enhanced  margin in the falling rate  environment.  Growth in public fund
transaction accounts,  coupled with Federal Home Loan Bank borrowings,  provided
the majority of growth in funding for 2002.  Throughout  the last two years,  as
time  deposits  matured,  many  clients  have chosen to move their funds to more
liquid deposit  accounts as rates have fallen to a 50-year low. This resulted in
a decrease of $10 million in time  deposits  from  December 31, 2001 to December
31, 2002,  and a more  dramatic $20 million  decrease in the average  balance of
time deposits for 2002 compared to 2001.

Net interest income on a tax equivalent  basis increased  $1,403 or 2.88%,  from
$48,755 in 2000 to $50,158 in 2001. Of the tax equivalent  change,  $232 was due
to the favorable  growth in net earning assets with an increase of $1,171 due to
changes in interest rates.  The tax equivalent  yield on earning assets was down
from  8.41%  to  8.11%,  or  30  basis  points.  The  cost  of  interest-bearing
liabilities dropped from 4.73% in 2000 to 4.31% in 2001, or 42 basis points. The
decline  in  rates  was  directly  attributable  to the  Fed's  moves,  and  the
asset-liability  committee's  approach to proactively pricing its earning assets
and interest-bearing liabilities. In contrast to 2000, growth in transaction and
money market accounts, coupled with Federal Home Loan Bank borrowings,  provided
the majority of growth in funding.

                                       19

Average Earning Assets to Total Average Assets

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
       90.41%    90.77%    92.26%    92.41%    92.57%

Average  earning  assets as a percentage of total average assets are shown above
for a five-year period. The decrease in 2001 was attributable to the purchase of
$20,000 of bank owned life insurance (BOLI) mid-year of 2001. BOLI is classified
as nonearning and included in other assets on the consolidated balance sheet. If
the BOLI had been  purchased at the  beginning of 2001,  the earning asset ratio
for 2001 would have been approximately 90.12%. The improvement for 2002 over the
adjusted 2001 ratio of 90.12% is  attributable in part to cash  management.  The
tax equivalent yields on earning assets were 6.90%,  8.11%, and 8.41%, for 2002,
2001, and 2000, respectively.

Net Interest Margin - Tax Equivalent

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        4.66%     4.47%     4.41%     4.65%     4.70%

Net interest margin,  the tax equivalent net yield on earning assets,  increased
19 basis points during 2002 over the  comparable  period in the prior year.  The
increase was due in part to many changes made in 2001 such as an  improvement in
risk-based  pricing on loans and changing the mix of the  investment  portfolio.
The  asset-liability  management  committee continued to be assertive in setting
rates.  In  addition,  the percent of average  time  deposits  to average  total
deposits  decreased  from  54.48% in 2001 to  50.74%  in 2002 of the  portfolio,
reducing  interest  expense that would have offset  interest  income by shifting
funds to less costly  accounts.  Further  enhancing net interest  margin was the
growth in loans, the Company's highest yielding asset.

Net interest margin, the tax equivalent net yield on earning assets, increased 6
basis  points  during  2001 over the  comparable  period in the prior  year.  An
improvement  in  risk-based  pricing  on  loans,  a  change  in  the  mix of the
investment  portfolio,  and an  assertive  approach to pricing  funding  sources
resulted in the increase.

Net interest margin was down 24 basis points for 2000 from the comparable period
in the prior year. During the last decade, the Company's net interest margin had
generally been above peer banks; however, during 2000 as deposit costs rose, the
margin  declined to the peer average.  The trend of a falling  margin was due to
interest rate changes and intense competition from other banks and non-banks.

Loans and Loan Interest Income

Loans are the most  significant  earning  asset  comprising  64.21%,  65.97% and
67.32% of total assets at December 31, 2002, 2001, and 2000,  respectively.  The
table  below sets  forth  loans  outstanding,  according  to loan  type,  net of
unearned income, at December 31:

Loan Portfolio

                                             2002       2001       2000       1999       1998
                                          ---------- ---------- ---------- ---------- ----------
                                                                        
Commercial, financial, agricultural .....  $139,457   $138,420   $144,130   $138,329   $123,886
Lease financing .........................    15,338     16,483     18,531     17,456     12,363
Real estate-construction ................    37,141     30,564     25,706     37,437     26,410
Real estate-mortgage ....................   574,470    533,232    501,454    460,348    405,352
Installment loans to individuals ........    96,902    108,997    126,033    145,515    161,145
                                          ---------- ---------- ---------- ---------- ----------
Total loans net of unearned income ......  $863,308   $827,696   $815,854   $799,085   $729,156
                                          ========== ========== ========== ========== ==========

                                       20

Despite the sluggish  economy,  total loans increased from $827,696 to $863,308,
or 4.30% during 2002. The most significant  increase occurred in the second half
of 2002, due in part to the hiring of lending staff in the DeSoto and Lee county
markets.  Consumer loans decreased  approximately  $12,000 during 2002,  largely
attributable to the  curtailment of the sales finance  division that occurred in
2000. This was  approximately  $8,143 for 2002 and $13,030 for 2001. The average
loan to deposit  ratio was 75.90% for 2002 as shown  below.  In order to improve
net interest margin and net interest income, our strategic plan includes raising
our loan to deposit ratio to 85.00% by December 2004.  Progress toward this goal
is noted in the actual loan to deposit ratio at December 31, 2002 of 78.55%. New
loans  recorded in 2002 totaled  $246,032,  of which 61.23% were secured by real
estate.

Average Loan to Deposit Ratio

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
       75.90%    76.68%    79.18%    77.43%    73.86%

Loans increased from $815,854 in 2000 to $827,696 in 2001, or 1.45%.  Commercial
loans, specifically first mortgage commercial real estate, provided the majority
of the growth, up 19.56%. First mortgage residential loans experienced growth as
well, but on a more moderate basis.

During 2000, we sold  approximately  $7,951 in student loans,  and curtailed the
sales finance division  (indirect  lending),  reducing the loan growth to 2.10%.
Mortgage loans grew 8.93% over 1999 and were the major growth sector.

Despite interest rate increases and the sale of approximately  $18,000 in credit
card  loans,  loan  growth in 1999 was 9.59%  over  1998.  The most  significant
percentage increase loans occurred in real estate construction and mortgages.

Managing  the  interest  rate risk of the loan  portfolio  has been a  challenge
during the last two years with rates dropping to  unprecedented  lows. Prime was
reduced  eleven times during 2001 and once more in November  2002,  falling from
9.50% at December 31, 2000 to 4.25% at December 31,  2002.  As in 2001,  clients
continued to request  financing  with  extended  terms in the low interest  rate
environment.  We  employed  the use of  Federal  Home  Loan Bank  borrowings  to
match-fund  loans  where  terms were  extended  for  clients,  primarily  larger
commercial and real estate loans.

Average yields on loans  decreased from 9.00% in 2000 to 8.71% in 2001, and then
to 7.39% in 2002. The most  significant  changes occurred in commercial loans as
the average yield  dropped from 9.07% in 2000 to 8.66% in 2001,  and to 7.05% in
2002.  Consumer loan yields  actually  increased  from 9.14% in 2000 to 9.21% in
2001,  then  declined to 8.24% in 2002.  The increase in our consumer loan yield
for 2001 was  attributable  to  improvements  made in risk-based  pricing of our
loans.

The tax equivalent  loan interest income was $61,865,  $71,156,  and $73,524 for
the years  ended  December  31,  2002,  2001,  and 2000,  respectively.  The tax
equivalent loan interest income  decreased  $9,291,  or 13.06% in 2002 from 2001
fostered by the low interest  rate  environment.  Coupled with this low interest
rate  environment  was the slight  change in the mix of the loan  portfolio.  In
2002, we  experienced a decrease in  higher-yielding  consumer loans of $12,095,
with approximately $8,143 due to the decrease in the sales finance division.

Tax equivalent  loan interest  income  decreased  $2,368,  or 3.22% in 2001 from
2000, again, primarily due to rate decreases.  For 2000, loan volume and pricing
accounted  for increases in income of $4,466 and $1,850,  respectively.  The tax
equivalent yield on those loans was up 22 basis points to 9.00%.

Investments and Investment Interest Income

Investment  income is the second  largest  component  of  interest  income.  The
securities  portfolio is used to provide term  investments,  to provide a source
for  meeting   liquidity  needs,  and  to  supply   securities  to  be  used  in
collateralizing public funds.

                                       21

Securities by Sector Allocation (at Fair Value)

                 Sector                               2002     2001     2000
                 ------                             -------  -------  -------
U. S. Treasury securities ........................    -- %       5%      18%
U. S. Government agencies ........................     15%      19%      18%
Mortgage-backed securities .......................     52%      42%      30%
Obligations of states and political subdivisions .     28%      30%      31%
FHLB and other preferred stock ...................      5%       4%       3%
                                                    -------  -------  -------
                                                      100%     100%     100%
                                                    =======  =======  =======

In 2002,  securities  income  on a tax  equivalent  basis  increased  $298  over
securities  income on a tax equivalent basis in 2001. The average balance in the
investment  portfolio was up $41,227, or 14.57%. The tax equivalent yield on the
portfolio was 5.97%,  down 76 basis points from 2001.  During 2002,  and 2001 as
well,  we made a number of  changes in our  investment  portfolio.  As  Treasury
securities   matured,   the  funds  from  the   maturities   were   invested  in
mortgage-backed  and agency securities.  At December 31, 2002 the Company had no
Treasury securities.

In 2002, we changed our  investment  policy to allow us to increase our position
in mortgage-backed  securities and collateralized mortgage obligations ("CMOs").
Mortgage-backed  securities and CMOs were the primary  investments  purchased in
2002 with 72.23% of investments  coming from this sector.  Of the growth in this
sector, approximately $30,000 of GNMA securities was funded by Federal Home Loan
Bank  funds,  providing  a spread on the  arbitrage  of 2.127%.  The use of this
sector of  securities  has  allowed us to increase  our cash flow going  forward
providing funds for loan growth as well as opportunities  for repricing as rates
begin to rise. In addition,  mortgage-backed securities have a higher yield than
Treasury and Agency securities.

Other growth for 2002 has come from U. S.  Obligations  of Government  Agencies,
and  Obligations  of  States  and  Political   Subdivisions  that  provide  both
securities for meeting pledging requirements of municipalities and favorable tax
treatment.  In addition,  we purchased both fixed and variable  trust  preferred
securities to enhance our yield.

For 2001,  securities  interest income on a tax equivalent  basis increased $147
over securities  income over a tax equivalent basis in 2000. The average balance
in the investment  portfolio was up $2,611, or .93%. The tax equivalent yield on
the portfolio was 6.73%, down one basis point from the prior year.

In the first quarter of 2001,  we changed  policy  criteria for holding  certain
types of securities.  Not deviating from  soundness,  in 2001, we reinvested the
majority of maturing government  securities into  mortgage-backed  securities to
enhance both yield and cash flow.  In  addition,  at the  beginning of 2001,  we
adopted  FASB No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
Activities,"  and  made  the  decision  under  the  opinion  to  reclassify  all
securities  held to  maturity  to  available  for  sale.  This  reclassification
provided more flexibility in managing the investment portfolio,  particularly in
this low interest rate environment.

Deposits and Deposit Interest Expense

The Company  relies on deposits as its major  source of funds.  Deposits  funded
81.74%,  84.72% and 86.36% of total assets at December 31, 2002,  2001 and 2000,
respectively.  Total deposits were  $1,099,048,  $1,063,055 and $1,046,605 as of
December  31, 2002,  2001 and 2000,  respectively.  Deposit  growth for 2002 was
3.39%, an improvement over the 2001 growth of 1.57%.

Noninterest-bearing  deposits were  $147,565,  $145,690 and $131,718 at December
31, 2002, 2001 and 2000,  respectively,  and funded 10.98%, 11.61% and 10.87% of
total  assets at those  dates.  The average  balance for 2002 was up $9,273 over
2001  while  the  average  balance  for  2001 was up  2.11%  over  that of 2000.
Noninterest-bearing  accounts  grew  most  significantly  in the free  checking,
personal,  and over 65  accounts  in both  2002 and 2001.  In 2002,  we also saw
significant  increases in Prime Time accounts and Small Business accounts,  both
which were targeted in various  promotions.  In recognition of our shareholders'
on-going  support,  we made a special offer of free checking for life with their
participation in our dividend reinvestment plan in 2001.

                                       22

Average Interest-Bearing Deposits to Total Average Deposits

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
       86.10%    86.47%    86.32%    85.38%    85.83%

Interest-bearing  deposits at December 31, 2002,  2001,  and 2000 were $951,483,
$917,365 and $914,887, respectively. Growth for 2002 was 3.72%, primarily due to
public funds. Time deposits were down at December 31, 2002 approximately $10,000
to $550,457 compared to December 31,  2001. The balances in the "You Can't Lose"
time deposits were up $75,226 over balances at December 31, 2001. The "You Can't
Lose" deposit type, which allows the client one rate increase during the term of
the deposit, has been a popular product during last the two years.

In  2001,   growth   remained  flat  as  clients  looked  for  higher   yielding
alternatives.  As the federal funds rate dropped during the year,  rates paid on
all types of interest-bearing  transaction  accounts and time deposits followed.
By the end of 2001,  market  rates paid on these  accounts  ranged from 1.00% to
2.00% while time deposit  rates ranged from 1.85% to 4.00%.  Offsetting  the low
growth in deposits was a record year in annuity  sales in 2001 of  approximately
$14,600,  up from  approximately  $7,700 in 2000.  This product proved to be the
right  alternative  for many of our  clients  since  the stock  market  was in a
downturn and interest rates on deposit accounts had fallen significantly.

Interest-bearing   deposits  increased  9.05%  during  2000,   principally  from
certificates  of deposit.  During 2000, we offered a number of deposit  specials
that were  attractive  to our  client  base,  particularly  in  certificates  of
deposit.  This  offering was the result from the highly  competitive  market for
deposits.  Loan  demand  was high early in 2000,  fueling  the need for banks to
raise deposits to support loan growth.

Our average time deposit  balance as a percent of average total  deposits  moved
from  52.90% in 2000 to 54.48% in 2001.  While 2001  showed  improvement  in net
interest income; only a portion of the time deposits had been repriced.  Many of
those higher rate  specials  offered in 2000 had  one-year  terms or greater so,
while we began to get some relief in 2001,  there were still many time  deposits
that did not reprice  until late 2001 and early 2002.  The ratio of average time
deposits to average  total  deposits was 50.74% in 2002,  comparable to the 1999
level.

Interest expense for deposits was $24,034, $39,326, and $42,169, for 2002, 2001,
and 2000, respectively.  The cost of interest-bearing deposits was 2.53%, 4.27%,
and 4.74% for the same periods.

Borrowed Funds and Interest Expense on Borrowings

Advances  from the Federal Home Loan Bank  ("FHLB")  were  $86,308,  $41,145 and
$19,946 for the years ended  December  31,  2002,  2001 and 2000,  respectively.
Advances  from the FHLB were up 109.77% and 106.28% over the prior year balances
in 2002  and  2001,  respectively.  As  rates  fell to 50 year  lows in 2001 and
remained at those  levels  until  falling  another 50 basis  points in November,
2002, both consumer and commercial loan clients were  refinancing at lower rates
with extended maturities. In order to offset this interest rate risk, funds were
borrowed  from the Federal Home Loan Bank to  match-fund  those loans,  negating
interest  rate  exposure when rates rise.  Such  match-funded  loans are usually
large commercial or real estate loans. As discussed earlier,  the Company set up
an  arbitrage,  funding the  purchase of  mortgage-backed  securities  with FHLB
funds.  The total borrowed for the arbitrage was $30,000 with a weighted average
interest rate of 2.51%.  The weighted  average  maturity and rate of total funds
borrowed from the Federal Home Loan Bank in 2002,  2001,  and 2000 was 52 months
with an average cost of 3.09%, 63 months with an average cost of 3.88%,  and 216
months with an average cost of 7.64%, respectively.

The treasury tax and loan account balances for 2002, 2001, and 2000 were $5,498,
$6,181, and $4,603,  respectively.  The balance in this account is contingent on
the amount of funds we pledge as  collateral  as well as the  Federal  Reserve's
need for funds. Interest expense on total borrowings (inclusive of advances from
the Federal  Home Loan Bank and  treasury  tax and loan) was $2,491 in 2002,  up
from  $1,596 in 2001 due to  increased  borrowing  which  more than  offset  the
decline in interest rates.  Interest expense in 2001 was $1,596,  $367 less than
the expense  for 2000 due to both lower  rates and a 32.37%  decrease in average
borrowed funds.

Toward the end of 2002, more reliance was placed on borrowed funds.  The balance
in borrowed  funds for 2002,  including  the  treasury  tax and loan account and
loans from the  Federal  Home Loan Bank,  was up $44,480 or 93.99%.  The average
balances of borrowed funds were $59,563, $29,347 and $43,396 for 2002, 2001, and
2000,  respectively.  Interest  expense  was up from $1,596 in 2001 to $2,491 in
2002. The cost of those funds in 2002 was 4.18%, down from 5.44% in 2001.

                                       23

Provision for Loan Losses to Average Loans

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        .52%      .59%      .78%      .42%      .38%

The provision for loan losses was $4,350, $4,790, and $6,373 for 2002, 2001, and
2000, respectively.  Despite a recession during the year 2001 and a notable lack
of  recovery  in  2002,  loan  quality  improved  as both  net  charge-offs  and
non-performing  loans decreased first during 2001, and again during 2002. During
2002 and 2001, the most  significant  charge-offs were from real estate mortgage
loans,  which comprise  approximately  67% of our loan portfolio.  Consumer loan
charge-offs  improved  from the  prior  year  for both  2002 and 2001 due to the
curtailment of the Sales Finance Division.

During 2000, we experienced  deterioration in credit quality for both commercial
and mortgage  loans.  However,  the largest growth in net  charge-offs  was from
consumer loans, particularly in the sales finance loans.

Noninterest Income (Less Securities Gains/Losses) to Average Assets

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        2.09%     1.96%     1.55%     1.37%*    1.35%

* Ratio does not include the gain on the sale of the credit card portfolio.

In 2002,  there was much emphasis placed on our existing  client base.  While we
did not expand our market  territory,  we made changes aimed at  increasing  our
share of our  current  market.  Rather than  introduce  new  product  lines,  we
developed plans directed at selling our existing products,  with emphasis on our
seniors  and Prime Time Gold  programs  aimed at  attracting  the more  affluent
market. We conducted over fifty events throughout our market area for this group
in 2002. The events  included health fairs as well as programs on topics such as
fraud,  "street  smarts",  identity  theft,  estate  planning,  long-term  care,
Medicare  supplements,   wealth  management,  and  retirement  fundamentals.  In
addition,  we published and mailed a quarterly  newsletter  for both clients and
non-clients in this segment of our market. We have noted an increase in services
provided  and in new  clients as a result of these  programs.  We expect  future
growth from these programs over the next two to five years.

Total  noninterest  income includes fees generated from deposit  services,  loan
services,  insurance  products,  trust and other wealth management  products and
services, security gains, and all other non-interest income. We made significant
improvement  in  enhancing  our  noninterest  income  during both 2002 and 2001.
Noninterest  income for 2002 was $27,442,  up $3,053 over 2001 for a growth rate
of 12.52%.  Noninterest  income  for 2001  outpaced  2000 by $5,860,  or 31.63%.
Noninterest  income represented  25.92%,  21.75% and 17.16% of total revenue for
2002,  2001,  and 2000,  respectively.  During  both  2002 and 2001,  management
continued to work at the  implementation of our strategic plan,  particularly in
the services  offered and fees  assessed.  The  successful  completion of theses
initiatives has resulted in substantial growth for both years.

As an extension of our strategic plan, our franchises developed their own vision
and mission  statements,  and business  plans for achieving  their goals.  Those
plans include specific programs for fostering  additional client  relationships.
The  execution of this program has resulted in greater sales not only in service
charge revenue, but also other fees as well.

                                       24

In 2002, fees generated from deposit services  increased  $1,299,  or 8.74% over
2001. The additional income generated was derived primarily from service charges
on deposit  accounts  (including  overdraft  fees),  fees earned from use of our
debit cards  inclusive  of  interchange  fees,  and fees  generated  through our
merchant business.  Only minor changes were made to the fee structure on deposit
account products during 2002.

For 2001, fees generated from deposit services  increased $2,252, or 17.86% over
2000. The  restructuring  of fees on selected  transaction  accounts and account
activity provided the growth.  Some  administrative  fees were assessed to cover
the cost of handling client accounts such as returned bank statements and return
items.

Fees earned from loan  services in 2002 were $700,  or 20.45%  greater than fees
earned in 2001. Fees associated with originating  loans were restructured at the
end of the  first  quarter  of 2002 in  order  to help  offset  operating  costs
associated with offering loan products.  The new fee structure is tiered both on
commercial and consumer loans and based on loan size.

In 2002, we added  origination  and closing fees on both commercial and consumer
loans. This fee is tiered, and the charge depends on the size of the credit. The
increase in fees  attributable  to the  restructured  fees and  additional  loan
volume was approximately $916. In addition,  the income in 2002 includes $139 in
a  prepayment  penalty on a loan that was funded  through the Federal  Home Loan
Bank. Finally,  income on the sale of mortgage loans remained strong in 2002 due
to both the  originating and  refinancing of  approximately  $77,000 in mortgage
loans.  While the gains on  mortgage  loans were up  moderately  over 2001,  the
amortization of mortgage  servicing rights was up $173, or 671.30% over 2001. We
recorded additional impairment of $159 during the fourth quarter of 2002 related
to prepayments on the mortgage loans being serviced by the Company.  In contrast
to the past,  most mortgage loans  originated are sold with servicing  released.
The Company,  however,  still services approximately $80,000 in loans originated
prior to 2002.

Fees earned from loan  services  for 2001 were $1,172,  or 52.04%,  greater than
2000.  Document  preparation  fees,  mortgage  loan  fees and  gains on sales of
mortgage  loans were the main  contributors  to the increase.  The mortgage loan
business  gained momentum  during 2001 as rates fell to  unprecedented  lows. In
2000, we experienced a decrease in fees generated from mortgage  originations of
approximately $198, primarily due to interest rates.

Income earned on insurance products increased $458 or 13.46%,  $1,406 or 70.45%,
and $1,651 or 478.01% in 2002, 2001, and 2000,  respectively.  We implemented an
insurance  integration  plan  in  2001  aimed  at  improving  our  cross-selling
performance  between the Bank and the insurance  company and continue to use and
refine that plan. A secondary  benefit  resulting  from  increased  sales is the
opportunity  to  improve  contingency  income.  Contingency  income  is a  bonus
received from the insurance  underwriters and is based both on commission income
and claims  experience on our clients  during the previous  year.  The change in
income  for  insurance  products  in  2002  includes  an  increase  of  $91  for
contingency income.

Our Financial Services division encompasses trust services, annuities and mutual
funds, and specialized  insurance products for business and estate secession.  A
manager  was  placed  over  this  division  in 2001 with the  responsibility  of
fostering growth through building client  relationships.  The team was assembled
at the end of 2002. In 2002,  the revenue  generated by this division  decreased
$96, or 6.14%.  Revenue from mutual fund and annuity sales decreased $234. Trust
revenue  was up $118 in 2002 over 2001,  offsetting  some of the  decrease  from
other products.  The increase in trust revenue was  attributable to new accounts
as well as an  additional  7.5 basis points  received on accounts from our money
manager.  The renegotiation of the rate received from our money manager occurred
mid-year.  Income for this division for 2001 was $95, or 6.47%, greater than the
prior year due to mutual fund and annuity sales.  Trust revenue in 2001 declined
$161,  or 15.73% from the previous  year.  The  reduction was due to the loss in
value of the trust assets under  management.  As the stock market declined,  the
value of the trust  accounts  decreased.  Fees charged by the Trust division are
based, in part, on the value of the assets in the trust accounts.

Cash surrender  value earned on bank owned life  insurance  ("BOLI") in 2002 was
$517  greater  than that  earned in 2001 due to the period that BOLI was held by
the Company.  We  purchased  $20,000 in BOLI in late May 2001 for the purpose of
offsetting the rising cost of health  insurance.  BOLI income earned in 2001 was
$707.

A death benefit of approximately  $200 was received during 2002 on a participant
in the Company's  deferred  compensation plan. Also, cash surrender value earned
on life insurance  purchased  through the Bank's deferred  compensation  plan in
2002 was  approximately  $40 less than  2001;  the income  recorded  in 2001 was
approximately $53 greater than that recorded in 2000. Both items discussed above
were classified as other income.

                                       25

Securities gains of $93 for 2002 resulted from $46,870 in security sales.  These
were  primarily  mortgage-backed  securities  that were sold to eliminate  those
securities with maturity concentrations or accelerated  prepayments.  Sales also
included   securities   in  the  agency,   obligation  of  state  and  political
subdivision, and other preferred stock sectors.

Securities gains of $94 for 2001 resulted from $18,620 in security sales.  These
securities  included odd lot  mortgage-backed  securities,  preferred stock, and
collateralized mortgage obligations.  The proceeds from these funds were used to
reinvest  in  other  mortgage-backed  securities  and to fund  bank  owned  life
insurance.

Noninterest Expense to Average Assets

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        3.86%     3.78%     3.55%     3.62%     3.68%

Total  noninterest  expense  includes  salaries  and  employee  benefits,   data
processing, net occupancy, equipment, and other noninterest expense. Noninterest
expense  was  $50,496,   $46,747,   and  $42,474  for  2002,   2001,  and  2000,
respectively.  Noninterest expense increased 8.02%,  10.06%, and 2.40% for 2002,
2001, and 2000, respectively.

Salaries  and employee  benefits  represent  58.22%,  56.62% and 53.37% of total
noninterest  expenses at December 31, 2002, 2001, and 2000,  respectively.  As a
percent of net interest-and  noninterest income,  salaries and employee benefits
were 37.06%, 37.16% and 35.51% for the years 2002, 2001, and 2000, respectively.
Salaries and employee benefits cost for 2002 increased $2,933 over 2001.

Salaries  for 2002  increased  $922,  or 5.05%,  over 2001 due to normal  annual
salary increases and staff additions.  The additions occurred in the two fastest
growing  markets of the Company,  Desoto and Lee  Counties,  and were  primarily
lending  staff to enhance the  Company's  loan  growth.  Incentive  cost in 2002
increased  $859,  or  48.76%,  over 2001 as a result of the  improvement  in the
Company's  performance.  Commission expense in 2002 was $234, or 37.50%, greater
than 2001 due to the additional  revenue generated through  insurance,  mortgage
and merchant sales. Our insurance  producers,  mortgage originators and merchant
representatives  are paid primarily on a commission  basis. In addition,  health
and life insurance cost was $701, or 36.95%,  greater than 2001. The increase in
health and life  insurance  is due to the rising  cost of  insurance  as well as
increased  claims filed for 2002.  Retirement plan cost in 2002 was $201 greater
than 2001 due to the increase in the Company's match for the 401(k) plan as well
as cost associated with the defined contribution plan.

For 2001,  salaries and employee  benefits were up $3,799,  or 16.76% over 2000.
Regular   salaries  and  insurance   commissions  were  up  6.12%  and  119.70%,
respectively  in 2001.  The size of both  increases  is due  primarily to normal
salary increases, the timing of adding insurance agencies and the opening of new
banking  facilities during 2000.  Employee overtime continued to drop from prior
year levels,  offsetting a part of the increase.  The most significant change in
salaries and  benefits  came from the  incentive  plan,  up $1,764,  and related
employment taxes.  There was no incentive  expense for 2000.  Increases in other
costs including health insurance,  pension,  post retirement benefits,  and ESOP
funding contributed to the growth.

Data processing cost for 2002 was up $263, or 7.52%,  over 2001. The increase is
attributable  to volume for our merchant  business as well as services  with our
core service  provider.  The upgrade of our deposit  platform  system  increased
cost, as did the implementation of a new consumer internet banking platform.  In
addition,  a new loan platform  system will be installed in the first quarter of
2003.

In 2001, data processing  expenses  increased 9.97%, or $317, over 2000.  During
2001,  we installed a teller  platform  system  purchased  from our core service
provider,  Metavante.  While costs related to the use of this system  increased,
other costs  decreased  such as other losses and  charge-offs  as cash and fraud
losses dissipated.

Occupancy  expense  in 2002 was down $62 from 2001 due  largely to the sale of a
building in January,  2002.  Occupancy expense in 2001 was up a modest 1.77%, or
$55, over 2000. This change was due to an increase in depreciation for buildings
and  furniture,  janitorial  costs,  and  utilities.  These costs were partially
offset by decreases in rent expense and building  supplies,  and the recognition
of a loss on the sale of a building during 2001.

                                       26

Computer and equipment  expenses have  increased  $146,  $151, and $765 over the
prior year  expense  for the years 2002,  2001,  and 2000,  respectively.  These
increases  resulted from  computer and software  depreciation,  maintenance  and
support fees. We have made several  technological  enhancements  during 2002 and
2001 including the installation of a teller platform system,  and upgrading both
our deposit platform system and the credit-scoring module. We also upgraded data
storage to a robotic DVD device,  providing  near on-line  access to data (check
images), and purchased software to enhance read rates in item processing.  These
upgrades have enhanced productivity, reduced losses, and provided better service
for our  clients.  We have noted  improvement  in both cash short and losses and
charge-offs as a result of the teller platform and deposit platform systems.

We are in the process of implementing a new loan platform system,  which will be
operational in the first quarter of 2003. Additionally, information security has
been enhanced through software,  hardware,  and retention of services by experts
in that  field.  It has been,  and will  continue  to be, our  practice  to seek
technological  improvements,  to evaluate  the  benefits,  and to progress  with
implementation  of  systems  that are  deemed  beneficial  for our  clients  and
shareholders.  This  practice  is  directly  influenced  by our vision to be the
financial  services  advisor and provider of choice in the communities we serve.
As noted,  the increase in computer and  equipment  expense for 2002 and 2001 is
less  than the  increase  for 2000.  In 2000,  we  experienced  an  increase  in
depreciation  largely  attributable  to assets  purchased in December  1999. The
largest additions included the wide area network, document imaging software, and
credit  scoring  software.   Due  to  the  specifications  of  the  software,  a
significant investment was also made in microcomputers.

Other noninterest expense in 2002 was $469, up 4.43%, over 2001.  Increases were
noted in public  relations  due  largely  to  sponsorship  of a  hospice  house,
contribution  to Future Focus,  and the  publication  of a newsletter for senior
citizens. Telephone and data line cost increased due to enhancements made in our
call  center  and  upgrades  to either  256K data lines or T1 data lines at most
locations for enhanced efficiency. Other fees also increased due to fees paid to
consultants  based on revenue  enhancements  generated from  implementing  their
recommendations   and   fees   paid  to   information   technology   consultants
specificially  to  address  our  strategic   technology   plan,   infrastructure
(including network)  assessment,  and security.  Other insurance expense,  other
than building and auto,  increased  28.79% over 2001.  Decreases in 2002 include
OREO expense, down $195 due to impairment recorded in 2001 of $280, other losses
and charge offs down $96 from 2001, and intangible  amortization  down $325 from
2001 as a result of  compliance  with FASB  Statement  No. 142. The Company will
continue to amortize an  intangible  originating  from a purchase in  compliance
with FASB  Statement  No. 147.  All other  intangible  assets will be  evaluated
periodically for impairment based on the present value of future cash flows.

Remaining  relatively flat for 2001, other noninterest expense in 2001 decreased
..46%,  or $49,  over  2000.  Increases  recorded  included  the  recognition  of
impairment on other real estate owned, mortgage fees,  intangible  amortization,
postage  expense,  and title  insurance  cost.  These  increases  were offset by
reductions in travel, dues, fees, marketing, telephone, stationery and supplies.

Efficiency Ratio

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
       61.24%    62.71%    63.13%    63.82%    64.56%

Our efficiency ratio continues to improve from prior year levels.  This ratio is
a standard  performance  measurement tool which encompasses  tax-equivalent  net
interest income,  noninterest income (excluding  security gains) and noninterest
expense.  The increase in  tax-equivalent  net interest  income and  noninterest
income,   less  security   gains  continue  to  provide  the  catalyst  for  the
improvement.  Tax-equivalent  net interest  income has improved as the result of
proactive  pricing  decisions made by our Asset  Liability  Committee as well as
strategic  structuring of cash flow from investments and borrowed funds. We have
also benefited from being in the position of repricing  liabilities  faster than
assets in the rate environment we have been operating under.  Noninterest income
has  improved  due to our  offering  of new  products as well as  acquiring  new
clients.  As evidenced in our slogan  "more than a bank",  we have  expanded our
product  line from  traditional  banking  services  to a full line of  financial
services  including  insurance  products,  financial  planning,  investments and
fiduciary services. Noninterest expenses in 2002, while up 8.02% over 2001, were
more than offset by the  improvement in revenue.  While we emphasized  operating
expense control,  we also recognized that additional cost was necessary in order
to expand our product line and improve our level of service.  As the  efficiency
ratios above show,  the  additional  cost  incurred by the Company over the last
five years was more than offset by the additional revenue generated.

                                       27

Income tax expense for 2002,  2001,  and 2000 was  $6,819,  $5,109,  and $3,800,
respectively.  The effective tax rates for those years were 27.85%,  25.94%, and
25.36%.  During the last  three  years,  we  continued  to invest in  tax-exempt
securities,  and tax-free leases and loans. The average tax-exempt securities as
a percentage of the investment portfolio increased from 31.49% in 2000 to 32.61%
in 2001, and then decreased to 28.43% in 2002. In 2002, we recorded a nontaxable
death benefit from life insurance.  In 2001, we purchased  $20,000 in bank owned
life  insurance.  This  purchase  resulted  in  recording  $1,224  and  $707  in
tax-exempt income for 2002 and 2001, respectively.

Risk Management

The management of risk is an on-going process. Primary 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 counter-party default. 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.   We  try  to  maintain
diversification  within our loan  portfolio  in order to minimize  the effect of
economic conditions within a particular industry.

The  allowance  for loan losses is available to absorb  probable  credit  losses
inherent 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
collective  impairment as recognized under FASB Statement No. 5, "Accounting for
Contingencies".  The collective  impairment is calculated based on loans grouped
by grade.  Another  component of the  allowance  is 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  under FASB Statement No. 114
and their related allowance is included in management's  estimation and analysis
of the allowance  for loan losses.  Other  considerations  in  establishing  the
allowance for loan losses include economic conditions  reflected within industry
segments,  unemployment rate in our market,  loan  segmentation,  and historical
losses  that are  inherent in the loan  portfolio.  If the  allowance  is deemed
inadequate,  management  provides  additional reserves through the provision for
loan losses.  The  allowance for loan losses was $12,203 and $11,354 at December
31, 2002 and 2001, respectively.

Allowance for Loan Losses to Loans

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        1.41%     1.37%     1.29%     1.26%     1.34%

The net  charge-offs  for 2002 and 2001 were  $3,501 and  $3,972,  respectively.
Below is a chart showing net  charge-offs as a percent of total net  charge-offs
by  each  category.  Charge-offs  and  recovery  amounts  by loan  category  are
presented on page 30.

Net charge-offs                           2002        2001       2000       1999       1998
- ---------------                         --------    --------   --------   --------  --------
                                                                      
Commercial, financial, agricultural ...   26.96%      22.96%     36.25%     25.17%    14.06%
Lease financing .......................    --          --         --         --        --
Real estate-construction ..............    2.60        1.46       0.56       1.18      1.11
Real estate-mortgage ..................   49.87       42.17      27.92       6.36      8.65
Installment loans to individuals ......   20.57       33.41      35.27      67.29     76.18
                                        --------    --------   --------   --------  --------
   Total net charge-offs ..............  100.00%     100.00%    100.00%    100.00%   100.00%
                                        ========    ========   ========   ========  ========

                                       28

Higher credit  standards  resulted in lower net charge-offs for 2002 of $471, or
11.86% from 2001. For 2002, the most  significant  change in net charge-offs was
in the consumer loan sector,  which  decreased  $607, or 36.17% from 2001.  This
improvement  was  primarily  due to the sales  finance  loans that  continued to
decrease;  losses  in sales  finance  loans  decreased  43.08%  from  2001.  Net
charge-offs  in real  estate-mortgage  loans  in 2002  were  up $71,  or  1.76%,
primarily due to the increased loan volume in that sector of $41,238,  or 7.73%.
Net  charge-offs  for  commercial,  financial and  agricultural  and real estate
construction  loans were  relatively  unchanged from 2001.  Loan losses for 2001
were significantly below 2000,  dropping 32.62%, or $1,923.  Commercial loan and
consumer loan net  charge-offs  decreased  57.32% and 36.17%,  respectively,  in
2001.  The majority of the consumer loans charged off in both 2001 and 2000 were
in used  automobiles  and sales finance loans.  Net charge-offs for 2001 in real
estate  mortgage  and  real  estate-construction  loans  were in line  with  net
charge-offs  from those  categories  in 2000.  The  charge-offs  in real  estate
mortgage loans for both 2001 and 2000 consisted of older credits  comprised of 1
- - 4 family and nonfarm residential  properties.  These losses resulted from poor
underwriting. During 2001, we enhanced our underwriting criteria by implementing
higher credit standards,  by evaluating loan officer credit limits,  and by more
closely evaluating real estate appraisals. Management continues to monitor loans
and utilize diligent collection efforts.

Net Charge-offs to Average Loans

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        .42%      .49%      .72%      .38%      .30%

Nonperforming  loans are those on which the accrual of  interest  has stopped or
the loans are 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.

During  2002,  we  continued  to refine  the  credit  scoring  process  that was
implemented  in  1999.  Toward  the  end of the  year,  formalized  underwriting
standards for small business loans were implemented.  The credit scoring is used
as a tool for evaluating credit risk and is proving itself as an effective tool.
Management  has  recognized  the  improvement in loan quality as loans are being
scored.

We have a number of documented  loan policies and procedures  that set forth the
approval  and  monitoring  process of the lending  function.  Adherence to these
policies and procedures is mandated by management and the Board of Directors.

The  Company  operates a number of  committees  and an  underwriting  staff that
oversee the lending  operation.  Those include in-house loan and loss management
committees,  and a Board of Directors loan committee. In addition, we maintain a
loan review staff.

The  underwriters  review and score loan  requests  that are made by our lending
staff.  In compliance  with policy,  the lending  staff is given lending  limits
based on their knowledge and  experience.  In addition,  each lending  officer's
prior  performance  is evaluated for credit quality and compliance as a tool for
establishing and enhancing lending limits.

Before  funds are  advanced,  loans are scored by the  underwriters.  Grades are
assigned based on the scoring of the loans that are funded.  This information is
used to assist  management in monitoring  the credit  quality.  Loan requests of
amounts  greater than the officers'  lending  limits are reviewed by an in-house
loan committee.  This committee is comprised of executive management.  Decisions
on funding loan  requests are made or declined at this level  provided  they are
within approved  lending limits.  Loan requests that exceed this group's lending
authority are submitted to a loan committee comprised of members of the Board of
Directors.

The allowance for loan losses is established  after input from management,  loan
review, and the Loss Management Committee.  An evaluation of the adequacy of the
allowance  is based on the types of loans,  the  credit  risk in the  portfolio,
economic conditions and trends within each of these factors. The Loss Management
Committee  monitors  loans that are past due or those that have been  downgraded
due to a decline in the collateral value or cash flow of the debtor.

                                       29

Foreclosure  proceedings are initiated after all collection  efforts have failed
and the sale of the collateral has resulted in a deficiency balance.  Loans that
have a deficiency balance are sent to the loan committee  comprised of the Board
of Directors for charge-off approval. These charge-offs reduce the allowance for
loan losses.

All loans are classified into grades by lending personnel. These grades are used
in the  calculation  for the adequacy of the  allowance  for loan  losses.  Loan
grades  range  between 1 and 9, with 1 being loans with the least  credit  risk.
Allowance  factors  established  by  management  are  applied  to each  grade to
determine  the amount  needed in the  allowance  for loan  losses.  Loan  review
personnel monitor the grades assigned to loans through periodic examination. The
allowance  factors are established  based on our loss  experience,  adjusted for
trends and  expectations  about losses inherent in our existing  portfolios,  as
well as regulatory  guidelines  for  criticized  loans.  For impaired  loans,  a
specific  reserve is established to adjust the carrying value of the loan to its
fair value.

The adequacy of the  allowance for loan losses is  calculated  quarterly.  These
calculations  are reviewed by management and the internal loan review staff.  If
the  allowance is deemed  inadequate,  management  increases  the allowance by a
charge to the provision for loan losses.

On a monthly basis,  management  and the Board of Directors  review loan ratios.
These ratios include the loan to deposit ratio, the allowance for loan losses as
a percentage of total loans,  net  charge-offs as a percentage of average loans,
the provision for loan losses as a percentage  of average  loans,  nonperforming
loans  as  a  percentage  of  total  loans,   and  the  allowance   coverage  on
nonperforming loans. In addition, management reviews past due ratios by officer,
community bank, and Company.

Non-Accrual, Past Due and Restructured Loans to Loans

        2002      2001      2000      1999      1998
       ------    ------    ------    ------    ------
        .42%      .77%      .87%      1.01%     .53%

Summary of Loan Loss Experience
(In Thousands)

The table below  reflects the activity in the  allowance for loan losses for the
years ended December 31:

                                            2002            2001            2000           1999           1998
                                       ------------    ------------    ------------   ------------   ------------
                                                                                         
Balance at beginning of year .........    $ 11,354        $ 10,536        $ 10,058       $  9,742       $  9,221

Provision for loan losses ............       4,350           4,790           6,373          3,192          2,591

Charge-offs
     Commercial, financial,
          agricultural ...............       1,025             951           2,237            882            433
     Lease financing .................        --              --              --             --             --
     Real estate-construction ........         142              59              37             41             34
     Real estate-mortgage ............       1,972           1,719           1,746            223            267
     Installment loans to individuals.       1,028           1,574           2,338          2,288          1,803
                                       ------------    ------------    ------------   ------------    ------------
Total charge-offs ....................       4,167           4,303           6,358          3,434          2,537

Recoveries
     Commercial, financial,
           agricultural ..............          81              39             100            158            142
     Lease financing .................        --              --              --             --             --
     Real estate-construction ........          51               1               4              7             11
     Real estate-mortgage ............         226              44             100             40             88
     Installment loans to individuals.         308             247             259            353            226
                                       ------------    ------------    ------------   ------------    ------------
Total recoveries .....................         666             331             463            558            467
                                       ------------    ------------    ------------   ------------    ------------
     Net charge-offs .................       3,501           3,972           5,895          2,876          2,070
                                       ------------    ------------    ------------   ------------    ------------
Balance at end of year ...............    $ 12,203        $ 11,354        $ 10,536       $ 10,058       $  9,742
                                       ============    ============    ============   ============    ============

                                       30

The following  table  presents in thousands the  allocation of the allowance for
loan losses by loan  category  at  December 31 for each of the years  presented.
There is a  significant  difference  in the reserve  allocated  for  commercial,
financial,  agricultural and for real estate-mortgage for 2002 compared to prior
years.  In prior years,  the reserve was allocated  based on our internal "watch
list" and was classified based on the business purpose of the loan. In 2002, the
reserve was allocated based on FDIC Call Report classifications, consistent with
the grouping of loans presented in this report.

                                            2002        2001        2000        1999        1998
                                         ---------   ---------   ---------   ---------   ---------
                                                                           
Commercial, financial, agricultural ...   $ 2,724     $ 6,838     $ 6,470     $ 7,170     $ 6,852
Lease financing .......................       279         330         371         349         247
Real estate - construction ............       343        --          --          --          --
Real estate - mortgage ................     7,603       1,704       1,246         195         283
Installment loans to individuals ......     1,055       2,346       2,238       1,982       1,933
Unallocated ...........................       199         136         211         362         427
                                         ---------   ---------   ---------   ---------   ---------
Total .................................   $12,203     $11,354     $10,536     $10,058     $ 9,742
                                         =========   =========   =========   =========   =========

Loans by Category to Total Loans

The following  table  presents the  percentage of loans,  by category,  to total
loans at December 31 for each of the years presented:

                                             2002          2001          2000          1999          1998
                                         -----------   -----------   -----------   -----------   -----------
                                                                                  
Commercial, financial, agricultural ...      16.15%        16.73%        17.67%        17.31%        16.99%
Lease financing .......................       1.78          1.99          2.27          2.19          1.70
Real estate - construction ............       4.30          3.69          3.15          4.68          3.62
Real estate - mortgage ................      66.54         64.42         61.46         57.61         55.59
Installment loans to individuals ......      11.23         13.17         15.45         18.21         22.10
                                         -----------   -----------   -----------   -----------   -----------
Total .................................     100.00%       100.00%       100.00%       100.00%       100.00%
                                         ===========   ===========   ===========   ===========   ===========

Loan Loss Analysis
(In Thousands)                               2002          2001          2000          1999          1998
                                         -----------   -----------   -----------   -----------   -----------
Loans-average .........................  $  837,106    $  816,658    $  816,588    $  765,199    $  681,563
Loans-year end ........................     863,308       827,696       815,854       799,085       729,156
Net charge-offs .......................       3,501         3,972         5,895         2,876         2,070
Allowance for loan losses .............      12,203        11,354        10,536        10,058         9,742

Loan Ratios
                                             2002          2001          2000          1999          1998
                                         -----------   -----------   -----------   -----------   -----------
Net Charge-offs to:
  Loans-average .......................        .42%          .49%          .72%          .38%          .30%
  Allowance for loan losses ...........      28.69%        34.98%        55.95%        28.59%        21.25%

Allowance for loan losses to:
  Loans-year end ......................       1.41%         1.37%         1.29%         1.26%         1.34%
  Non-performing loans ................     338.22%       178.63%       147.89%       126.47%       261.95%

Non-performing loans to:
  Loans-year end ......................        .42%          .77%          .87%         1.00%          .51%
  Loans-average .......................        .43%          .78%          .87%         1.04%          .55%

                                       31

The following table shows the principal  amounts of non-accrual and restructured
loans at December 31:

                                             2002          2001          2000          1999          1998
                                         -----------   -----------   -----------   -----------   -----------
                                                                                   
Nonperforming loans:
  Nonaccruing ........................    $   1,417     $     614     $   1,209     $     136     $     204
  Accruing loans past due 90 days or
    more .............................        2,191         5,742         5,915         7,817         3,515
                                         -----------   -----------   -----------   -----------   -----------
Total nonperforming loans ............        3,608         6,356         7,124         7,953         3,719

Restructured loans ...................         --            --            --             146           178
                                         -----------   -----------   -----------   -----------   -----------
Total ................................    $   3,608     $   6,356     $   7,124     $   8,099     $   3,897
                                         ===========   ===========   ===========   ===========   ===========

Management,  the Loss  Management  Committee,  and our loan review staff closely
monitor  loans  that  are  considered  to  be  nonperforming.   When  evaluating
nonaccrual and  restructured  loans, the interest income foregone and recognized
from 1998 through 2002 was not significant.

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  reduction in interest rates, or deferral of interest or
principal payments.

Real estate acquired through the satisfaction of loan  indebtedness  ("OREO") 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.  OREO increased
to $3,180 at December  31, 2002,  up from $2,886 at December 31, 2001.  Proceeds
from sales of OREO for 2002 were $3,440,  with losses of $36. We acquired $3,796
in OREO during 2002 and sold $2,056 for a turnover  rate of 54.16%.  We incurred
$16 in losses on the property both  purchased and sold in 2002.  OREO  increased
$610 in 2001  over the 2000  level.  Proceeds  from  sales of OREO for 2001 were
$2,402,  with gains of $47.  We  acquired  $3,184 in OREO  during  2001 and sold
$1,289, or 40.49%, of the ORE acquired in 2001.

Interest Rate Risk

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
our ability to react to changes in interest rates.  Therefore, we are constantly
monitoring our rate sensitivity.

We have an Asset/Liability  Committee ("ALCO"),  which is duly authorized by the
Board of Directors to monitor our  position  and to make  decisions  relating to
that process. The ALCO's goal is to maximize net interest income while providing
us 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.
Our market risk arises primarily from interest rate risk inherent in lending and
deposit-taking activities. To that end, management actively monitors and manages
our interest rate risk exposure.

Profitability  is  affected by  fluctuations  in  interest  rates.  A sudden and
substantial  change in interest rates may adversely  impact our earnings because
the  interest  rates borne by assets and  liabilities  do not change at the same
speed,  to the same  extent,  or on the same  basis.  We  monitor  the impact of
changes in interest rates on our net interest  income using several  tools.  One
measure of our exposure to differential changes in interest rates between assets
and  liabilities  is shown in the Maturity and Rate  Sensitivity  Analysis ("GAP
Analysis").  Another test  measures  the impact on net  interest  income and net
portfolio  value ("NPV") of an immediate  change in interest  rates in 100 basis
point  increments.   NPV  is  defined  as  the  net  present  value  of  assets,
liabilities, and off-balance sheet contracts.

                                       32

Following is the estimated impact of immediate  changes in interest rates at the
specified levels at December 31:

                                           Percentage Change In:
                             -------------------------------------------------
Change in Interest Rates     Net Interest Income (1)    Net Portfolio Value(2)
   (In Basis Points)           2002         2001           2002         2001
- ---------------------------  --------     --------       --------     --------
           +200 ...........      .2%         2.3%          (8.4%)        2.0%
           +100 ...........      .2%         1.2%          (4.3%)        1.3%
           -100 ...........     (.4%)       (1.9%)          4.3%        (2.8%)
           -200 ...........    (5.5%)       (6.7%)          5.5%       (11.3%)

(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  our  NPV in a  stable
     interest rate environment versus the NPV in the various rate scenarios.

Our primary  objective in managing interest rate risk is to minimize the adverse
impact of changes in interest  rates on net interest  income and capital,  while
structuring  our  asset-liability  composition to obtain the maximum  yield-cost
spread. We rely primarily on our asset-liability  strategies to control interest
rate risk.  The results of the interest  rate shock are within the limits set by
the Board of Directors.

We continually evaluate interest rate risk management  opportunities,  including
the possible use of derivative financial  instruments.  At December 31, 2002, we
had not entered into any derivative contracts or hedging instruments.

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 in cases where market  conditions  vary from  assumptions
used in the calculation of net interest income and the NPV.

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 66% of our time deposits
are composed of accounts  with  balances  less than $100.  When  evaluating  the
movement of these funds, even during large interest rate changes, it is apparent
that we continue to attract  deposits  that can be used to meet cash flow needs.
Another source  available for meeting our liquidity  needs is available for sale
securities.  The available for sale  portfolio is composed of securities  with a
readily  available  market  that can be  converted  to cash if the need  arises.
During 2002, the most significant  purchase of investment  securities was in the
mortgage-backed  sector.  These  securities  provide a monthly cash flow of both
principal and interest.  We used this structure in order to provide liquidity to
fund  future loan growth as the economy  improves.  In  addition,  we maintain 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  substantial  sources of liquidity.
Approximately  58.69% of our loans  mature or  reprice  within  the next  twelve
months.

                                       33

Capital Resources

Total shareholders'  equity of the Company was $132,778 and $123,582 at December
31, 2002 and 2001,  respectively.  Shareholders'  equity  increased 7.44% during
2002,  and  1.58%  during  2001.  The  growth  in  capital  for both  years  was
attributable  to  earnings  and  unrealized  securities  gains,  less  dividends
declared and treasury shares purchased. Approximately 130,000 and 352,000 shares
of stock were purchased during 2002 and 2001, respectively, for a total purchase
price  of  $4,700  and  $9,168,   respectively.   During   2000,   we  purchased
approximately  218,000 shares of stock and issued approximately 71,000 shares in
an  acquisition.  In addition,  the change in the net unrealized  gain (loss) on
securities available for sale increased capital in 2002 by $3,272 and in 2001 by
$2,202.  Shareholders'  equity as a percentage  of assets was 9.88% and 9.85% at
December 31, 2002 and 2001, 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 classifications:

                                       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

Tier 1 Leverage  ratios  were 9.28 % and 9.20% at  December  31,  2002 and 2001,
respectively, meeting the guidelines for a well-capitalized company. At December
31,  2002,  the total Tier 1 and total  risk-based  capital  were  $120,719  and
$131,734,  respectively.  Tier 1 and total  risk-based  capital at December  31,
2001, were $113,106 and $123,646, respectively.

Cash dividends have increased fifteen  consecutive years (see selected financial
data on page 15 for the previous  five  years).  Book value per share was $23.82
and $21.66 at December 31, 2002 and 2001, respectively.  The increase in capital
for both years,  excluding the effect of the net  unrealized  gain on securities
available for sale, was  internally  generated due to a retention of earnings of
64.41% and 61.48% during 2002 and 2001, respectively.

SEC Form 10-K

A COPY OF THIS  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: JAMES W. GRAY,  EXECUTIVE VICE  PRESIDENT,  THE PEOPLES BANK & TRUST
COMPANY, P. O. BOX 709, TUPELO, MS 38802-0709.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information  appearing  under the heading  "Interest Rate Risk" in Item 7 of
this Annual Report on Form 10-K is incorporated herein by reference.

                                       34

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated financial statements of the Company meeting the requirements of
Regulation  S-X are  included on the  succeeding  pages of this Item.  All other
schedules have been omitted because they are not required or are not applicable.

                   THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2002, 2001, and 2000

                                    CONTENTS

                                                              Page
                                                              ----
Report of Independent Auditors ............................... 36
Consolidated Balance Sheets .................................. 37
Consolidated Statements of Income ............................ 38
Consolidated Statements of Changes in Shareholders' Equity ... 39
Consolidated Statements of Cash Flows ........................ 40
Notes to Consolidated Financial Statements ................... 41

                                       35

                         Report of Independent Auditors

Board of Directors and Shareholders
The Peoples Holding Company
Tupelo, Mississippi

We have  audited the  accompanying  consolidated  balance  sheets of The Peoples
Holding Company and subsidiary as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  2002.  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 auditing standards generally accepted
in the United States. 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,  2002  and  2001,  and  the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.

As discussed in Note Q to the  consolidated  financial  statements,  the Company
adopted Statement of Financial  Accounting Standards No. 142, Goodwill and Other
Intangible Assets, in 2002.

                                             /s/ Ernst & Young LLP

Memphis, Tennessee
January 21, 2003

                                       36

                                                  The Peoples Holding Company
                                                  Consolidated Balance Sheets
                                               (In Thousands, Except Share Data)

                                                                         December 31
                                                                 ---------------------------
                                                                     2002           2001
                                                                 ------------   ------------
                                                                          
Assets
    Cash and due from banks .................................... $    46,422    $    41,475
    Federal funds sold .........................................        --            7,000
    Interest-bearing balances with banks .......................      12,319         22,937
                                                                 ------------   ------------
                                       Cash and cash equivalents      58,741         71,412

    Securities available for sale ..............................     344,781        277,293

    Loans, net of unearned income ..............................     863,308        827,696
        Allowance for loan losses ..............................     (12,203)       (11,354)
                                                                 ------------   ------------
                                                       Net loans     851,105        816,342

    Premises and equipment, net ................................      29,289         28,346
    Other assets ...............................................      60,596         61,334
                                                                 ------------   ------------
                                                    Total assets $ 1,344,512    $ 1,254,727
                                                                 ============   ============
Liabilities and shareholders' equity
 Liabilities
    Deposits
        Noninterest-bearing .................................... $   147,565    $   145,690
        Interest-bearing .......................................     951,483        917,365
                                                                 ------------   ------------
                                                  Total deposits   1,099,048      1,063,055

   Treasury tax and loan note account ..........................       5,498          6,181
   Advances from the Federal Home Loan Bank ....................      86,308         41,145
   Other liabilities ...........................................      20,880         20,764
                                                                 ------------   ------------
                                               Total liabilities   1,211,734      1,131,145

 Shareholders' equity
   Common stock, $5 par value - 15,000,000 shares authorized,
        6,212,284 issued; 5,574,733 and 5,704,680 outstanding
        at December 31, 2002 and 2001, respectively.............      31,061         31,061
   Treasury stock, at cost .....................................     (17,556)       (12,856)
   Additional paid-in capital ..................................      39,930         39,850
   Retained earnings ...........................................      73,935         63,391
   Accumulated other comprehensive income ......................       5,408          2,136
                                                                 ------------   ------------
                                      Total shareholders' equity     132,778        123,582
                                                                 ------------   ------------
                      Total liabilities and shareholders' equity $ 1,344,512    $ 1,254,727
                                                                 ============   ============

See notes to consolidated financial statements.

                                       37

                               The Peoples Holding Company
                            Consolidated Statements of Income
                            (In Thousands, Except Share Data)

                                                      Year ended December 31
                                               ------------------------------------
                                                  2002         2001         2000
                                               ----------   ----------   ----------
                                                                
Interest income
   Loans ..................................... $  61,379    $  70,587    $  72,919
   Securities:
      Taxable ................................    12,263       11,582       11,671
      Tax-exempt .............................     4,444        4,724        4,385
   Other  ....................................       332          873          459
                                               ----------   ----------   ----------
                        Total interest income     78,418       87,766       89,434
Interest expense
   Deposits ..................................    24,034       39,326       42,169
   Borrowings ................................     2,491        1,596        1,963
                                               ----------   ----------   ----------
                       Total interest expense     26,525       40,922       44,132
                                               ----------   ----------   ----------
Net interest income ..........................    51,893       46,844       45,302
Provision for loan losses ....................     4,350        4,790        6,373
                                               ----------   ----------   ----------
                 Net interest income after
                    provision for loan losses     47,543       42,054       38,929
Noninterest income
   Service charges on deposit accounts .......    12,578       11,616        9,722
   Fees and commissions ......................     9,070        7,679        5,209
   Trust revenue .............................       981          863        1,024
   Securities gains ..........................        93           94         --
   BOLI income ...............................     1,224          707         --
   Merchant discounts ........................     1,275        1,183        1,084
   Other .....................................     2,221        2,247        1,490
                                               ----------   ----------   ----------
                     Total noninterest income     27,442       24,389       18,529
                                               ----------   ----------   ----------
Noninterest expense
   Salaries and employee benefits ............    29,400       26,467       22,668
   Data processing ...........................     3,761        3,498        3,181
   Net occupancy .............................     3,107        3,169        3,114
   Equipment .................................     3,180        3,034        2,883
   Other .....................................    11,048       10,579       10,628
                                               ----------   ----------   ----------
                    Total noninterest expense     50,496       46,747       42,474
                                               ----------   ----------   ----------
Income before income taxes ...................    24,489       19,696       14,984
Income taxes .................................     6,819        5,109        3,800
                                               ----------   ----------   ----------
   Income before cumulative effect
       of accounting change ..................    17,670       14,587       11,184
Cumulative effect of accounting change .......    (1,300)        --           --
                                               ----------   ----------   ----------
Net income ................................... $  16,370    $  14,587    $  11,184
                                               ==========   ==========   ==========

Basic and diluted earnings per share:
   Income before cumulative effect
       of accounting change .................. $    3.15    $    2.48    $    1.83
   Cumulative effect of accounting change ....     (0.23)        --           --
                                               ----------   ----------   ----------
   Net income ................................ $    2.92    $    2.48    $    1.83
                                               ==========   ==========   ==========

Weighted average shares outstanding .......... 5,609,289    5,873,423    6,108,196
Weighted average shares outstanding-diluted .. 5,614,266    5,875,088    6,108,196

See notes to consolidated financial statements.

                                       38

                                           The Peoples Holding Company
                                 Consolidated Statements of Shareholders' Equity
                                        (In Thousands, Except Share Data)

                                                                                                          Accumulated
                                                     Common Stock                Additional                  Other
                                                ---------------------- Treasury    Paid-in    Retained   Comprehensive
                                                   Shares     Amount     Stock     Capital    Earnings   Income (Loss)     Total
                                                ----------- ---------- --------- ----------  ----------  -------------  ----------
                                                                                                    
Balance at December 31, 1999 ................... 6,204,784  $  31,061  $   (230) $   39,959  $  48,580     $  (3,281)   $  116,089
Comprehensive income:
Net income .....................................                                                11,184                      11,184
 Other comprehensive income:
  Unrealized holding gains on securities
   available  for sale (net of tax of $1,985) ..                                                               3,215         3,215
                                                                                             ----------  -------------  ----------
  Comprehensive income .........................                                                11,184         3,215        14,399
Cash dividends ($.88 per share) ................                                                (5,341)                     (5,341)
Common stock issued for acquisition ............    70,500                1,720         (28)                                 1,692
Treasury stock purchased .......................  (218,385)              (5,178)                                            (5,178)
                                                ----------- ---------- --------- ----------  ----------  -------------  ----------

Balance at December 31, 2000 ................... 6,056,899  $  31,061  $ (3,688) $   39,931  $  54,423     $     (66)   $  121,661
Comprehensive income:
Net income .....................................                                                14,587                      14,587
 Other comprehensive income:
  Unrealized holding gains on securities
   available  for sale (net of tax of $1,398) ..                                                               2,260         2,260
  Less reclassification adjustment for gains
   realized in net income (net of tax of ($36)).                                                                 (58)          (58)
                                                                                             ----------  -------------  ----------
  Comprehensive income .........................                                                14,587         2,202        16,789
Cash dividends ($.96 per share) ................                                                (5,619)                     (5,619)
Treasury stock purchased .......................  (352,219)              (9,168)        (81)                                (9,249)
                                                ----------- ---------- --------- ----------  ----------  -------------  ----------

Balance at December 31, 2001 ................... 5,704,680  $  31,061  $(12,856) $   39,850  $  63,391     $   2,136    $  123,582
Comprehensive income:
Net income .....................................                                                16,370                      16,370
 Other comprehensive income:
  Unrealized holding gains on securities
   available  for sale (net of tax of $2,062) ..                                                               3,329         3,329
  Less reclassification adjustment for gains
   realized in net income (net of tax of ($36)).                                                                 (57)          (57)
                                                                                             ----------  -------------  ----------
  Comprehensive income .........................                                                16,370         3,272        19,642
Cash dividends ($1.04 per share) ...............                                                (5,826)                     (5,826)
Stock option compensation ......................                                         80                                     80
Treasury stock purchased .......................  (129,947)              (4,700)                                            (4,700)
                                                ----------- ---------- --------- ----------  ----------  -------------  ----------

Balance at December 31, 2002 ................... 5,574,733  $  31,061  $(17,556) $   39,930  $  73,935     $   5,408    $  132,778
                                                =========== ========== ========= ==========  ==========  =============  ==========

See notes to consolidated financial statements.

                                       39

                                               The Peoples Holding Company
                                          Consolidated Statements of Cash Flows
                                                     (In Thousands)
                                                                         Year ended December 31
                                                                 --------------------------------------
                                                                    2002          2001          2000
                                                                 ----------    ----------    ----------
                                                                                     
Operating activities
 Net income ..................................................... $ 16,370      $ 14,587      $ 11,184
 Adjustments to reconcile net income to net
    cash provided by operating activities:
      Provision for loan losses .................................    4,350         4,790         6,373
      Net amortization of securities ............................    1,200           202           258
      Depreciation and amortization .............................    3,864         3,979         3,773
      Deferred income taxes .....................................      233          (866)          (64)
      Funding of loans held for sale ............................  (74,851)      (76,208)      (28,832)
      Proceeds from sales of mortgage loans .....................   75,605        76,917        29,078
      Gain on sales of interest-bearing assets ..................     (847)         (803)         (297)
      Loss (gain) on sales of premises and equipment ............       15            29           (93)
      Stock option compensation .................................       80          --            --
      Decrease (increase) in other assets .......................      757       (18,614)         (971)
      Increase (decrease) in other liabilities ..................      116         1,640        (1,250)
                                                                 ----------    ----------    ----------
                        Net cash provided by operating activities   26,892         5,653        19,159
Investing activities                                             ----------    ----------    ----------
 Purchases of securities available for sale ..................... (219,319)      (90,309)      (30,792)
 Proceeds from sales of securities available for sale ...........   46,870        18,620          --
 Proceeds from call/maturities of securities available for sale .  109,578        76,425        23,826
 Purchases of securities held to maturity .......................     --            --          (3,160)
 Proceeds from calls/maturities of securities held to maturity ..     --            --           3,317
 Net increase in loans ..........................................  (42,939)      (18,779)      (33,350)
 Proceeds from sales of loans ...................................     --            --           8,002
 Proceeds from sales of premises and equipment ..................      274            35           225
 Purchases of premises and equipment ............................   (3,974)       (1,409)       (4,171)
 Net cash paid in business combinations .........................     --            --            (518)
                                                                 ----------    ----------    ----------
                            Net cash used in investing activities (109,510)      (15,417)      (36,621)
Financing activities                                             ----------    ----------    ----------
 Net increase (decrease) in noninterest-bearing deposits ........    1,875        13,972        (8,297)
 Net increase in interest-bearing deposits ......................   34,118         2,478        75,944
 Net (decrease) increase in short-term borrowings ...............     (683)        1,578        (7,397)
 Proceeds from other borrowings .................................   56,248        26,672         2,554
 Repayment of other borrowings ..................................  (11,085)       (5,473)      (21,877)
 Purchase of treasury stock .....................................   (4,700)       (9,249)       (5,178)
 Cash dividends paid ............................................   (5,826)       (5,619)       (5,341)
                                                                 ----------    ----------    ----------
                        Net cash provided by financing activities   69,947        24,359        30,408
                                                                 ----------    ----------    ----------
        Net (decrease) increase in cash and cash equivalents ....  (12,671)       14,595        12,946
Cash and cash equivalents at beginning of year ..................   71,412        56,817        43,871
                                                                 ----------    ----------    ----------
                         Cash and cash equivalents at end of year $ 58,741      $ 71,412      $ 56,817
Supplemental disclosures:                                        ==========    ==========    ==========
   Cash paid for:
      Interest .................................................. $ 29,029      $ 43,457      $ 41,356
      Income taxes ..............................................    7,962         4,839         5,291
   Transfers of loans to other real estate ......................    3,826         2,965         2,735
   Transfers of premises and equipment to other assets ..........     --             310          --

See notes to consolidated financial statements.

                                       40

Note A - Significant Accounting Policies
(In Thousands)

Nature of  Operations:  The Peoples  Holding  Company the (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")  and  Peoples  Insurance  Agency,
subsidiary of the bank.

Principles of Consolidation:  The consolidated  financial statements include the
accounts  of  the  Company  and  its  wholly-owned  subsidiary,  the  Bank.  All
significant  intercompany  balances and transactions  have been eliminated.  The
Company carries its investment in subsidiary at its equity in the underlying net
assets.

Business Combinations:  Effective January 1, 2002, we adopted FASB Statement No.
141 which requires all business  combinations  to be accounted for as purchases.
Business  combinations are accounted for using the purchase method of accounting
that  reflects the net assets of the  companies  recorded at their fair value at
the date of acquisition.

Use of Estimates:  The  preparation of financial  statements in conformity  with
accounting   principles   generally  accepted  in  the  United  States  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.

Cash and Cash Equivalents:  The Company considers all highly liquid  investments
with a maturity of three months or less when purchased to be cash equivalents.

Securities:  Securities  are  classified as held to maturity  when  purchased if
management  has the  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  and  accretion  is included in  interest  income from  securities.
Dividend income is 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.

Loans:  Loans  that  management  has the  intent  and  ability  to hold  for the
foreseeable  future or until maturity or pay-off generally are reported at their
outstanding  unpaid principal  balances adjusted for charge-offs,  the allowance
for loan losses,  and any deferred fees or costs on originated  loans.  Interest
income  is  accrued  on the  unpaid  principal  balance.  Loan  origination  and
commitment fees are recognized in the period the loan or commitments are granted
to reflect  reimbursement of the related costs associated with originating those
loans and commitments.

Generally,  the  accrual  of  interest  on  mortgage  and  commercial  loans  is
discontinued  at the time the loan is 90 days  past due  unless  the  credit  is
well-secured  and in process of collection.  Consumer and other retail loans are
typically  charged off no later than 120 days past due. In all cases,  loans are
placed  on  nonaccrual  or  charged  off at an  earlier  date if  collection  of
principal or interest is considered doubtful.

All interest  accrued for the current year, but not collected for loans that are
placed on nonaccrual or charged off, is reversed against  interest  income.  The
interest on these loans is  accounted  for on the  cash-basis  or  cost-recovery
method,  until  qualifying for return to accrual.  Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.

Mortgage Loans Held for Sale: At December 31, 2002 and 2001, mortgage loans held
for sale  represented  residential  mortgage loans held for sale. Loans held for
sale are  carried  at the  lower  of  aggregate  cost or  market  value  and are
classified as loans on the balance sheet.

Allowance  for Loan Losses:  The  allowance  for loan losses is  established  as
losses are  estimated  to have  occurred  through a  provision  for loan  losses
charged to  earnings.  Loan  losses  are  charged  against  the  allowance  when
management  believes  the  uncollectibility  of a  loan  balance  is  confirmed.
Subsequent recoveries, if any, are credited to the allowance.

                                       41

Note A - Significant Accounting Policies (continued)

The  allowance for loan losses is  maintained  at a level  believed  adequate by
management  to  absorb  probable  losses  inherent  in the loan  portfolio.  The
allowance  for loan losses is  evaluated  based on a  continuing  assessment  of
problem loans, historical loss experience, new lending products, emerging credit
trends, changes in the size and character of loan categories,  and other factors
including its risk rating system,  regulatory guidance and economic  conditions.
This  evaluation is  inherently  subjective  as it requires  estimates  that are
susceptible to significant revision as more information becomes available.

A loan is considered  impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest  when due according to the  contractual  terms of the loan
agreement.  Impairment is measured on a  loan-by-loan  basis for  commercial and
construction  loans by either the present  value of  expected  future cash flows
discounted at the loan's effective  interest rate, the loan's  obtainable market
price, or the fair value of the collateral if the loan is collateral  dependent.
When the ultimate  collectibility  of an impaired loan's  principal is in doubt,
wholly or  partially,  all cash  receipts  are  applied to  principal.  Once the
recorded  balance has been reduced to zero,  future cash receipts are applied to
interest income, to the extent any interest has been foregone, and then they are
recorded as recoveries of any amounts  previously  charged off.  Large groups of
smaller balance homogeneous loans are evaluated collectively for impairment.

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 $3,180 and $2,886 at December 31, 2002
and 2001,  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.

Mortgage   Servicing   Rights:   The   Company    capitalizes    purchased   and
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 reported in other assets and  amortized in proportion to and over the
period of estimated net servicing income.  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. Mortgage servicing rights were $456
and $655 at December 31, 2002 and 2001,  respectively.  Impairment is recognized
as a reduction of noninterest income.

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.

Derivative Instruments and Hedging Activities:  The Company adopted Statement of
Financial  Accounting  Standards  ("FASB") No. 133,  "Accounting  for Derivative
Instruments and Hedging Activities," as amended by FASB No. 137 and FASB No. 138
in 2001. The Company did transfer all securities  classified as held to maturity
to available for sale as allowed upon adoption of FASB No. 133. The Company does
not currently engage in any activities that qualify as derivatives.

                                       42

Note A - Significant Accounting Policies (continued)

Treasury Stock: The Company has an active repurchase plan for the acquisition of
its common stock.  Treasury  stock is recorded at cost.  Shares held in treasury
are not retired.

Intangible  Assets:  Effective January 1, 2002 the Company adopted FASB No. 142.
As of that date,  goodwill is no longer amortized but is evaluated  annually for
impairment.  Intangibles  with infinite lives are amortized over their estimated
lives. Prior to adoption of FASB No. 142,  intangibles were being amortized over
a fifteen-year life.

Reclassification:  Certain prior year amounts have been  reclassified to conform
to the current year presentation.

Impact of Recently-Issued Accounting Standards:

In June 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
143,  "Accounting for Asset Retirement  Obligations"  ("SFAS 143").  SFAS 143 is
effective for financial  statements issued for fiscal years beginning after June
15, 2002. SFAS 143 addresses financial  accounting and reporting for obligations
associated with the retirement of tangible  long-lived assets and the associated
asset  retirement  costs.  The  Company  does not  expect the  adoption  of this
pronouncement  to  have a  material  impact  on its  results  of  operations  or
financial condition.

On January 1, 2002 the Company  adopted FASB Statement 144,  "Accounting for the
Impairment or Disposal of Long Lived Assets"  ("Statement  144").  Statement 144
supersedes  FASB  Statement  No.  121  ("Statement  121") and  provides a single
accounting  model for long-lived  assets to be disposed of.  Although  retaining
many of the fundamental recognition and measurement provisions of Statement 121,
the new rules  significantly  change the  criteria  that would have to be met to
classify an asset as held-for-sale.  Statement 144 also supersedes the provision
of Accounting  Principle  Board ("APB")  Opinion 30 with regard to reporting the
effects of a disposal of a segment of a business  and requires  expected  future
operating  losses from  discontinued  operations to be displayed in discontinued
operations in the period(s) in which the losses are incurred  (rather than as of
the measurement date as presently required by APB Opinion 30). In addition, more
dispositions  will qualify for discontinued  operations  treatment in the income
statement.  The adoption of Statement 144 did not have a material  impact on the
Company's financial condition or results of operations.

In April 2002, the FASB issued  Statement of Financial  Accounting  Standards No
145,  "Rescission  of FASB  Statements  No.  4, 44,  and 64,  Amendment  of FASB
Statement No. 13 and Technical  Corrections"  ("Statement  145").  Statement 145
rescinds  Statement 4, which required all gains and losses from  extinguishments
of debt to be aggregated and, if material,  classified as an extraordinary item,
net of related income tax effect. In addition, Statement 145 amends Statement 13
on  leasing to require  that  certain  lease  modifications  that have  economic
effects similar to  sale-leaseback  transactions to be accounted for in the same
manner as  sale-leaseback  transactions.  Provisions of Statement 145 related to
the rescission of Statement 4 are effective for financial  statements  issued by
the Company after January 1, 2003.  The  provisions of the statement  related to
sale-leaseback  transactions were effective for any transactions occurring after
May 15, 2002. All other provisions of the statement were effective as of the end
of the second  quarter of 2002.  The changes  required by Statement  145 did not
have a  material  impact of the  results of  operation,  financial  position  or
liquidity of the Company.

In July 2002, the FASB issued  Statement of Financial  Accounting  Standards No.
146,  "Accounting  for  Costs  Associated  with  Exit  or  Disposal  Activities"
("Statement   146").   Statement  146  requires  companies  to  recognize  costs
associated  with the exit or disposal of activities as they are incurred  rather
than at the date a plan of disposal or commitment to exit is initiated. Types of
costs  covered by  Statement  146 include  lease  termination  costs and certain
employee severance costs that are associated with a restructuring,  discontinued
operation,  facility closing, or other exit or disposal activity.  Statement 146
will apply to all exit or disposal activities initiated after December 31, 2002.
At this time,  the Company  does not expect the  adoption of the  provisions  of
Statement 146 to have a material impact on financial results.

                                       43

Note A - Significant Accounting Policies (continued)

In October 2002, the FASB issued Statement of Financial Accounting Standards No.
147,  "Acquisition  of  Certain  Financial   Institutions"   ("Statement  147").
Statement 147 amends the previous accounting guidance which required for certain
acquisitions  of  financial  institutions,   where  the  fair  market  value  of
liabilities  assumed was greater than the fair value of the tangible  assets and
identifiable intangible assets acquired, to recognize and account for the excess
as  an   unidentifiable   intangible   asset.   Under  the  old  guidance   this
unidentifiable  intangible asset was to be amortized over a period of no greater
than the life of the long-term interest bearing assets acquired. Under Statement
147 this excess, if acquired in a business combination, represents goodwill that
should be accounted for in accordance with Statement 142. In addition, Statement
147 amends Statement 144 to include in its scope long-term customer relationship
intangible  assets of  financial  institutions  such as  depositor  and borrower
relationship   intangible  assets  and  credit  cardholder   intangible  assets.
Consequently,  those intangible assets are subject to the same undiscounted cash
flow  recoverability  test  and  impairment  loss  recognition  and  measurement
provisions  that  Statement 144 requires.  The  provisions of Statement 147 were
effective  October 1, 2002.  The adoption of the provisions of Statement 147 did
not have a material impact on the Company's financial results.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's  Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of  Others  ("the   Interpretation").   The  Interpretation   will
significantly  change current practice in the accounting for, and disclosure of,
guarantees.  The  Interpretation  requires certain  guarantees to be recorded at
fair value,  which is  different  from current  practice,  which is generally to
record a liability  only when a loss is probable and  reasonably  estimable,  as
those  terms  are  defined  in  the  FASB   Statement  No.  5,   Accounting  for
Contingencies  ("Statement 5"). The Interpretation  also requires a guarantor to
make  significant  new  disclosures,  even when the  likelihood  of  making  any
payments  under the  guarantee is remote,  which is another  change from current
practice.  The Interpretation applies to public and non-public entities, and its
disclosure  requirements  are effective  for financial  statements of interim or
annual  periods ending after  December 15, 2002.  The  Interpretation's  initial
recognition and initial  measurement  provisions are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002,  irrespective of
the  guarantor's  fiscal  year-end.  The  guarantor's  previous  accounting  for
guarantees issued prior to the date of the Interpretation's  initial application
should not be revised or restated to reflect  the  Interpretation's  provisions.
The adoption of the  provisions  of the  Interpretation  did not have a material
impact on the Company's financial statements.

In December 2002, the FASB issued  Statement of Financial  Accounting  Standards
No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB  Statement  No. 123"  (Statement  148).  Statement  148 amends
Statement of Financial  Accounting Standards No. 123 "Accounting for Stock-Based
Compensation",  ("Statement 123") to provide  alternative  methods of accounting
for stock-based employee  compensation.  In addition,  this statement amends the
disclosure  requirements  of Statement 123 to require  prominent  disclosures in
both annual and interim financial  statements about the method of accounting for
stock-based  compensation and the effect of the method used on reported results.
The company expenses the cost of stock options as allowed under Statement 123.

In January 2003, the FASB issued  Interpretation  46,  Consolidation of Variable
Interest  Entities.  In general,  a variable  interest  entity is a corporation,
partnership, trust, or any other legal structure used for business purposes that
either (a) does not have equity  investors  with voting rights or (b) has equity
investors that do not provide sufficient  financial  resources for the entity to
support its activities. Interpretation 46 requires a variable interest entity to
be  consolidated  by a company if that  company is subject to a majority  of the
risk of loss from the  variable  interest  entity's  activities  or  entitled to
receive a majority of the entity's  residual returns or both. The  consolidation
requirements  of  Interpretation  46  apply  immediately  to  variable  interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period  beginning  after June
15,  2003.  Certain  of the  disclosure  requirements  apply  in  all  financial
statements  issued  after  January 31,  2003,  regardless  of when the  variable
interest  entity was  established.  The  Company  is  currently  evaluating  the
provisions  of the  Interpretation,  but believes  its adoption  will not have a
material impact on its financial statements.

                                       44

Note B - Business Combinations
(In Thousands)

Southern  Insurance  Group,  Inc.,  Southern  Insurance  of Corinth,  Inc.,  and
Southern Financial Services,  P.A.  (collectively,  "Southern") were acquired on
May 1, 2000,  by the  Company by issuing  70,500  shares of its stock  valued at
$1,692. The acquired companies were merged into the Bank's insurance subsidiary.
The  transaction  was accounted for as a purchase.  Southern offers property and
casualty insurance products,  life and health insurance,  and annuity and mutual
funds.

The Bank acquired  Dominion  Company on September 1, 2000 which offers  products
similar to Southern.  The Bank paid $450 in a cash  transaction  for the company
which was merged into the Bank's insurance subsidiary.

Note C - Securities
(In Thousands)

The amortized  cost and fair value of securities  available for sale at December
31, 2002, are as follows:

                                                             Securities Available For Sale
                                            ---------------------------------------------------------------
                                            Amortized    Gross Unrealized    Gross Unrealized
                                              Cost            Gains               Losses         Fair Value
                                            ---------    ----------------    ----------------    ----------
                                                                                     
U. S. Treasury securities ................. $    --          $  --             $   --            $     --
Obligations of other U. S.
   Government agencies and corporations ...    50,931          2,284               --                53,215
Mortgage-backed securities ................   176,003          3,515                (142)           179,376
Obligations of states and political
   subdivisions ...........................    92,464          3,792                 (72)            96,184
Trust preferred securities ................     6,792             49                  (2)             6,839
Other equity securities ...................     9,409           --                  (242)             9,167
                                            ---------    ----------------    ----------------    ----------
                                            $ 335,599        $ 9,640           $    (458)        $  344,781
                                            =========    ================    ================    ==========

The amortized  cost and fair value of securities  available for sale at December
31, 2001, are as follows:

                                                             Securities Available For Sale
                                            ---------------------------------------------------------------
                                            Amortized    Gross Unrealized    Gross Unrealized
                                              Cost            Gains               Losses         Fair Value
                                            ---------    ----------------    ----------------    ----------
                                                                                     
U. S. Treasury securities ................. $  15,019        $   251           $     --          $   15,270
Obligations of other U. S.
   Government agencies and corporations ...    51,010          1,759                 (28)            52,741
Mortgage-backed securities ................   112,626          1,270                (606)           113,290
Obligations of states and political
   subdivisions ...........................    84,709          1,411                (478)            85,642
Trust preferred securities ................      --             --                  --                --
Other equity securities ...................    10,471           --                  (121)            10,350
                                            ---------    ----------------    ----------------    ----------
                                            $ 273,835        $ 4,691           $  (1,233)        $  277,293
                                            =========    ================    ================    ==========

                                       45

Note C - Securities  (continued)

The  amortized  cost  and  fair  value  of  securities  available  for  sale  at
December 31, 2002, 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.

                                          Amortized          Fair
Securities Available for Sale                Cost            Value
                                         -----------      -----------
Due in one year or less ................. $  16,220        $  16,489
Due after one year through five years ...    56,133           59,232
Due after five years through ten years ..    53,604           55,670
Due after ten years .....................    17,438           18,008
Mortgage-backed securities ..............   176,003          179,376
Preferred stock .........................    16,201           16,006
                                         -----------      -----------
                                          $ 335,599        $ 344,781
                                         ===========      ===========

In  connection  with the  Company's  adoption of Statement No. 133 on January 1,
2001, all  held-to-maturity  securities  with a total  amortized cost of $85,658
were transferred to  available-for-sale.  The unrealized net gain at the date of
transfer was $323.  There were no sales of  held-to-maturity  securities  during
2000.

At  December  31,  2002  and  2001,   securities   with  an  amortized  cost  of
approximately  $163,500  and  $201,188,  respectively,  were  pledged  to secure
government, public, and trust deposits.

Note D - Loans and Allowance for Loan Losses
(In Thousands)

Loans are summarized as follows:                        December 31
                                               -----------------------------
                                                  2002               2001
                                               ----------         ----------
Commercial, financial, and agricultural ...... $ 139,497          $ 138,436
Lease financing ..............................    16,895             18,455
Real estate - construction ...................    37,141             30,564
Real estate - mortgage .......................   574,470            533,232
Installment loans to individuals .............    97,430            110,810
                                               ----------         ----------
Gross loans ..................................   865,433            831,497
Unearned income ..............................    (2,125)            (3,801)
                                               ----------         ----------
Loans, net of unearned income ................   863,308            827,696
Allowance for loan losses ....................   (12,203)           (11,354)
                                               ----------         ----------
Net loans .................................... $ 851,105          $ 816,342
                                               ==========         ==========

Included  in real  estate  mortgage  loans are  mortgage  loans held for sale of
$3,624 and $9,659 at December 31, 2002 and 2001, respectively.

                                       46

Note D - Loans and Allowance for Loan Losses  (continued)

Changes in the allowance for loan losses were as follows:

                                                    Year ended December 31
                                             ---------------------------------
                                               2002        2001        2000
                                             --------    --------    --------
Balance at beginning of year ............... $ 11,354    $ 10,536    $ 10,058
  Provision for loan losses ................    4,350       4,790       6,373
  Loans charged-off ........................   (4,167)     (4,303)     (6,358)
  Recoveries of loans
     previously charged-off.................      666         331         463
                                             --------    --------    --------
Balance at end of year ..................... $ 12,203    $ 11,354    $ 10,536
                                             ========    ========    ========

Impaired  loans  recognized in conformity  with SFAS No. 114, as amended by SFAS
No. 118, were as follows:

                                                        December 31
                                               -----------------------------
                                                  2002               2001
                                               ----------         ----------
Impaired loans with a related allowance for
   loan losses ...............................  $ 3,908            $ 3,297
Impaired loans without a specific allowance
   for loan losses ...........................     --                1,764
                                               ----------         ----------
Total impaired loans .........................  $ 3,908            $ 5,061
                                               ==========         ==========

Allowance specifically related to
   impaired loans ............................  $ 1,806            $ 1,087

                                                     Year ended December 31
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
Average recorded investment in impaired loans. $ 4,485     $ 4,613     $ 4,138

Interest income recognized using the accrual
    basis of income recognition .............. $   318     $   531     $   345

Interest income recognized using the
   cash-basis of income recognition .......... $  --       $  --       $   191

At  December  31,  2002 and 2001  nonaccrual  loans  totaled  $1,417  and  $614,
respectively.

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 $10,697 and $10,974 at December
31, 2002 and 2001, respectively.  During 2002, $5,019 of new loans were made and
payments received totaled $5,296.

                                       47

Note E - Premises and Equipment
(In Thousands)

Bank premises and equipment accounts are summarized as follows:

                                                   December 31
                                            ------------------------
                                               2002          2001
                                            ----------    ----------
Premises .................................. $  33,095     $  31,337
Leasehold improvements ....................       147           147
Furniture and equipment ...................    11,204         9,993
Computer equipment ........................     6,683         6,126
Auto ......................................       142           153
                                            ----------    ----------
   Total .................................. $  51,271     $  47,756
Accumulated depreciation ..................   (21,982)      (19,410)
                                            ----------    ----------
   Net .................................... $  29,289     $  28,346
                                            ==========    ==========

Depreciation  expense  was  $3,165  and $3,131 at  December  31,  2002 and 2001,
respectively.

Note F - Deposits
(In Thousands)

At December 31, 2002, the approximate  scheduled maturities of time deposits are
as follows:

            2003 .......................... $ 345,534
            2004 ..........................    90,125
            2005 ..........................    58,466
            2006 ..........................    31,115
            2007 ..........................    25,051
            Thereafter ....................       166
                                            ----------
            Total ......................... $ 550,457
                                            ==========

The  aggregate  amount  of time  deposits  in  denominations  of $100 or more at
December 31, 2002 and 2001 was $185,920 and $187,452, respectively.

Certain executive officers and directors had amounts on deposit with the Bank of
approximately $4,028 at December 31, 2002.

Note G - Borrowed Funds and Lines of Credit
(In Thousands)

The Company  had  outstanding  advances  from the FHLB of $86,308 and $41,145 at
December 31, 2002 and 2001,  respectively.  The interest rates on these advances
are all at fixed rates which range from 1.62% to 7.93% at December 31, 2002. The
Company had  availability on unused lines of credit with the FHLB of $164,474 at
December 31, 2002.  These advances are  collateralized  by a pledge of a blanket
lien on the Company's mortgages.

                                       48

Note G - Borrowed Funds and Lines of Credit  (continued)

Future  minimum  payments,  by year and in the  aggregate,  related  to the FHLB
advances with initial or remaining  terms of one year or more,  consisted of the
following at December 31, 2002:

            2003 .......................... $ 21,612
            2004 ..........................   16,092
            2005 ..........................   15,904
            2006 ..........................   13,539
            2007 ..........................    5,591
            Thereafter ....................   13,570
                                            ---------
            Total ......................... $ 86,308
                                            =========

The Company maintains lines of credit with correspondent  banks totaling $33,000
at December 31, 2002.  These are unsecured  lines of credit  maturing at various
times within the next fourteen months. Interest is charged at the market federal
funds rate on all advances.

In  addition,  the Company  maintains a treasury  tax and loan  account with the
Federal  Reserve  Bank.  The  balance is  collateralized  by assets of the bank.
Availability of the line of credit depends upon the amount of collateral pledged
as well as the Federal Reserve Bank's need for funds.

Note H - Commitments,  Contingent  Liabilities  and Financial  Instruments  with
         Off-Balance Sheet Risk (In Thousands)

Loan  commitments  are made to accommodate  the financial needs of the Company's
customers.  Standby  letters of credit  commit the  Company to make  payments on
behalf of customers when certain specified future events occur.

Both  arrangements  have credit risk  essentially  the same as that  involved in
extending  loans to customers  and are subject to the  Company's  normal  credit
policies. Collateral (e.g., securities,  receivables,  inventory,  equipment) is
obtained based on management's credit assessment of the customer.

The Company's  unfunded  loan  commitments  (unfunded  loans and unused lines of
credit) and standby  letters of credit  outstanding  at December 31, 2002,  were
approximately $99,665 and $9,293,  respectively,  compared to December 31, 2001,
which were approximately $95,815 and $9,836, respectively.

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.

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 I - Income Taxes
(In Thousands)

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 Company's
earnings  history  with no  basis  for  believing  future  performance  will not
continue to follow the same pattern.

                                       49

Note I - Income Taxes (continued)

Significant  components of the Company's  deferred tax assets and liabilities as
of December 31, 2002 and 2001 are as follows:

                                                        December 31
                                               -----------------------------
                                                  2002               2001
                                               ----------         ----------
Deferred tax assets
   Allowance for loan losses ................. $  5,015           $  4,180
   Deferred compensation  ....................    2,347              1,952
   Other .....................................      635                810
                                               ----------         ----------
      Total deferred tax assets ..............    7,997              6,942

Deferred tax liabilities
   Pension ...................................    1,041                342
   Net unrealized gains on securities
       available for sale ....................    3,774              1,322
   Depreciation ..............................      934                971
   Other .....................................    1,152                526
                                               ----------         ----------
      Total deferred tax liabilities .........    6,901              3,161
                                               ----------         ----------
       Net deferred tax assets ............... $  1,096           $  3,781
                                               ==========         ==========

Significant  components  of the  provision  for income taxes  (benefits)  are as
follows:

                                                      Year ended December 31
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
     Current
          Federal ............................ $  5,786    $  5,288    $  3,555
          State ..............................      800         687         309
                                               --------    --------    --------
                                                  6,586       5,975       3,864
     Deferred
          Federal ............................      204        (753)        (55)
          State ..............................       29        (113)         (9)
                                               --------    --------    --------
                                                    233        (866)        (64)
                                               --------    --------    --------
                                               $  6,819    $  5,109    $  3,800
                                               ========    ========    ========

The  reconciliation  of income taxes  (benefits)  computed at the United  States
federal statutory tax rates to the provision for income taxes is:

                                                      Year ended December 31
                                               --------------------------------
                                                 2002        2001        2000
                                               --------    --------    --------
    Tax at U.S. statutory rate ............... $ 9,306     $ 6,894     $ 5,244
    Tax-exempt interest income ...............  (2,312)     (1,968)     (1,784)
    State income tax, net of federal benefit .     505         349         195
    Amortization of intangible assets ........    --            72          62
    Dividends received deduction .............     (60)       (113)        (58)
    Other items-net ..........................    (620)       (125)        141
                                               --------    --------    --------
                                               $ 6,819     $ 5,109     $ 3,800
                                               ========    ========    ========

                                       50

Note J - Restrictions on Cash, Bank Dividends, Loans, or Advances
(In Thousands)

The Bank is required to maintain average balances with the Federal Reserve Bank.
The average  amount of those  balances for the year ended December 31, 2002, was
approximately $21,443.

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, 2002,  the  unrestricted
surplus was approximately $108,050.

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, 2002,  the maximum  amount  available for transfer from the Bank to
the  Company  in the form of cash  dividends  and loans was 19.65% of the Bank's
consolidated  net assets.  There were no loans  outstanding from the Bank to the
Company at December 31, 2002.

Note K - Employee Benefit and Deferred Compensation Plans
(In Thousands)

The Company sponsored a defined benefit  noncontributory  pension plan which was
curtailed as of December 31, 1996. Accordingly, participant accruals were frozen
as of that date.  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.  The Company  contributed  $3,300,  $500, and $0 to the Plan for the years
2002, 2001, and 2000, respectively.

The Company also provides  certain  health care and/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 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 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.  Increasing  or  decreasing  the  assumed
health  care cost  trend  rates by one  percentage  point in each year would not
materially   increase  or  decrease  the  accumulated   postretirement   benefit
obligation  nor  the  service  and  interest  cost  components  of net  periodic
postretirement  benefit  costs as of December  31,  2002,  and for the year then
ended.

                                       51

Note K - Employee Benefit and Deferred Compensation Plans (continued)

Pension Benefits  represent the defined benefit pension plan previously  offered
by the Company and Other Benefits represent the  postretirement  health and life
plans.  There  is  no  additional  minimum  pension  liability  required  to  be
recognized.  The  following  table sets  forth the  required  disclosures  as of
December 31:

                                                      Pension Benefits              Other Benefits
                                                 --------------------------     ------------------------
                                                    2002            2001           2002          2001
                                                 ----------      ----------     ----------    ----------
                                                                                  
Change in benefit obligation
  Benefit obligation at beginning of year .......$  12,852       $  12,448      $     761     $     727
  Service cost ..................................     --              --               44            42
  Interest cost .................................      937             915             54            53
  Plan participants' contributions ..............     --              --               40            29
  Actuarial gain (loss)..........................    1,259             104             (1)          (36)
  Benefits paid .................................     (619)           (615)           (63)          (54)
                                                 ----------      ----------     ----------    ----------
Benefit obligation at end of year ...............$  14,429       $  12,852      $     835     $     761
                                                 ==========      ==========     ==========    ==========

Change in plan assets
  Fair value of plan assets at beginning of year.$  12,944       $  12,829
  Actual return (loss) on plan assets ...........     (825)            230
  Contribution by employer ......................    3,300             500
  Benefits paid .................................     (619)           (615)
                                                 ----------      ----------
Fair value of plan assets at end of year ........$  14,800       $  12,944
                                                 ==========      ==========

Prepaid (accrued) benefits cost
  Funded status .................................$     371       $      92      $    (835)    $    (761)
  Unrecognized net actuarial gain ...............    5,017           1,982            330           354
  Unamortized prior service cost ................      200             230             20            24
                                                 ----------      ----------     ----------    ----------
Prepaid (accrued) benefit cost ..................$   5,588       $   2,304      $    (485)    $    (383)
                                                 ==========      ==========     ==========    ==========

Weighted-average assumptions as of December 31
  Discount rate .................................     6.75%           7.50%          6.75%         7.50%
  Expected return on plan assets ................     8.00%           8.00%           N/A           N/A

                                          Year ended December 31                       Year ended December 31
                                   -------------------------------------        ------------------------------------
                                             Pension Benefits                              Other Benefits
                                   -------------------------------------        ------------------------------------
                                      2002          2001         2000              2002         2001         2000
                                   ----------    ----------   ----------        ----------   ----------   ----------
                                                                                        
Components of net periodic
    benefit cost(income)
  Service cost ................... $    --       $    --      $    --           $      44    $      42    $      38
  Interest cost ..................       937           915          881                54           53           53
  Expected return on plan assets .    (1,009)       (1,002)      (1,047)             --           --            --
  Prior service cost recognized ..        30            30           30                27           31            8
  Recognized gains ...............        58          --           --                --           --            --
                                   ----------    ----------   ----------        ----------   ----------   ----------
Net periodic benefit cost(income). $      16     $     (57)   $    (136)        $     125    $     126    $      99
                                   ==========    ==========   ==========        ==========   ==========   ==========

                                       52

Note K - Employee Benefit and Deferred Compensation Plans (continued)

The Company maintains 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.  Expenses  related to the money  purchase  pension plan
were $965, $846 and $730 in 2002, 2001, and 2000, respectively.  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 4% of  compensation  for each  employee who has attained age 21,  completed a
year of service and is employed on the last day of the plan year.  The Company's
costs related to the 401(k) plan in 2002,  2001,  and 2000 were $618,  $442, and
$408, respectively.

The Company and its subsidiary  also sponsored an employee stock  ownership plan
covering  substantially all full-time employees who were 21 years of age and had
completed one year of employment  prior to it's  curtailment on January 1, 2002.
The Company match for the 401(k) plan was raised to 4% from 3% upon  curtailment
of the ESOP Plan.  The ESOP was amended in 2002 to enable  employees to elect to
receive  dividends in cash. Total  contributions to the Plan were $150 and $0 in
2001 and 2000, respectively.

The Company adopted the "Performance  Based Reward" incentive  compensation plan
January 1, 2001.  Incentive benefits are paid to eligible officers and employees
after the end of each  calendar  year and are  determined  based on  established
criteria relating to profitability. Management sets baselines for all applicable
profit centers to reward employees on improved economic benefit derived from the
profit center. The expense associated with the Plan for 2002, 2001, and 2000 was
$2,620, $1,762 and $0, respectively.

The  Company  maintains  deferred   compensation  plans  available  to  eligible
directors  and officers of the company.  Directors may defer up to 100% of their
fees  and  retainers.   Employees  may  defer  up  to  10%  of  their  salaries.
Opportunities  to increase  deferrals,  or for new  participants  to enter these
plans, are offered annually. The interest amount accrued on deferrals is tied to
Moody's  Average  Corporate  Bond Rate for October of the previous  year.  These
plans are unfunded,  and it is  anticipated  that they will result in no cost of
the Company over the term of these plans because life insurance  policies on the
lives of the  participants  have  been  purchased  in  amounts  estimated  to be
sufficient  to pay benefits  under the plans.  The Company is both the owner and
beneficiary of the life insurance policies.  The expense recorded in 2002, 2001,
and 2000 for the Employee Deferred  Compensation  Plan,  inclusive of the salary
deferrals, was $525, $398 and $381, respectively.  The expense recorded in 2002,
2001, and 2000 for the Directors Deferred  Compensation  Plan,  inclusive of fee
deferrals,  was $168,  $149,  and $128,  respectively.  There  were no  retainer
deferrals for 2002, 2001, or 2000.

At December  31,  2002,  637,551  common  shares were  reserved for issuance for
employee benefit plans and business combinations.

During  2002,  the  Company  repurchased  approximately  129,947  shares.  As of
December 31, 2002, the Company had  approximately  300,000 shares  available for
repurchase.  Repurchased  shares  will be used for various  corporate  purposes,
including the issuance of shares for business  combinations and employee benefit
plans.

The company has an active stock option  plan,  which was adopted in 2001.  Under
this plan options are granted  which allow  participants  in the plan to acquire
shares of the Company's common stock at a fixed price per share over a specified
period of ten years.  The options granted become vested and exercisable in equal
installments  of 33 1/3% upon completion of one, two, and three years of service
measured  from the grant date,  respectively.  Options that have not been vested
are cancelled upon the termination of the participants' employment. In addition,
granted options that have not been exercised after 10 years are cancelled.

                                       53

Note K - Employee Benefit and Deferred Compensation Plans (continued)

The fair value of each option  grant was  estimated  on the grant date using the
Black-Scholes  option-pricing  model  with the  following  assumptions  for each
option grant:

                                          2002         2001
                                        --------     --------
Dividend yield .......................      3%           3%
Expected volatility ..................     27%          28%
Risk-free interest rate ..............    4.4%         4.4%
Expected lives .......................  6 years      6 years

The weighted-average fair value of options granted during the year was $9.67 and
$4.28 for the years ended December 31, 2002, and 2001, respectively. We recorded
compensation expense of $80 in relation to this plan.

The following table summarizes information about our fixed stock option plan for
the years ended December 31:

                                               2002                 2001
                                       --------------------  -------------------
                                                  Weighted              Weighted
                                                   Average               Average
                                                  Exercise              Exercise
                                         Shares     Price      Shares     Price
                                       ---------  ---------  ---------  --------
Outstanding at beginning of year .....   10,000    $ 19.05               $
Granted and assumed ..................   31,000      35.20     10,000      19.05
Exercised ............................     --         --         --         --
Forfeited ............................     --         --         --         --
                                       ---------  ---------  ---------  --------
      Outstanding at end of year .....   41,000    $ 31.26     10,000    $ 19.05
                                       =========  =========  =========  ========
      Exercisable at end of year .....    3,333    $ 19.05       --      $  --
                                       =========  =========  =========  ========

The following table summarizes information about fixed stock options outstanding
at December 31, 2002:

                                              Options Outstanding
                            ----------------------------------------------------
                                  Weighted-     Weighted-              Weighted-
                                   Average       Average                 Average
    Range of       Number         Remaining     Exercise     Number     Exercise
Exercise Prices  Outstanding  Contractual Life    Price    Exercisable    Price
- ---------------  -----------  ----------------  ---------  ----------- ---------
 $19.05-$35.20      41,000          8.76         $ 31.26      3,333     $ 19.05

                                       54

Note L - Regulatory Matters
(In Thousands)

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
Bank's  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).  As of December 31, 2002,  the Bank met all
capital adequacy requirements to which it is subject.

As of December 31, 2002, 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.

                                           December 31
                       -------------------------------------------------
                                 2002                     2001
                       ------------------------ ------------------------
                          Amount       Ratio       Amount       Ratio
                       ------------ ----------- ------------ -----------
The Company
   Total Capital .....   $131,734       14.97%    $123,646       14.68%
   Tier I Capital ....    120,719       13.72%     113,106       13.43%
   Tier I Leverage ...    120,719        9.28%     113,106        9.20%

The Bank
   Total Capital .....   $127,870       14.53%     $122,162      14.50%
   Tier I Capital ....    116,856       13.28%      111,622      13.25%
   Tier I Leverage ...    116,856        8.99%      111,622       9.08%

Note M - Segment Reporting

FASB  No.  131,  "Disclosures  About  Segments  of  an  Enterprise  and  Related
Information,"   requires  public  companies  to  report  certain  financial  and
descriptive information about their reportable operating segments as defined and
certain  enterprise-wide  financial  information  about  products and  services,
geographic areas, and major customers.

Changes  to the  Company's  internal  reporting  process  during  2001  prompted
management  to  reorganize  into one segment  that  accounts  for the  Company's
principal  activity,  the delivery of financial  services  through its community
banks. The Company's  internal  reporting  mechanism  changed from years past in
order to more closely match  expenses with revenues at the community bank level.
Direct and  indirect  expenses and  revenues  are  allocated  to the  respective
community  banks  based on  various  methods,  including  percentage  of  loans,
percentage  of deposits,  percentage of loans and deposits  together,  full-time
equivalent  employees,  number of  accounts  serviced,  and  actual  sales.  The
activities  reported  outside of  community  banking do not comprise a separate,
material  segment for disclosure.  All of the Company's  products are offered to
similar  classes  of  customers  and  markets,  are  distributed  using the same
methods, and operate in similar regulatory environments.

                                       55

Note N - Disclosures About Fair Value of Financial Instruments
(In Thousands)

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.

Interest-bearing  balances  with  banks:  The  carrying  amount  reported in the
consolidated balance sheet for interest-bearing balances with banks approximates
fair value.

Federal funds sold: The carrying  amount  reported in the  consolidated  balance
sheet for federal funds sold 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.

Deposits:  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.

Advances  from  Federal  Home  Loan  Bank:  The fair  value  was  determined  by
discounting the cash flow using the current market rate.

Off-balance sheet: Off-balance sheet items are primarily short-term commitments,
often at variable  rates which are tied to prime;  accordingly,  the  commitment
amounts approximate fair value.

                                                              2002                       2001
                                                    -------------------------  -------------------------
                                                      Carrying        Fair       Carrying       Fair
                                                       Value          Value        Value        Value
                                                    -----------    ----------  -----------   -----------
                                                                                 
Financial assets:
   Cash and due from banks ......................... $   46,422    $   46,422   $   41,475    $   41,475
   Interest-bearing balances with banks ............     12,319        12,319       22,937        22,937
   Federal funds sold ..............................       --            --          7,000         7,000
   Securities ......................................    344,781       344,781      277,293       277,293
   Loans, net ......................................    851,105       863,256      816,342       858,345

Financial liabilities:
   Deposits ........................................  1,099,048     1,092,470    1,063,055     1,052,263
   Treasury tax and loan note account ..............      5,498         5,498        6,181         6,181
   Advances from Federal Home Loan Bank ............     86,308        87,045       41,145        42,512

                                       56

Note O - The Peoples Holding  Company (Parent Company Only) Condensed  Financial
         Information (In Thousands)

                                                          December 31
                                                  -------------------------
Balance Sheets                                        2002         2001
                                                  ------------ ------------
Assets
  Cash* ..........................................  $   1,487    $   1,204
  Stock ..........................................         75           75
  Investment in bank subsidiary* .................    128,915      122,098
  Dividends receivable* ..........................      3,677        1,553
  Other assets ...................................        129           78
                                                  ------------ ------------
    Total assets .................................  $ 134,283    $ 125,008
                                                  ============ ============

Liabilities and shareholders' equity
  Dividends payable* .............................  $   1,505    $   1,426
  Shareholders' equity ...........................    132,778      123,582
                                                  ------------ ------------
    Total liabilities and shareholders' equity ...  $ 134,283    $ 125,008
                                                  ============ ============
*Eliminates in consolidation

                                                          Year ended December 31
                                                 -----------------------------------------
Statements of Income                                  2002          2001          2000
                                                 ------------- ------------- -------------
                                                                      
Income
   Dividends from bank subsidiary* ..............  $  13,028     $  15,764     $  11,067
   Other dividends ..............................         28            29            41
                                                 ------------- ------------- -------------
                                                      13,056        15,793        11,108

Expenses ........................................        366           206            40
                                                 ------------- ------------- -------------
Income before income tax credits and  equity in
   undistributed net income of bank subsidiary ..     12,690        15,587        11,068
Income tax credits ..............................       (136)          (75)          (12)
                                                 ------------- ------------- -------------
                                                      12,826        15,662        11,080
Equity in undistributed net income of bank
   subsidiary* ..................................      3,544        (1,075)          104
                                                 ------------- ------------- -------------
   Net income ...................................  $  16,370     $  14,587     $  11,184
                                                 ============= ============= =============
*Eliminates in consolidation

                                       57

Note O - The Peoples Holding  Company (Parent Company Only) Condensed  Financial
         Information (continued)

                                                          Year ended December 31
                                                 -----------------------------------------
Statements of Cash Flows                              2002          2001          2000
                                                 ------------- ------------- -------------
                                                                      
Operating activities
 Net income .....................................  $  16,370     $  14,587     $  11,184
 Adjustments to reconcile net income to net cash
   provided by operating activities:
     Equity in undistributed net income of bank
       subsidiary ...............................     (3,544)        1,075          (104)
     Increase in dividends receivable and
       other assets .............................     (2,176)          (97)         (157)
     Increase (decrease) in other liabilities ...         79           (50)          (56)
     Stock option compensation ..................         80          --            --
                                                 ------------- ------------- -------------
     Net cash provided by operating activities ..     10,809        15,515        10,867

Financing activities
 Cash dividends .................................     (5,826)       (5,619)       (5,341)
 Purchase of treasury stock .....................     (4,700)       (9,249)       (5,178)
                                                 ------------- ------------- -------------
     Net cash used in financing activities ......    (10,526)      (14,868)      (10,519)
                                                 ------------- ------------- -------------
     Increase in cash ...........................        283           647           348
Cash at beginning of year .......................      1,204           557           209
                                                 ------------- ------------- -------------
     Cash at end of year ........................  $   1,487     $   1,204     $     557
                                                 ============= ============= =============

                                       58

Note P - Quarterly Results of Operations (Unaudited)
(In Thousands)

The following is a summary of the unaudited quarterly results of operations:

                                                        Three Months Ended
                                         -------------------------------------------------
                                            Mar 31      June 30      Sept 30      Dec 31
                                         ------------ ----------- ------------ -----------
                                                                     
Year ended December 31, 2002
  Interest income .......................   $ 19,529    $ 19,971     $ 19,707    $ 19,211
  Interest expense ......................      7,090       6,720        6,554       6,161
                                         ------------ ----------- ------------ -----------
  Net interest income ...................     12,439      13,251       13,153      13,050
  Provision for loan losses .............      1,125       1,075        1,125       1,025
  Noninterest income ....................      6,609       6,650        6,985       7,198
  Noninterest expense ...................     12,298      12,526       12,642      13,030
                                         ------------ ----------- ------------ -----------
  Income before income taxes ............      5,625       6,300        6,371       6,193
  Income taxes ..........................      1,560       1,811        1,827       1,621
                                         ------------ ----------- ------------ -----------
  Income before cumulative effect
      of accounting change ..............      4,065       4,489        4,544       4,572
  Cumulative effect of accounting change.     (1,300)       --           --          --
                                         ------------ ----------- ------------ -----------
  Net income ............................   $  2,765    $  4,489     $  4,544    $  4,572
                                         ============ =========== ============ ===========

  Basic and diluted earnings per share:
  Income before cumulative effect
      of accounting change ..............   $   0.72    $   0.80     $   0.81    $   0.82
  Cumulative effect of accounting change.      (0.23)       --           --          --
                                         ------------ ----------- ------------ -----------
  Net income ............................   $   0.49    $   0.80     $   0.81    $   0.82
                                         ============ =========== ============ ===========

                                                        Three Months Ended
                                         -------------------------------------------------
                                            Mar 31      June 30      Sept 30      Dec 31
                                         ------------ ----------- ------------ -----------
                                                                     
Year ended December 31, 2001
  Interest income .......................   $ 22,673    $ 22,422     $ 21,877    $ 20,794
  Interest expense ......................     11,591      10,868        9,907       8,556
                                         ------------ ----------- ------------ -----------
  Net interest income ...................     11,082      11,554       11,970      12,238
  Provision for loan losses .............      1,125       1,125        1,225       1,315
  Noninterest income ....................      5,730       5,846        6,172       6,641
  Noninterest expense ...................     11,055      11,375       11,873      12,444
                                         ------------ ----------- ------------ -----------
  Income before income taxes ............      4,632       4,900        5,044       5,120
  Income taxes ..........................      1,330       1,313        1,202       1,264
                                         ------------ ----------- ------------ -----------
  Net income ............................   $  3,302    $  3,587     $  3,842    $  3,856
                                         ============ =========== ============ ===========
  Basic and diluted earnings per share ..   $   0.55    $   0.60     $   0.66    $   0.67
                                         ============ =========== ============ ===========

                                       59

Note Q - Goodwill and Other Intangible Assets
(In Thousands)

In the first quarter of 2002, the Company completed the transitional  impairment
test required by Financial  Accounting  Standards  Board ("FASB")  Statement No.
142,  "Goodwill and  Intangible  Assets." As a result of this test,  the Company
recorded  a goodwill  impairment  charge of $1,300 as a  cumulative  effect of a
change in accounting  principle.  The Company  identified its reporting units as
banking operations and insurance operations for purposes of measuring impairment
of  goodwill.  The  reason we  measured  in this  manner  is that the  insurance
operation  is a  subsidiary  of the bank.  The  impairment  was  specific to the
insurance  subsidiary.  The  fair  value  of the  insurance  reporting  unit was
estimated  using the  expected  present  value of the  future  cash  flows.  The
insurance operation acquisition was a tax-free exchange; therefore, there was no
tax offset to the impairment cost booked.

                                               As of December 31, 2002
                                       -----------------------------------------
                                          Gross Carrying         Accumulated
                                              Amount             Amortization
                                       --------------------  -------------------
Amortized intangible assets:
   Core deposit intangible assets .....   $     507             $      (389)
   Other intangible assets ............       3,282                  (2,085)
                                       --------------------  -------------------
Total intangible assets ...............   $   3,789             $    (2,474)
                                       ====================  ===================

Goodwill ..............................   $   7,190             $    (2,142)
                                       ====================  ===================

Aggregate amortization expense:
 for the year ended December 31, 2002..   $     493

Estimated amortization expense:
 for the year ended December 31, 2003..         493
 for the year ended December 31, 2004..         422
 for the year ended December 31, 2005..         400
 for the year ended December 31, 2006..        --

The  changes  in the  carrying  amount of  intangible  assets for the year ended
December 31, 2002, are as follows:

                                                                    Other
                                             Goodwill            Intangibles
                                       --------------------  -------------------
Balance as of January 1, 2002 .........   $    6,348            $     1,808
      Impairment losses ...............       (1,300)                  --
      Amortization expense ............         --                     (493)
                                       --------------------  -------------------
Balance as of December 31, 2002 .......   $    5,048            $     1,315
                                       ====================  ===================

                                       60

Note Q - Goodwill and Other Intangible Assets (continued)

The table below presents net income for the prior periods as reported as well as
adjusted for the exclusion of goodwill amortization and the cumulative effect of
the transitional impairment.

                                                 As of December 31
                                       -------------------------------------
                                          2002         2001         2000
                                       -----------  -----------  -----------

Reported net income ...................  $16,370      $14,587      $11,184
Goodwill amortization, net of tax .....     --            407          335
Transitional impairment ...............    1,300         --           --
                                       -----------  -----------  -----------
Adjusted net income ...................  $17,670      $14,994      $11,519
                                       ===========  ===========  ===========

Basic and diluted earnings per share:
Reported net income ...................  $  2.92      $  2.48      $  1.83
Goodwill amortization, net of tax .....     --           0.07          .06
Transitional impairment ...............     0.23         --           --
                                       -----------  -----------  -----------
Adjusted net income ...................  $  3.15      $  2.55      $  1.89
                                       ===========  ===========  ===========

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

Executive Officers of the Company

The names, ages and positions of the Company's  principal executive officers are
listed below together with their business experience during the past five years:

       Name               Age                                         Position
- -------------------     -------    -----------------------------------------------------------------------------------
                             
E. Robinson McGraw        56       Director, President, and Chief Executive Officer of the Company since November,
                                     2000; Director, President and Chief Executive Officer of the Bank since November,
                                     2000; Executive Vice President of the Bank from September, 1993 until October,
                                     2000.

James W. Gray             46       Executive Vice President of the Company since February, 2003; Executive Vice
                                     President of the Bank since April, 1996; Strategic Planning Director of the Bank
                                     since November, 2000; Chief Operations Officer of the Bank from November, 1998
                                     until October, 2000.

Stuart R. Johnson         49       Executive Vice President of the Company since February, 2003; Executive Vice
                                     President, Chief Financial Officer, and Cashier of the Bank since April, 1996.

All of our officers are appointed annually by the Board of Directors to serve at
the discretion of the Board.

                                       61

Directors of the Company

The names, ages and terms of office of the Company's  directors are listed below
together with their business experience during the past five years.

Class 1 Directors and Nominees (to be elected at the 2003 annual meeting,  terms
of office expire in 2006):

     -    George H. Booth, II is co-owner of Tupelo Hardware Company,  a closely
          held  family  business  primarily  engaged  in  wholesale  and  retail
          hardware sales. Mr. Booth is currently  serving as president of Tupelo
          Hardware  Company,  having  served as vice  president  from 1976 until
          2000.  Mr.  Booth,  who is 49 years old,  has been a  director  of the
          Company since 1994.

     -    Frank B. Brooks has been a cotton  farmer since 1959 and  president of
          Yalobusha Gin Company, Inc., a cotton gin located in Yalobusha County,
          Mississippi,  since 1992. Mr. Brooks,  who is 59 years old, has been a
          director of the Company since 1989.

     -    Robert C. Leake has served as chairman of the Company's  board and the
          Bank's board since 1989.  Mr. Leake has also been  principal  owner of
          Leake &  Goodlett,  Inc.,  a closely  held family  business  primarily
          engaged in full service retail building  material and supplies,  since
          1957.  Mr.  Leake is  currently  serving as vice  president of Leake &
          Goodlett,  Inc.,  having served as president from 1974 until 2002. Mr.
          Leake,  who is 70 years old, has been a director of the Company  since
          1973.

     -    C. Larry Michael has served as president of Transport Trailer Service,
          Inc., a company  primarily  engaged in semi-trailer  sales and repair,
          Rent-A-Box, Inc., a company primarily engaged in semi-trailer leasing,
          and  Precision  Machine  and Metal  Fabrication,  a company  primarily
          engaged in  customized  machining  of metal  parts,  since  1972.  Mr.
          Michael, who is 57 years old, has been a director of the Company since
          1997.

Retiring Class 1 Director (term of office expires at the 2003 annual meeting):

     -    J. Heywood  Washburn has been  self-employed as an investor in various
          undertakings  for the past five  years.  Mr.  Washburn  is  co-general
          partner of Washburn Enterprises,  LP, a company engaged in real estate
          development  and property  management and rental.  Since October 2002,
          Mr. Washburn has also been a partner in Mississippi Alabama Production
          Company,  LLC, a company engaged in oil and gas equipment leasing. Mr.
          Washburn,  who is 72 years  old,  has been a director  of the  Company
          since 1982.

Class 2 Directors (terms of office expire in 2004):

     -    John M.  Creekmore  has been engaged in the practice of law since 1987
          as the owner of the law firm Creekmore Law Office. Mr. Creekmore,  who
          is 47 years old, has been a director of the Company since 1997.

     -    E. Robinson McGraw has served as president and chief executive officer
          of both the  Company  and the Bank since 2000.  Mr.  McGraw  served as
          executive vice president of the Bank prior to becoming chief executive
          officer.  Mr. McGraw,  who is 56 years old, has been a director of the
          Company since 2000.

     -    Theodore  S. Moll has been  with MTD  Products,  a  company  primarily
          engaged in the production of outdoor power equipment,  since 1965. Mr.
          Moll  presently  serves as executive  vice  president of its worldwide
          operations.  Mr. Moll, who is 60 years old, has been a director of the
          Company since 2002.

     -    John W. Smith, who is retired, served as president and chief executive
          officer of the Company and the Bank from 1993 until 2000.  Mr.  Smith,
          who is 67 years old, has been a director of the Company since 1978.

     -    Robert H. Weaver, who is retired,  engaged in the practice of law as a
          partner of Watkins Ludlam Winter & Stennis, P.A. from 1959 until 2000.
          Since his retirement, he has been serving as of counsel for that firm.
          Mr.  Weaver,  who is 71 years old,  has been a director of the Company
          since 1980.

                                       62

     -    J. Larry Young has been employed as a part-time pharmacist with Fred's
          Pharmacy in Pontotoc, Mississippi since 1998. Prior to 1998, Mr. Young
          was a  pharmacist  for and a partner  in  Ramsey-Young  Pharmacy.  Mr.
          Young,  who is 64 years old, has been a director of the Company  since
          1982.

Class 3 Directors (terms of office expire in 2005):

     -    William  M.  Beasley  has been  engaged  in the  practice  of law as a
          partner  of the law firm of Phelps  Dunbar  LLP since  1999.  Prior to
          1999,  Mr.  Beasley was a partner of the law firm of  Mitchell,  Voge,
          Beasley and Corban.  He has also served as vice  chairman of the board
          of directors of the Company since 2001. Mr.  Beasley,  who is 51 years
          old, has been a director of the Company since 1989.

     -    Marshall  H.  Dickerson  has been the owner and  manager of  Dickerson
          Furniture   Company,  a  company  primarily  engaged  in  retail  home
          furnishings,  since 1978. Mr. Dickerson, who is 53 years old, has been
          a director of the Company since 1996.

     -    Eugene B.  Gifford,  Jr. has been engaged in the practice of law since
          1960 as a partner in the law firm of Gifford, Allred and Tennison. Mr.
          Gifford, who is 68 years old, has been a director of the Company since
          1987.

     -    Richard L. Heyer,  Jr. has served as a physician and partner of Tupelo
          Anesthesia Group, P.A. since 1989. Dr. Heyer, who is 46 years old, has
          been a director of the Company since 2002.

     -    J. Niles  McNeel has been  engaged in the practice of law as a partner
          of the law firm of McNeel and Ballard since 1983. Mr.  McNeel,  who is
          56 years old, has been a director of the Company since 1999.

     -    H. Joe  Trulove is  presently  a partner of  Landmark  Enterprises,  a
          company primarily engaged in real estate and investments.  Mr. Trulove
          has been chairman of the board of directors of Rose Hill Manufacturing
          Company, a company primarily engaged in the manufacture of upholstered
          furniture,  since  2002.  Prior to 2001,  Mr.  Trulove was senior vice
          president of York Casket Company,  a company  primarily engaged in the
          manufacture of caskets.  Mr. Trulove,  who is 65 years old, has been a
          director of the Company since 1999.

All of the directors and nominees listed above also presently serve on the board
of the Bank. There are no family relationships  between any director,  executive
officer or person nominated to become a director.

Section 16(a) Beneficial Ownership Reporting Compliance

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
officers and directors,  and persons who own more than 10% of a registered class
of the  Company's  equity  securities,  to file  with  the  Securities  Exchange
Commission  and the  American  Stock  Exchange  reports of  ownership of Company
securities and changes in reported  ownership.  Officers,  directors and greater
than 10%  shareholders  are  required by SEC rules to furnish  the Company  with
copies of all Section 16(a) reports by file.

Based solely upon a review of the reports  furnished to the Company,  or written
representations  from reporting  persons that all reportable  transactions  were
reported,  the  Company  believes  that  during  2002  the  Company's  officers,
directors  and  greater  than 10%  owners  timely  filed all  reports  they were
required to file under Section 16(a), except that: three reports,  each covering
a single transaction,  were inadvertently filed late by Mr. Gifford;  one report
covering two transactions was inadvertently  filed late by Dr. Heyer; one report
covering one transaction was inadvertently  filed late by Mr. McGraw; one report
covering one  transaction  was  inadvertently  filed late by Mr. Leake;  and one
report covering two transactions was inadvertently  filed late by Mr. Weaver. In
addition, the following individuals each inadvertently filed one late report for
one or more acquisitions of common stock equivalent units occurring after August
28, 2002, credited under a deferred compensation plan maintained by the Company:
Mr. Beasley, two acquisitions;  Mr. Brooks, two acquisitions; Mr. Creekmore, two
acquisitions,  Mr. Dickerson,  two acquisitions;  Mr. Gifford, two acquisitions;
Dr. Heyer, one  acquisition;  Mr. McGraw,  six  acquisitions;  Mr. Michael,  two
acquisitions;  Mr. Moll, one acquisition;  Mr. Trulove,  two  acquisitions;  Mr.
Waycaster,  six acquisitions;  Mr. Weaver, two acquisitions;  and Mr. Young, two
acquisitions.

                                       63

ITEM 11. EXECUTIVE COMPENSATION

The  information   appearing  under  the  headings   "Executive   Compensation",
"Compensation   Committee  Interlocks  and  Insider  Participation"  and  "Stock
Performance Graph" in the Company's definitive Proxy Statement,  dated March 10,
2003, is incorporated herein by reference

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information  appearing under the headings "Security  Ownership of Directors,
Nominees and Executive  Officers" and "Security  Ownership of Certain Beneficial
Owners" in the Company's  definitive Proxy  Statement,  dated March 10, 2003, is
incorporated herein by reference.

The  information   appearing  under  the  heading  "Equity   Compensation   Plan
Information" in the Company's definitive Proxy Statement,  dated March 10, 2003,
is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  appearing under the headings  "Indebtedness of Related Parties"
and  "Interests of the Board of Directors"  in the  Company's  definitive  Proxy
Statement, dated March 10, 2003, is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Based upon their  evaluation  as of a date within 90 days prior to the filing of
this annual report on Form 10-K, our Chief Executive Officer and Chief Financial
Officer have concluded  that our disclosure  controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c)  under the Securities  Exchange Act of 1934, as
amended) are effective for timely alerting them to material information required
to be included in our  periodic  SEC  reports.  Subsequent  to the date of their
evaluation,  there have been no significant  changes in our internal controls or
in other factors that could  significantly  affect internal controls,  including
any  corrective  actions with regard to  significant  deficiencies  and material
weaknesses.

                                       64

                                     PART IV

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

(a) - (1)  Financial  Statements

The following  consolidated  financial statements and supplementary  information
for the fiscal years ended  December 31,  2002,  2001,  and 2000 are included in
Part II, Item 8 herein:

     (i)  Report of Independent Auditors

     (ii) Consolidated Balance Sheets - December 31, 2002 and 2001

     (iii)Consolidated  Statements  of Income - Years ended  December  31, 2002,
          2001, and 2000

     (iv) Consolidated Statements of Shareholders' Equity - Years ended December
          31, 2002, 2001, and 2000

     (v)  Consolidated Statements of Cash Flows - Years ended December 31, 2002,
          2001, and 2000

     (vi) Notes to Consolidated Financial Statements - December 31, 2002

(a) - (2)  Financial Statement Schedules

All schedules  have been omitted  because they are either not  applicable or the
required information has been included in the consolidated  financial statements
or notes thereto.

(a) - (3)  Exhibits required by Item 601 of Regulation S-K

          (3)(i)    Articles of Incorporation of the Company(1)

          (3)(ii)   Bylaws of the Company (as amended March 1, 2001) (2)

         (10)(i)    The Peoples Holding Company 2001 Long-Term Incentive Plan(3)

         (10)(ii)   The Peoples Holding Company Deferred Compensation Plan(4)

         (10)(iii)  Executive Deferred Compensation Plan A(5)

         (10)(iv)   Executive Deferred Compensation Plan B(6)

         (10)(v)    Directors' Deferred Fee Plan A(7)

         (10)(vi)   Directors' Deferred Fee Plan B(8)

         (10)(vii)  Change in Control Employment Agreement dated January 1, 2001
                    between the Company and E. Robinson McGraw(9)

         (10)(viii) Change in Control  Employment  Agreement  dated February 28,
                    1998 between the Company and Stuart R. Johnson

         (10)(ix)   Change in Control Employment  Agreement  dated  February 28,
                    1998 between the Company and James W. Gray

         (21)       Subsidiaries of the Company(1)

         (23)       Consent of Independent Auditors

                                       65

(1)  Filed as an exhibit to the Form S-4  Registration  Statement of the Company
     (File No.  333-72507) filed with the Securities and Exchange  Commission on
     February 17, 1999 and incorporated herein by reference.

(2)  Filed  as an  exhibit  to the  Form  10-Q of the  Company  filed  with  the
     Securities  and Exchange  Commission on November 14, 2002 and  incorporated
     herein by reference.

(3)  Filed as exhibits 4.1 and 4.2 to the Form S-8 Registration Statement of the
     Company  (File No.  333-102152)  filed  with the  Securities  and  Exchange
     Commission on December 23, 2002 and incorporated herein by reference.

(4)  Filed as exhibits 4.3 and 4.4 to the Form S-8 Registration Statement of the
     Company  (File No.  333-102152)  filed  with the  Securities  and  Exchange
     Commission on December 23, 2002 and incorporated herein by reference.

(5)  Filed as  exhibit  10.1 to the Form  10-Q  filed  with the  Securities  and
     Exchange  Commission  on  November  14,  2002 and  incorporated  herein  by
     reference.

(6)  Filed as  exhibit  10.2 to the Form  10-Q  filed  with the  Securities  and
     Exchange  Commission  on  November  14,  2002 and  incorporated  herein  by
     reference.

(7)  Filed as  exhibit  10.3 to the Form  10-Q  filed  with the  Securities  and
     Exchange  Commission  on  November  14,  2002 and  incorporated  herein  by
     reference.

(8)  Filed as  exhibit  10.4 to the Form  10-Q  filed  with the  Securities  and
     Exchange  Commission  on  November  14,  2002 and  incorporated  herein  by
     reference.

(9)  Filed as  exhibit  10.5 to the Form  10-Q  filed  with the  Securities  and
     Exchange  Commission  on  November  14,  2002 and  incorporated  herein  by
     reference.

The Company does not have any long-term debt instruments  under which securities
are  authorized  exceeding ten percent of the average  assets of the Company and
its  subsidiaries  on a  consolidated  basis.  The Company  will  furnish to the
Securities and Exchange Commission,  upon their request, a copy of all long-term
debt instruments.

(a)  Reports on Form 8-K

The  following  reports  on Form 8-K were filed by the  Company  during the last
quarter of the period covered by this Annual Report on Form 10-K:

On October 18, 2002,  the Company filed on Form 8-K a press  release  announcing
the financial results of the Company for the quarter ended September 30, 2002.

On October 22, 2002,  the Company filed on Form 8-K a press  release  announcing
that the Board of Directors of the Company  authorized the Company to repurchase
up to 278,771 shares of the Company's common stock.

On November 21, 2002,  the Company filed on Form 8-K a press release  announcing
the  declaration of a quarterly  cash dividend on the Company's  common stock of
$.27 per share.

                                       66

                                   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.

Date: March 10, 2003                By:  /s/ E. Robinson McGraw
                                         --------------------------
                                         E. Robinson McGraw
                                         President and Chief Executive Officer

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.

                                          THE PEOPLES HOLDING COMPANY

Date: March 10, 2003                By:  /s/ Robert C. Leake
                                         --------------------------
                                         Robert C. Leake
                                         Chairman of the Board and Director

Date: March 10, 2003                By:  /s/ William M. Beasley
                                         --------------------------
                                         William M. Beasley
                                         Vice Chairman of the Board and Director

Date: March 10, 2003                By:  /s/ George H. Booth, II
                                         --------------------------
                                         George H. Booth, II
                                         Director

Date: March 10, 2003                By:  /s/ Frank B. Brooks
                                         --------------------------
                                         Frank B. Brooks
                                         Director

Date: March 10, 2003                By:  /s/ John M. Creekmore
                                         --------------------------
                                         John M. Creekmore
                                         Director

Date: March 10, 2003                By:  /s/ Marshall H. Dickerson
                                         --------------------------
                                         Marshall H. Dickerson
                                         Director

Date: March 10, 2003                By:  /s/ Eugene B. Gifford, Jr.
                                         --------------------------
                                         Eugene B. Gifford, Jr.
                                         Director

Date: March 10, 2003                By:  /s/ Richard L. Heyer, Jr.
                                         --------------------------
                                         Richard L. Heyer, Jr.
                                         Director

                                       67

Date: March 10, 2003                By:  /s/ Stuart R. Johnson
                                         --------------------------
                                         Stuart R. Johnson
                                         Executive Vice President and
                                         Chief Financial Officer

Date: March 10, 2003                By:  /s/ E. Robinson McGraw
                                         --------------------------
                                         E. Robinson McGraw
                                         President and Chief Executive Officer
                                         and Director

Date: March 10, 2003                By:  /s/ J. Niles McNeel
                                         --------------------------
                                         J. Niles McNeel
                                         Director

Date: March 10, 2003                By:  /s/ C. Larry Michael
                                         --------------------------
                                         C. Larry Michael
                                         Director

Date: March 10, 2003                By:  /s/ Theodore S. Moll
                                         --------------------------
                                         Theodore S. Moll
                                         Director

Date: March 10, 2003                By:  /s/ John W. Smith
                                         --------------------------
                                         John W. Smith
                                         Director

Date: March 10, 2003                By:  /s/ H. Joe Trulove
                                         --------------------------
                                         H. Joe Trulove
                                         Director

Date: March 10, 2003                By:  /s/ J. Heywood Washburn
                                         --------------------------
                                         J. Heywood Washburn
                                         Director

Date: March 10, 2003                By:  /s/ Robert H. Weaver
                                         --------------------------
                                         Robert H. Weaver
                                         Director

Date: March 10, 2003                By:  /s/ J. Larry Young
                                         --------------------------
                                         J. Larry Young
                                         Director

                                       68

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, E. Robinson McGraw, certify that:

1.   I have  reviewed  this annual  report on Form 10-K of The  Peoples  Holding
     Company;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: March 10, 2003                       By: /s/ E. Robinson McGraw
                                               --------------------------
                                               E. Robinson McGraw
                                               Chief Executive Officer

                                       69

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Stuart R. Johnson, certify that:

1.   I have  reviewed  this annual  report on Form 10-K of The  Peoples  Holding
     Company;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date: March 10, 2003                       By: /s/ Stuart R. Johnson
                                               --------------------------
                                               Stuart R. Johnson
                                               Chief Financial Officer

                                       70

Exhibit 10.8
                           THE PEOPLES HOLDING COMPANY

                              EMPLOYMENT AGREEMENT

This  Agreement  ("Agreement")  has been entered into this 10th day of February,
1998,  by and between The Peoples  Holding  Company  ("Company"),  and Stuart R.
Johnson, an individual ("Executive").

                                    RECITALS

The Board of Directors of the Company ("Board") has determined that it is in the
best interest of the Company and its stockholders to reinforce and encourage the
continued  attention and  dedication of the Executive to the Company as a member
of management of the Company or as a member of management of a subsidiary of the
Company,  and to assure that the Company will have the  continued  dedication of
the  Executive,  notwithstanding  the  possibility,  threat,  or occurrence of a
Change in Control (as defined below) of the Company.  The Board believes that it
is imperative to diminish the inevitable  distraction of the Executive by virtue
of the  personal  uncertainties  and risks  created by a pending  or  threatened
Change in Control and to encourage the Executive's full attention and dedication
to the Company or a subsidiary  currently and in the event of any  threatened or
pending  Change in Control  which  ensures  that the  compensation  and  benefit
expectations of the Executive will be satisfied and which are  competitive  with
those of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.

                            IT IS AGREED AS FOLLOWS:

Section 1: Definitions and Construction.

1.1  Definitions.  For  purposes  of this  Agreement,  the  following  words and
     phrases, whether or not capitalized, shall have the meaning specified below
     unless the context plainly requires a different meaning.

     (a)  "Board" means the Board of Directors of the Company.

     (b)  "Change in Control" means any liquidation, dissolution,  consolidation
          or merger of the Company in which the Company is not a  continuing  or
          surviving corporation.

     (c)  "Change in Control Date" shall mean the date of the change in control.

     (d)  "Code" shall mean the Internal Revenue Code of 1986, as amended.

     (e)  "Company"   means  The  Peoples   Holding   Company,   a   Mississippi
          Corporation, for the purpose of determining if a change in control has
          occurred. For the purpose of an employment  relationship,  it includes
          any subsidiary or successor of The Peoples Holding Company.

     (f)  "Effective Date" shall mean February 10, 1998.

     (g)  "Exchange  Act" means the  Securities  and  Exchange  Act of 1934,  as
          amended.

     (h)  "Person"  means any "person"  within the meaning of Section  13(d) and
          14(d) of the Exchange Act.

                                       1

     (i)  "Term" means the period that begins on the effective  date and ends on
          the anniversary of the effective  date,  unless prior thereto a Change
          in Control  shall have  occurred.  This contract  shall  automatically
          renew for  additional  one- (1) year terms  unless  either party shall
          give the other party at least ninety (90) days' advance written notice
          of said  party's  intention  not to  renew  said  contract;  provided,
          however, the Company shall not be able to give notice of its intention
          not to renew the  contract  following  a Change in Control or if it is
          involved in any  negotiations,  whether  formal or informal,  that may
          result in a Change in Control.

1.2  Gender and Number. When appropriate,  pronouns herein used in the masculine
     gender  include the  feminine  gender,  words in the  singular  include the
     plural, and words in the plural include the singular.

1.3  Headings. All headings herein are included solely for ease of reference and
     do not bear on the interpretation of the text. Accordingly, as used herein,
     the  terms  "Article"  and  "Section"  mean the text that  accompanies  the
     specified Article or Section hereof.

1.4  Applicable  Law.  This  agreement  shall be  governed by and  construed  in
     accordance with the laws of the State of Mississippi  without  reference to
     its conflicts of law principles.

Section 2: Terms and Conditions of Employment.

2.1  Severance  Benefits.  In order to  induce  the  Executive  to remain in the
     employ of the Company and in consideration  of the Executive's  agreeing to
     remain in the employ of the  Company,  subject to the terms and  conditions
     set forth herein,  this Agreement  sets forth the severance  benefits which
     the  Company  agrees will be  provided  to the  Executive  in the event the
     Executive's  employment  with the  Company is  terminated  subsequent  to a
     Change in Control under the circumstances described herein.

2.2  Positions  and  Duties.  Prior  to  the  receipt  of  benefits  under  this
     Agreement,  the Executive  shall serve as an officer of the Company or of a
     subsidiary thereof,  subject to the reasonable  directions of the Board and
     the immediate superior of the Executive. During the term of this Agreement,
     Executive  agrees that Executive will not  voluntarily  leave the employ of
     the Company  except as may be provided  hereunder.  Any  violation  of this
     Section 2.2 by the Executive prior to a Change in Control shall result in a
     termination  hereof,  and  the  Executive  shall  have no  other  liability
     hereunder for such action.  In  consideration  of this,  the Company agrees
     that following a Change in Control, the Executive's  authority,  duties and
     responsibilities  shall be at least  commensurate in all material  respects
     with those assigned to, or held and exercised by, the Executive immediately
     preceding the date on which a Change in Control occurs. Notwithstanding the
     foregoing,  the Company may  terminate  the  Executive's  employment at any
     time,  subject to  providing  the  benefits  hereinafter  specified  and in
     accordance with the terms hereof.

                                       2

2.3  Situs of  Employment.  Following a Change in Control,  the new entity shall
     make a good faith effort to provide the Executive with the type and kind of
     employment  described  herein  at the  location  where  the  Executive  was
     providing his services prior to the Change of Control.  However, if the new
     entity decides it must transfer or relocate the Executive,  it will provide
     the Executive the following benefits:  (a) purchase the Executive's home at
     its  average  appraised  value  plus at least  10% of the  appraised  value
     (appraised value being the average of an appraised value by a duly licensed
     and qualified  appraiser  selected by the Executive and the appraised value
     of a duly licensed and qualified  appraiser  selected by Company);  (b) pay
     all reasonable  cost and expenses  incurred by the Executive in moving to a
     new location; (c) provide the Executive an immediate increase in his annual
     income  of at least  6%;  (d)  require  no  transfer  or  relocation  of an
     Executive who has school age children until the end of the school year; (e)
     pay to Executive  seventy-five  percent (75%),  not to exceed Five Thousand
     Dollars  ($5,000.00) per child per year, of the tuition of a private school
     if Executive  has a school child or children and the  Executive  reasonably
     determines  it to be in the best  interest  of such  child or  children  to
     attend a private school at the new situs of employment.

2.4  Compensation.

     (a)  Annual Base Salary. The Annual Base Salary ("Annual Base Salary")shall
          be an amount equal to the salary the Executive  was  receiving  during
          the month  immediately  preceding  a Change in Control  computed on an
          annualized basis.

     (b)  Incentive Bonuses.  Incentive Bonuses  ("Incentive  Bonus") shall mean
          any bonuses provided through any incentive  compensation plan, subject
          to the provisions of such plan.

     (c)  Welfare  Benefit Plans.  Welfare  benefit plans shall mean  practices,
          policies  and  programs  provided by the Company  (including,  without
          limitation,   medical,   prescription,   dental,  disability,   salary
          continuance,  employee life,  group life,  accidental death and travel
          accident  insurance  plans and programs),  subject to the provision of
          such welfare benefit plans.

Section 3: Termination of Employment.

3.1  Death. The Executive's  employment shall terminate  automatically  upon the
     Executive's  death  during  the  Term  of this  Agreement  and  prior  to a
     termination of employment by the Executive.

3.2  Disability.  Following a Change in Control,  if the Company  determines  in
     good faith that a Disability of the Executive has occurred (pursuant to the
     definition  of  Disability  set forth  below),  the Company may give to the
     Executive written notice in accordance with Section 7.1 of the intention of
     the Company to terminate the  Executive's  employment.  In such event,  the
     Executive's  employment with the Company shall  terminate  effective on the
     thirtieth  (30th) day after  receipt of such notice by the  Executive  (the
     "Disability  Effective  Date"),  provided that, within the thirty (30) days
     after such  receipt,  the  Executive  shall not have  returned to full-time
     performance  of the  Executive's  duties.  For purposes of this  Agreement,
     "Disability"  shall mean that the  Executive has been unable to perform the
     services  required of the  Executive  hereunder on a full-time  basis for a
     period of one hundred-eighty (180) consecutive business days by reason of a
     physical  and/or mental  condition.  "Disability"  shall be deemed to exist
     when  certified by a physician  selected by the Company or its insurers and
     acceptable to the Executive or the Executive's legal  representative  (such
     agreement  as to  acceptability  not  to  be  withheld  unreasonably).  The
     Executive will submit to such medical or psychiatric examinations and tests
     as  such   physician   deems   necessary   to  make  any  such   Disability
     determination.

                                       3

3.3  Termination  for Cause.  Following  a Change in  Control,  the  Company may
     terminate  the  Executive's   employment  for  "Cause,"  which  shall  mean
     termination  based upon: (a) the Executive's  willful and continued failure
     to perform the Executive's  duties with the Company (other than as a result
     of  incapacity  due to  physical or mental  condition),  after a demand for
     substantial  performance  is  delivered  to  the  Executive  by  the  Chief
     Executive  Officer of the  Company  or the  Chairman  of the  Board,  which
     specifically   identifies  the  manner  in  which  the  Executive  has  not
     substantially performed the Executive's duties, (b) the Executive's willful
     commission  of  misconduct  which is  materially  injurious to the Company,
     monetarily  or otherwise,  or (c) the  Executive's  material  breach of any
     provision  of this  Agreement.  For purposes of this  paragraph,  no act or
     failure to act on the Executive's part shall be considered "willful" unless
     done,  or omitted to be done,  without  good faith and  without  reasonable
     belief that the act or omission  was in the best  interests of the Company.
     Notwithstanding  the foregoing,  the Executive  shall not be deemed to have
     been  terminated  for Cause unless and until (a) the  Executive  receives a
     notice of Termination  (as defined in Section 3.5) from the Chief Executive
     Officer of the Company or the Chairman of the Board,  (b) the  Executive is
     given the opportunity,  with counsel, to be heard before the Board, and (c)
     the Board finds,  in its good faith opinion,  that the Executive was guilty
     of the conduct set forth in the Notice of Termination.

3.4  Good Reason.  Following a Change in Control,  the  Executive  may terminate
     employment with the Company for "Good Reason," which shall mean termination
     based upon:

     (a)  the  assignment  to the  Executive of any duties  inconsistent  in any
          respect  with  the   Executive's   position,   authority,   duties  or
          responsibilities as contemplated by Section 2.2 or any other action by
          the Company which results in a material  diminution in such  position,
          authority, duties or responsibilities,  excluding for this purpose any
          action  not taken in bad faith and which is  remedied  by the  Company
          promptly after notice thereof given by the Executive;

     (b)  (i) the  failure by the  Company to  continue in effect any benefit or
          compensation  plan, stock ownership plan, life insurance plan,  health
          and  accident  plan or  disability  plan in  which  the  Executive  is
          participating  as  specified  in Section  2.4(b) or 2.4(c) or (ii) the
          taking of any action by the Company which would  adversely  affect the
          Executive's  participation  in,or  materially  reduce the  Executive's
          benefits  under,  any plans  described in Section  2.4(b) or 2.4(c),or
          deprive the Executive of any material  fringe  benefit  enjoyed by the
          Executive as described in Section 2.4(b) or 2.4(c);

     (c)  a material breach by the Company of any provision hereof;

     (d)  any termination by the Company of the Executive's employment otherwise
          than as expressly permitted by this Agreement;

     (e)  within a period  ending at the close of business on the date three (3)
          years after the Change in Control Date,  any failure by the Company to
          comply with and satisfy  Section 6.2 on or after the Change in Control
          Date.

                                       4

3.5  Notice  of  Termination.  Any  termination  by the  Company  for  Cause  or
     Disability,  or by the Executive for Good Reason,  shall be communicated by
     Notice of Termination to the other party,  given in accordance with Section
     7.1.  For purposes of this  Agreement,  a "notice of  Termination"  means a
     written  notice  which (a)  indicates  the specific  termination  provision
     herein relied upon, (b) to the extent applicable,  sets forth in reasonable
     detail  the  facts  and  circumstances  claimed  to  provide  a  basis  for
     termination of the Executive's employment under the provision so indicated,
     and (c) if the Date of  Termination  (as  defined  below) is other than the
     date of receipt of such notice,  specifies the termination date (which date
     shall be not more than thirty  [30] days after the giving of such  notice).
     The failure by the  Executive  or the Company to set forth in the Notice of
     Termination any fact or circumstance which contributes to a showing of Good
     Reason or Cause shall not waive any right of the  Executive  or the Company
     hereunder or preclude the Executive or the Company from asserting such fact
     or  circumstance  in enforcing  the  Executive's  or the  Company's  rights
     hereunder.

3.6  Date of  Termination.  "Date of  Termination"  means (a) if the Executive's
     employment is terminated  by the Company with or without  Cause,  or by the
     Executive  for Good Reason,  the date of  Termination  shall be the date of
     receipt of the Notice of Termination  or any later date specified  therein,
     as the case may be, or (b) if the  Executive's  employment is terminated by
     reason of death or Disability, the Date of Termination shall be the date of
     death of the Executive or the  Disability  Effective  Date, as the case may
     be.

Section 4: Certain Benefits Upon Termination of Employment.

4.1  Termination after a Change in Control. If a Change in Control occurs during
     the Term of this  Agreement and within three (3) years after such Change in
     Control,  either the Company  shall  terminate the  Executive's  employment
     without Cause, or the Executive shall terminate employment with the Company
     for Good  Reason,  then the  Executive  shall be entitled  to the  benefits
     provided  below for the three year  period  after  Change in Control or the
     remaining  portion  of  said  three  year  period  following  the  date  of
     termination.

     (a)  "Accrued Obligations":  On the tenth (10th) business day following the
          Date of Termination, the Company shall pay to the Executive the sum of
          (i) the Executive's  Annual Base Salary  prorated  through the Date of
          Termination  to the extent not  previously  paid, and (ii) any accrued
          vacation pay to the extent not previously paid.

     (b)  "Severance Amount": The "Severance Amount" shall be an amount equal to
          2.99  times  the  Executive's  Annual  Base  Salary  in  effect on the
          business  day prior to the Date of  Termination  plus  2.99  times the
          average annual  incentive  bonus for the two years prior to the Change
          in Control.  The  Company  shall set aside this amount in escrow for a
          period of three years and the Escrow Agent shall pay to the Executive,
          beginning  on the tenth  (10th)  business  day  following  the Date of
          Termination,  a  monthly  amount  of  one-thirty-sixth  (1/36)  of the
          severance  amount  less any  monthly  W-2,  Schedule  C or  Schedule F
          earnings  reportable on Internal  Revenue  Service Form 1040 which are
          received  by the  Executive  from his  present  employer or any future
          employer or  employers  for a period of 36 months or until the earlier
          exhaustion of the entire  severance amount plus interest  thereon.

                                       5

          In the event of the Executive's  death after a termination for which a
          "Severance Amount" is payable,  the Escrow Agent shall continue to pay
          to the  Executive's  spouse or other named  beneficiary  the remaining
          obligation owed the Executive under the terms of this contract and the
          Escrow Agreement.  The Company may, however,  at its option,  elect to
          pay the  Severance  Amount  to the  Executive,  or in the event of his
          death,  his  spouse  or  other  named  beneficiary,  in the  form of a
          lump-sum cash payment on or before the date the first monthly  payment
          is due; or the Company,  at its option,  at anytime during the term of
          the  Escrow  Agreement,  can  direct  the  Escrow  Agent  to  pay  the
          Executive,  the Executive's spouse, or named beneficiary,  as the case
          may be, the then remaining balance of the severance  amount,  plus any
          accrued and accumulated  interest  thereon,  in the form of a lump-sum
          cash payment, and the rights and obligations of all parties under both
          the Employment Agreement and Escrow Agreement shall be terminated.

          In the event,  subsequent  to the  Change in  Control,  the  Executive
          becomes an employee of any competing  commercial  bank,  savings bank,
          savings   and  loan   association,   or   credit   union   ("financial
          institution")  in the defined market area of the Employer prior to the
          Change in Control,  then any  obligation  of the  Employer  under this
          Section is terminated,  and the Executive shall not be entitled to any
          further benefits under this Agreement.

          The severance  amount set aside in escrow shall be invested  according
          to the provisions of the escrow agreement  attached hereto as "Exhibit
          A" and the  interest  earned  included  in the  amount  payable to the
          Executive.  Any severance  amounts not paid to the Executive  shall be
          returned to the Company at the end of the 36-month  escrow period,  or
          sooner  should  the  Executive  accept  employment  with  a  competing
          "financial  institution" as defined above.  All interest earned on the
          account shall be paid to the Executive  following the final  severance
          payment.

     (c)  "Other Benefits":  To the extent not previously provided,  the Company
          shall timely pay or provide to the  Executive  and/or the  Executive's
          family any other  amounts or benefits  required to be paid or provided
          for which the Executive  and/or the Executive's  family is eligible to
          receive  pursuant  hereto  and  under  any  plan,  program,  policy or
          practice  or contract or  agreement  of the Company as those  provided
          generally  to other  peer  executives  and their  families  during the
          ninety (90) day period immediately preceding the Effective Date or, if
          more favorable to the Executive, as those provided generally after the
          Effective  Date to other  peer  executives  of the  Company  and their
          families.

     (d)  If  termination  of the  Executive  occurs less than three years after
          such Change in Control,  then the benefits  provided by this Agreement
          shall be pro rated on the ratio of the remaining portion of said three
          year period to the full three year period following Change in Control.

                                       6

     (e)  "Excess   Parachute   Payment":   Anything   herein  to  the  contrary
          notwithstanding,  in the event that an  independent  accountant  shall
          determine  that any payment or  distribution  by the Company to or for
          the benefit of Executive  (whether paid or payable or  distributed  or
          distributable pursuant to the terms hereof or otherwise) (a "Payment")
          would be  nondeductible by the Company for Federal income tax purposes
          because of Code Section 280G or would constitute an "excess  parachute
          payment" (as defined in Code Section 280G), then the aggregate present
          value of amounts payable or distributable to or for the benefit of the
          Executive  pursuant hereto or pursuant to any other agreement with the
          company  because  of the  occurrence  of a  Change  in  Control  (such
          payments or  distributions  are hereinafter  referred to as "Agreement
          Payments")  shall be  reduced  (but  not  below  zero) to the  Reduced
          Amount. For purposes of this paragraph,  the "Reduced Amount" shall be
          an amount  expressed in present  value which  maximizes  the aggregate
          present value of Agreement  Payments without causing any payment to be
          nondeductible  by the Company  because of Code Section 280G or without
          causing  any  portion  of the  Payment to be subject to the excise tax
          imposed by Code Section 4999.

          If the  independent  accountant  determines  that any Payment would be
          nondeductible  by the Company because of Code Section 280G or that any
          portion of the  Payment  would be subject to the excise tax imposed by
          Code Section 4999, the Company shall promptly give Executive notice to
          that effect.  The  Executive may then  elect,in the  Executive's  sole
          discretion,  which  and how much of the  Agreement  Payments  shall be
          eliminated  or reduced (as long as after such  election the  aggregate
          present value of the Agreement Payments equals the Reduced Amount, and
          shall advise the Company in writing of the Executive's election within
          ten (10) days after the Executive's receipt of such notice. If no such
          election is made by the  Executive  within such  ten-day  period,  the
          Company may elect which and how much of the Agreement  Payments  shall
          be eliminated or reduced (as long as after such election the aggregate
          present value of the Agreement Payments equals the Reduced Amount) and
          shall notify the Executive promptly of such election.  For purposes of
          this  paragraph,  present value shall be determined in accordance with
          Code Section  280G(d)(4).  All determinations  made by the independent
          accountant  under this paragraph shall be binding upon the Company and
          the  Executive  and  shall  be  made  within  sixty  (60)  days  of  a
          termination of employment of the Executive. As promptly as practicable
          following such determination and the elections hereunder,  the Company
          shall pay to or distribute to or for the benefit of the Executive such
          amounts as are then due to the Executive  hereunder and shall promptly
          pay to or  distribute  for the benefit of the  Executive in the future
          such amounts as become due to the Executive hereunder.

                                       7

          As a result of the uncertainty in the application of Code Section 280G
          and 4999 at the time of the initial  determination  by the independent
          accountant  hereunder,  it is possible that Agreement Payments will be
          made by the Company which should not have been made ("Overpayment") or
          that  additional  Agreement  Payments  which have not been made by the
          Company  should  have  been  made  ("Underpayment"),   in  each  case,
          consistent  with the calculation of the Reduced Amount  hereunder.  In
          the event that the independent accountant, based upon the assertion of
          a deficiency by the Internal  Revenue  Service  against the Company or
          the Executive  which the  independent  accountant  believes has a high
          probability of success,  determines that an Overpayment has been made,
          any such  Overpayment  shall be treated for all  purposes as a loan to
          the Executive which the Executive shall repay to the Company, together
          with  interest at the  applicable  Federal  rate  provided for in Code
          Section 7872(f)(2); provided, however, that no amount shall be payable
          by the  Executive  to the  Company if and to the extent  such  payment
          would not reduce the amount  which is subject to  taxation  under Code
          Section 4999 or if the period of  limitations  for  assessment  of tax
          under Code Section 4999 against the Executive  shall have expired.  If
          the Executive is required to repay an amount under this  Section,  the
          Executive  shall repay such amount over a period of time not to exceed
          one (1) year for each twenty-five thousand dollars ($25,000) which the
          Executive must repay to the Company. In the event that the independent
          accountant,  based  upon  controlling  precedent,  determines  that an
          Underpayment  has occurred,  any such  Underpayment  shall be promptly
          paid by the  Company to or for the benefit of the  Executive  together
          with  interest at the  applicable  Federal  rate  provided for in Code
          Section 7872(f)(2)(A).

4.2  Death.  If the  Executive's  employment  is  terminated  by  reason  of the
     Executive's  death during the Term hereof  (either prior or subsequent to a
     Change  in  Control  but  prior  to a  termination  of  employment  by  the
     Executive),  this Agreement shall terminate  without further  obligation to
     the Executive's legal representatives hereunder.

4.3  Disability.  If the  Executive's  employment is terminated by reason of the
     Executive's  Disability  during the Term hereof  subsequent  to a Change in
     Control,  this Agreement shall terminate without further obligations to the
     Executive.

4.4  Termination for Cause;  Executive's  Termination Other Than for Good Reason
     After  a  Change  in  Control.  If  the  Executive's  employment  shall  be
     terminated  for Cause during the Term hereof (either prior to or subsequent
     to a Change in Control),  this Agreement  shall  terminate  without further
     obligations to the Executive.  If the Executive terminates  employment with
     the  Company  during the Term hereof  (other  than for Good Reason  after a
     Change  in  Control),   this  Agreement  shall  terminate  without  further
     obligations to the Executive.

4.5  Non-Exclusivity  of  Rights.  Nothing  herein  shall  prevent  or limit the
     Executive's continuing or future participation in any plan, program, policy
     or  practice  provided  by the  Company  and for  which the  Executive  may
     qualify, nor shall anything herein limit or otherwise affect such rights as
     the  Executive  may have under any contract or agreement  with the Company.
     Amounts  which are vested  benefits  of which the  Executive  is  otherwise
     entitled to receive under any plan, policy, practice or program of , or any
     contract or agreement  with,  the Company at or  subsequent  to the Date of
     Termination,  shall be  payable  in  accordance  with  such  plan,  policy,
     practice or program or contract or agreement except as explicitly  modified
     by this Agreement.

                                       8

4.6  Full Settlement. The Company's obligation to make the payments provided for
     herein and  otherwise  to perform its  obligations  hereunder  shall not be
     affected by any set-off, counterclaim,  recoupment, defense or other claim,
     right or action which the Company may have against the Executive or others,
     other  than for the  repayment  of any debt  owed the  Company  which is in
     default or to receive  reimbursement of funds determined to have been taken
     through  malfeasance.  In no event shall the Executive be obligated to seek
     other  employment  or take any  other  action by way of  mitigation  of the
     amount  payable to the Executive  under any of the provisions  hereof.  The
     Company agrees, only on and after a Change in Control Date, to pay promptly
     as incurred all reasonable  legal fees and expenses which the Executive may
     reasonably incur as a result of any unsuccessful  contest by the Company or
     successful   contest   by   the   Executive,    his   heirs,    agents   or
     attorneys-in-fact,  of the  validity  or  enforceability  of, or  liability
     under, any provision hereof or any guarantee of performance  thereof,  plus
     in each case interest on any delayed payment at the applicable Federal rate
     provided for in Code Section  7872(f)(2)(A).  If Executive  commits acts of
     malfeasance  during his  employment  which result in the conviction of said
     Executive of a crime, Executive shall be entitled to no benefits under this
     agreement from and after the date of such conviction.

4.7  Resolution of Disputes.  If there shall be any dispute  between the Company
     and the Executive (a) in the event of any  termination  of the  Executive's
     employment by the Company,  whether or not such  termination was for Cause,
     or (b) in the event of any  termination  of  employment  by the  Executive,
     whether Good Reason existed,  then, the entire amount payable under Section
     4.1 of this  agreement  shall  be held in  escrow  until  there  is a final
     nonappealable  judgment  by a  court  of  competent  jurisdiction.  If said
     judgment  declares  that such  termination  was  without  Cause or that the
     determination  by the Executive of the existence of Good Reason was made in
     good faith,  the Escrow Agent shall,  only on and after a Change in Control
     Date, pay all amounts,  including any interest  earned on any funds held in
     escrow,  and provide all benefits,  to the Executive and/or the Executive's
     family or other  beneficiaries,  as the case may be, that the Company would
     be  required  to pay or  provide  pursuant  to Section  4.1 as though  such
     termination were by the Company without Cause or by the Executive with Good
     Reason.  In the event,  however,  that the Company shall not be required to
     pay any disputed  amounts  pursuant to this paragraph,  such funds shall be
     payable to the Company.

     During the period of time the funds are held in  escrow,  the Escrow  Agent
     shall pay to the Executive,  the Executive's  spouse, or named beneficiary,
     as the case may be, a monthly  amount of 1/36 of the severance  amount less
     any monthly W-2,  Schedule C or Schedule F earnings  reportable on Internal
     Revenue  Service  Form 1040 which are  received by the  Executive  from his
     present employer, or any future employer or employers, until the earlier of
     36 months or the  exhaustion of the entire  severance  amount plus interest
     thereon.

     The severance amount set aside in escrow shall be invested according to the
     provisions of the escrow  agreement  attached hereto as "Exhibit A" and the
     interest earned included in the Amount payable to the Executive.

     As a condition of placing the  severance  amount in escrow,  the  Executive
     shall execute an agreement which shall be binding on Executive's  spouse or
     other  beneficiaries  to repay all such  amounts to which the  Executive is
     ultimately adjudged by such court not to be entitled.

                                       9

Section 5: Confidential Information.

     The  Executive  shall hold in a fiduciary  capacity  for the benefit of the
     Company all secret or confidential information,  knowledge or data relating
     to the Company  and its or their  respective  businesses,  which shall have
     been obtained by the  Executive  during the  Executive's  employment by the
     Company and which shall not be or become  public  knowledge  (other than by
     acts of the Executive or  representatives  of the Executive in violation of
     this Agreement).  After termination of the Executive's  employment with the
     Company,  the Executive shall not, without the prior written consent of the
     Company,  or as  may  otherwise  be  required  by  law  or  legal  process,
     communicate  or divulge any such  information,  knowledge or data to anyone
     other than the  Company  and those  designated  by it. In no event shall an
     asserted violation of the provisions of this Section constitute a basis for
     deferring or  withholding  any amounts  otherwise  payable to the Executive
     under this Agreement.

Section 6: Successors.

6.1  Successors of Executive.  This  Agreement is personal to the Executive and,
     without the prior written  consent of the Company,  shall not be assignable
     by the  Executive  otherwise  than  by  will or the  laws  of  descent  and
     distribution.  This  Agreement  shall  inure  to  the  benefit  of  and  be
     enforceable by the Executive's legal representatives.

6.2  Successors  of Company.  The Company  will require any  successor  (whether
     direct or indirect, by purchase, merger, consolidation or otherwise) to all
     or substantially all of the business and/or assets of the Company to assume
     expressly and agree to perform this Agreement in the same manner and to the
     same  extent  that the  Company  would be required to perform it if no such
     succession had taken place. Failure of the Company to obtain such agreement
     upon the  effectiveness of any such succession shall be a breach hereof and
     shall entitle the  Executive to terminate  under the terms of the Agreement
     at the  Executive's  option on or after  the  Change  in  Control  for Good
     Reason.  As used herein,  "Company"  shall mean the Company as hereinbefore
     defined and any  successor to its business  and/or assets which assumes and
     agrees to perform this Agreement by operation of law, or otherwise.

Section 7: Miscellaneous.

7.1  Notice.   For   purposes   of  this   Agreement,   notices  and  all  other
     communications  provided for herein shall be in writing and shall be deemed
     to have been duly given when delivered or mailed by certified or registered
     mail, return receipt requested,postage prepaid, addressed to the respective
     addresses  as set forth  below;  provided  that all  notices to the Company
     shall be  directed  to the  attention  of the  Chairman of the Board of the
     Company with copies to the Chief Executive Officer and the Secretary of the
     Company,  or to such other  address as one party may have  furnished to the
     other in writing in  accordance  herewith,  except that notice of change of
     address shall be effective only upon receipt.

     Notice to Executive:

     Stuart R. Johnson
     2803 Confederate Avenue
     Tupelo, MS   38801

     Notice to Company:

     The Peoples Holding Company
     209 Troy Street
     P. O. Box 709
     Tupelo, MS 38802-0709

                                       10

7.2  Validity.  The invalidity or unenforceability of any provision hereof shall
     not affect the  validity  or  enforceability  of any other  portion of this
     Agreement.

7.3  Withholding.  The Company may withhold from any amounts  payable  hereunder
     such  federal,  state,  or local  taxes as shall be required to be withheld
     pursuant to any applicable law or regulation.

7.4  Waiver.  The  Executive's or the Company's  failure to insist upon a strict
     compliance with any provision  hereof or any other provision  hereof or the
     failure  to  assert  any  right  the  Executive  or the  Company  may  have
     hereunder,  including,  without  limitation,the  right of the  Executive to
     terminate  employment for Good Reason  pursuant to Section 3.4 shall not be
     deemed to be a waiver of such provision or right or any other  provision or
     right hereof.

7.5  Effect on Other Employment Agreements. The terms hereof shall supersede all
     other employment or other agreements with respect to severance entered into
     by and between the  Executive  and the Company,  or the  Executive  and any
     other employer, and this Agreement shall constitute the governing agreement
     pursuant to which the Company shall have  obligations to the Executive upon
     the  termination of the  Executive's  relationship  with the Company or any
     subsidiary.

IN WITNESS WHEREOF, the Executive and the Company, pursuant to the authorization
from its Board,  have  caused this  Agreement  to be executed in its name on its
behalf,all as of the day and year first above written.

                                           By : /s/ Stuart R. Johnson
                                                ----------------------
                                                  Stuart R. Johnson
                                                     EXECUTIVE

       ATTEST                               THE PEOPLES HOLDING COMPANY

By : /s/ Martha Webb                       By : /s/ E. Robinson McGraw
     ----------------------                     ----------------------
        Martha Webb                               E. Robinson McGraw
         Secretary                       President and Chief Executive Officer

                                       11

Exhibit 10.9
                           THE PEOPLES HOLDING COMPANY

                              EMPLOYMENT AGREEMENT

This  Agreement  ("Agreement")  has been entered into this 10th day of February,
1998, by and between The Peoples Holding Company ("Company"), and James W. Gray,
an individual ("Executive").

                                    RECITALS

The Board of Directors of the Company ("Board") has determined that it is in the
best interest of the Company and its stockholders to reinforce and encourage the
continued  attention and  dedication of the Executive to the Company as a member
of management of the Company or as a member of management of a subsidiary of the
Company,  and to assure that the Company will have the  continued  dedication of
the  Executive,  notwithstanding  the  possibility,  threat,  or occurrence of a
Change in Control (as defined below) of the Company.  The Board believes that it
is imperative to diminish the inevitable  distraction of the Executive by virtue
of the  personal  uncertainties  and risks  created by a pending  or  threatened
Change in Control and to encourage the Executive's full attention and dedication
to the Company or a subsidiary  currently and in the event of any  threatened or
pending  Change in Control  which  ensures  that the  compensation  and  benefit
expectations of the Executive will be satisfied and which are  competitive  with
those of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement.

                            IT IS AGREED AS FOLLOWS:

Section 1: Definitions and Construction.

1.1  Definitions.  For  purposes  of this  Agreement,  the  following  words and
     phrases, whether or not capitalized, shall have the meaning specified below
     unless the context plainly requires a different meaning.

     (a)  "Board" means the Board of Directors of the Company.

     (b)  "Change in Control" means any liquidation, dissolution,  consolidation
          or merger of the Company in which the Company is not a  continuing  or
          surviving corporation.

     (c)  "Change in Control Date" shall mean the date of the change in control.

     (d)  "Code" shall mean the Internal Revenue Code of 1986, as amended.

     (e)  "Company"   means  The  Peoples   Holding   Company,   a   Mississippi
          Corporation, for the purpose of determining if a change in control has
          occurred. For the purpose of an employment  relationship,  it includes
          any subsidiary or successor of The Peoples Holding Company.

     (f)  "Effective Date" shall mean February 10, 1998.

     (g)  "Exchange  Act" means the  Securities  and  Exchange  Act of 1934,  as
          amended.

     (h)  "Person"  means any "person"  within the meaning of Section  13(d) and
          14(d) of the Exchange Act.

                                       1

     (i)  "Term" means the period that begins on the effective  date and ends on
          the anniversary of the effective  date,  unless prior thereto a Change
          in Control  shall have  occurred.  This contract  shall  automatically
          renew for  additional  one- (1) year terms  unless  either party shall
          give the other party at least ninety (90) days' advance written notice
          of said  party's  intention  not to  renew  said  contract;  provided,
          however, the Company shall not be able to give notice of its intention
          not to renew the  contract  following  a Change in Control or if it is
          involved in any  negotiations,  whether  formal or informal,  that may
          result in a Change in Control.

1.2  Gender and Number.  When appropriate, pronouns herein used in the masculine
     gender  include the  feminine  gender,  words in the  singular  include the
     plural, and words in the plural include the singular.

1.3  Headings. All headings herein are included solely for ease of reference and
     do not bear on the interpretation of the text. Accordingly, as used herein,
     the  terms  "Article"  and  "Section"  mean the text that  accompanies  the
     specified Article or Section hereof.

1.4  Applicable  Law.  This  agreement  shall be  governed by and  construed  in
     accordance with the laws of the State of Mississippi  without  reference to
     its conflicts of law principles.

Section 2: Terms and Conditions of Employment.

2.1  Severance  Benefits.  In order to  induce  the  Executive  to remain in the
     employ of the Company and in consideration  of the Executive's  agreeing to
     remain in the employ of the  Company,  subject to the terms and  conditions
     set forth herein,  this Agreement  sets forth the severance  benefits which
     the  Company  agrees will be  provided  to the  Executive  in the event the
     Executive's  employment  with the  Company is  terminated  subsequent  to a
     Change in Control under the circumstances described herein.

2.2  Positions  and  Duties.  Prior  to  the  receipt  of  benefits  under  this
     Agreement,  the Executive  shall serve as an officer of the Company or of a
     subsidiary thereof,  subject to the reasonable  directions of the Board and
     the immediate superior of the Executive. During the term of this Agreement,
     Executive  agrees that Executive will not  voluntarily  leave the employ of
     the Company  except as may be provided  hereunder.  Any  violation  of this
     Section 2.2 by the Executive prior to a Change in Control shall result in a
     termination  hereof,  and  the  Executive  shall  have no  other  liability
     hereunder for such action.  In  consideration  of this,  the Company agrees
     that following a Change in Control, the Executive's  authority,  duties and
     responsibilities  shall be at least  commensurate in all material  respects
     with those assigned to, or held and exercised by, the Executive immediately
     preceding the date on which a Change in Control occurs. Notwithstanding the
     foregoing,  the Company may  terminate  the  Executive's  employment at any
     time,  subject to  providing  the  benefits  hereinafter  specified  and in
     accordance with the terms hereof.

                                       2

2.3  Situs of  Employment.  Following a Change in Control,  the new entity shall
     make a good faith effort to provide the Executive with the type and kind of
     employment  described  herein  at the  location  where  the  Executive  was
     providing his services prior to the Change of Control.  However, if the new
     entity decides it must transfer or relocate the Executive,  it will provide
     the Executive the following benefits:  (a) purchase the Executive's home at
     its  average  appraised  value  plus at least  10% of the  appraised  value
     (appraised value being the average of an appraised value by a duly licensed
     and qualified  appraiser  selected by the Executive and the appraised value
     of a duly licensed and qualified  appraiser  selected by Company);  (b) pay
     all reasonable  cost and expenses  incurred by the Executive in moving to a
     new location; (c) provide the Executive an immediate increase in his annual
     income  of at least  6%;  (d)  require  no  transfer  or  relocation  of an
     Executive who has school age children until the end of the school year; (e)
     pay to Executive  seventy-five  percent (75%),  not to exceed Five Thousand
     Dollars  ($5,000.00) per child per year, of the tuition of a private school
     if Executive  has a school child or children and the  Executive  reasonably
     determines  it to be in the best  interest  of such  child or  children  to
     attend a private school at the new situs of employment.

2.4  Compensation.

     (a)  Annual Base Salary. The Annual Base Salary ("Annual Base Salary")shall
          be an amount equal to the salary the Executive  was  receiving  during
          the month  immediately  preceding  a Change in Control  computed on an
          annualized basis.

     (b)  Incentive Bonuses.  Incentive Bonuses  ("Incentive  Bonus") shall mean
          any bonuses provided through any incentive  compensation plan, subject
          to the provisions of such plan.

     (c)  Welfare Benefit Plans.  Welfare  benefit plans shall mean  practices,
          policies  and  programs  provided by the Company  (including,  without
          limitation,   medical,   prescription,   dental,  disability,   salary
          continuance,  employee life,  group life,  accidental death and travel
          accident  insurance  plans and programs),  subject to the provision of
          such welfare benefit plans.

Section 3: Termination of Employment.

3.1  Death. The Executive's  employment shall terminate  automatically  upon the
     Executive's  death  during  the  Term  of this  Agreement  and  prior  to a
     termination of employment by the Executive.

3.2  Disability.  Following a Change in Control,  if the Company  determines  in
     good faith that a Disability of the Executive has occurred (pursuant to the
     definition  of  Disability  set forth  below),  the Company may give to the
     Executive written notice in accordance with Section 7.1 of the intention of
     the Company to terminate the  Executive's  employment.  In such event,  the
     Executive's  employment with the Company shall  terminate  effective on the
     thirtieth  (30th) day after  receipt of such notice by the  Executive  (the
     "Disability  Effective  Date"),  provided that, within the thirty (30) days
     after such  receipt,  the  Executive  shall not have  returned to full-time
     performance  of the  Executive's  duties.  For purposes of this  Agreement,
     "Disability"  shall mean that the  Executive has been unable to perform the
     services  required of the  Executive  hereunder on a full-time  basis for a
     period of one hundred-eighty (180) consecutive business days by reason of a
     physical  and/or mental  condition.  "Disability"  shall be deemed to exist
     when  certified by a physician  selected by the Company or its insurers and
     acceptable to the Executive or the Executive's legal  representative  (such
     agreement  as to  acceptability  not  to  be  withheld  unreasonably).  The
     Executive will submit to such medical or psychiatric examinations and tests
     as  such   physician   deems   necessary   to  make  any  such   Disability
     determination.

                                       3

3.3  Termination  for Cause.  Following  a Change in  Control,  the  Company may
     terminate  the  Executive's   employment  for  "Cause,"  which  shall  mean
     termination  based upon: (a) the Executive's  willful and continued failure
     to perform the Executive's  duties with the Company (other than as a result
     of  incapacity  due to  physical or mental  condition),  after a demand for
     substantial  performance  is  delivered  to  the  Executive  by  the  Chief
     Executive  Officer of the  Company  or the  Chairman  of the  Board,  which
     specifically   identifies  the  manner  in  which  the  Executive  has  not
     substantially performed the Executive's duties, (b) the Executive's willful
     commission  of  misconduct  which is  materially  injurious to the Company,
     monetarily  or otherwise,  or (c) the  Executive's  material  breach of any
     provision  of this  Agreement.  For purposes of this  paragraph,  no act or
     failure to act on the Executive's part shall be considered "willful" unless
     done,  or omitted to be done,  without  good faith and  without  reasonable
     belief that the act or omission  was in the best  interests of the Company.
     Notwithstanding  the foregoing,  the Executive  shall not be deemed to have
     been  terminated  for Cause unless and until (a) the  Executive  receives a
     notice of Termination  (as defined in Section 3.5) from the Chief Executive
     Officer of the Company or the Chairman of the Board,  (b) the  Executive is
     given the opportunity,  with counsel, to be heard before the Board, and (c)
     the Board finds,  in its good faith opinion,  that the Executive was guilty
     of the conduct set forth in the Notice of Termination.

3.4  Good Reason.  Following a Change in Control,  the  Executive  may terminate
     employment with the Company for "Good Reason," which shall mean termination
     based upon:

     (a)  the  assignment  to the  Executive of any duties  inconsistent  in any
          respect  with  the   Executive's   position,   authority,   duties  or
          responsibilities as contemplated by Section 2.2 or any other action by
          the Company which results in a material  diminution in such  position,
          authority, duties or responsibilities,  excluding for this purpose any
          action  not taken in bad faith and which is  remedied  by the  Company
          promptly after notice thereof given by the Executive;

     (b)  (i) the  failure by the  Company to  continue in effect any benefit or
          compensation  plan, stock ownership plan, life insurance plan,  health
          and  accident  plan or  disability  plan in  which  the  Executive  is
          participating  as  specified  in Section  2.4(b) or 2.4(c) or (ii) the
          taking of any action by the Company which would  adversely  affect the
          Executive's  participation  in,or  materially  reduce the  Executive's
          benefits  under,  any plans  described in Section  2.4(b) or 2.4(c),or
          deprive the Executive of any material  fringe  benefit  enjoyed by the
          Executive as described in Section 2.4(b) or 2.4(c);

     (c)  a material breach by the Company of any provision hereof;

     (d)  any termination by the Company of the Executive's employment otherwise
          than as expressly permitted by this Agreement;

     (e)  within a period  ending at the close of business on the date three (3)
          years after the Change in Control Date,  any failure by the Company to
          comply with and satisfy  Section 6.2 on or after the Change in Control
          Date.

                                       4

3.5  Notice  of  Termination.  Any  termination  by the  Company  for  Cause  or
     Disability,  or by the Executive for Good Reason,  shall be communicated by
     Notice of Termination to the other party,  given in accordance with Section
     7.1.  For purposes of this  Agreement,  a "notice of  Termination"  means a
     written  notice  which (a)  indicates  the specific  termination  provision
     herein relied upon, (b) to the extent applicable,  sets forth in reasonable
     detail  the  facts  and  circumstances  claimed  to  provide  a  basis  for
     termination of the Executive's employment under the provision so indicated,
     and (c) if the Date of  Termination  (as  defined  below) is other than the
     date of receipt of such notice,  specifies the termination date (which date
     shall be not more than thirty  [30] days after the giving of such  notice).
     The failure by the  Executive  or the Company to set forth in the Notice of
     Termination any fact or circumstance which contributes to a showing of Good
     Reason or Cause shall not waive any right of the  Executive  or the Company
     hereunder or preclude the Executive or the Company from asserting such fact
     or  circumstance  in enforcing  the  Executive's  or the  Company's  rights
     hereunder.

3.6  Date of  Termination.  "Date of  Termination"  means (a) if the Executive's
     employment is terminated  by the Company with or without  Cause,  or by the
     Executive  for Good Reason,  the date of  Termination  shall be the date of
     receipt of the Notice of Termination  or any later date specified  therein,
     as the case may be, or (b) if the  Executive's  employment is terminated by
     reason of death or Disability, the Date of Termination shall be the date of
     death of the Executive or the  Disability  Effective  Date, as the case may
     be.

Section 4: Certain Benefits Upon Termination of Employment.

4.1  Termination after a Change in Control. If a Change in Control occurs during
     the Term of this  Agreement and within three (3) years after such Change in
     Control,  either the Company  shall  terminate the  Executive's  employment
     without Cause, or the Executive shall terminate employment with the Company
     for Good  Reason,  then the  Executive  shall be entitled  to the  benefits
     provided  below for the three year  period  after  Change in Control or the
     remaining  portion  of  said  three  year  period  following  the  date  of
     termination.

     (a)  "Accrued Obligations":  On the tenth (10th) business day following the
          Date of Termination, the Company shall pay to the Executive the sum of
          (i) the Executive's  Annual Base Salary  prorated  through the Date of
          Termination  to the extent not  previously  paid, and (ii) any accrued
          vacation pay to the extent not previously paid.

     (b)  "Severance Amount": The "Severance Amount" shall be an amount equal to
          2.99  times  the  Executive's  Annual  Base  Salary  in  effect on the
          business  day prior to the Date of  Termination  plus  2.99  times the
          average annual  incentive  bonus for the two years prior to the Change
          in Control.  The  Company  shall set aside this amount in escrow for a
          period of three years and the Escrow Agent shall pay to the Executive,
          beginning  on the tenth  (10th)  business  day  following  the Date of
          Termination,  a  monthly  amount  of  one-thirty-sixth  (1/36)  of the
          severance  amount  less any  monthly  W-2,  Schedule  C or  Schedule F
          earnings  reportable on Internal  Revenue  Service Form 1040 which are
          received  by the  Executive  from his  present  employer or any future
          employer or  employers  for a period of 36 months or until the earlier
          exhaustion of the entire  severance amount plus interest  thereon.

                                       5

          In the event of the Executive's  death after a termination for which a
          "Severance Amount" is payable,  the Escrow Agent shall continue to pay
          to the  Executive's  spouse or other named  beneficiary  the remaining
          obligation owed the Executive under the terms of this contract and the
          Escrow Agreement.  The Company may, however,  at its option,  elect to
          pay the  Severance  Amount  to the  Executive,  or in the event of his
          death,  his  spouse  or  other  named  beneficiary,  in the  form of a
          lump-sum cash payment on or before the date the first monthly  payment
          is due; or the Company,  at its option,  at anytime during the term of
          the  Escrow  Agreement,  can  direct  the  Escrow  Agent  to  pay  the
          Executive,  the Executive's spouse, or named beneficiary,  as the case
          may be, the then remaining balance of the severance  amount,  plus any
          accrued and accumulated  interest  thereon,  in the form of a lump-sum
          cash payment, and the rights and obligations of all parties under both
          the Employment Agreement and Escrow Agreement shall be terminated.

          In the event,  subsequent  to the  Change in  Control,  the  Executive
          becomes an employee of any competing  commercial  bank,  savings bank,
          savings   and  loan   association,   or   credit   union   ("financial
          institution")  in the defined market area of the Employer prior to the
          Change in Control,  then any  obligation  of the  Employer  under this
          Section is terminated,  and the Executive shall not be entitled to any
          further benefits under this Agreement.

          The severance  amount set aside in escrow shall be invested  according
          to the provisions of the escrow agreement  attached hereto as "Exhibit
          A" and the  interest  earned  included  in the  amount  payable to the
          Executive.  Any severance  amounts not paid to the Executive  shall be
          returned to the Company at the end of the 36-month  escrow period,  or
          sooner  should  the  Executive  accept  employment  with  a  competing
          "financial  institution" as defined above.  All interest earned on the
          account shall be paid to the Executive  following the final  severance
          payment.

     (c)  "Other Benefits":  To the extent not previously provided,  the Company
          shall timely pay or provide to the  Executive  and/or the  Executive's
          family any other  amounts or benefits  required to be paid or provided
          for which the Executive  and/or the Executive's  family is eligible to
          receive  pursuant  hereto  and  under  any  plan,  program,  policy or
          practice  or contract or  agreement  of the Company as those  provided
          generally  to other  peer  executives  and their  families  during the
          ninety (90) day period immediately preceding the Effective Date or, if
          more favorable to the Executive, as those provided generally after the
          Effective  Date to other  peer  executives  of the  Company  and their
          families.

     (d)  If  termination  of the  Executive  occurs less than three years after
          such Change in Control,  then the benefits  provided by this Agreement
          shall be pro rated on the ratio of the remaining portion of said three
          year period to the full three year period following Change in Control.

                                       6

     (e)  "Excess   Parachute   Payment":   Anything   herein  to  the  contrary
          notwithstanding,  in the event that an  independent  accountant  shall
          determine  that any payment or  distribution  by the Company to or for
          the benefit of Executive  (whether paid or payable or  distributed  or
          distributable pursuant to the terms hereof or otherwise) (a "Payment")
          would be  nondeductible by the Company for Federal income tax purposes
          because of Code Section 280G or would constitute an "excess  parachute
          payment" (as defined in Code Section 280G), then the aggregate present
          value of amounts payable or distributable to or for the benefit of the
          Executive  pursuant hereto or pursuant to any other agreement with the
          company  because  of the  occurrence  of a  Change  in  Control  (such
          payments or  distributions  are hereinafter  referred to as "Agreement
          Payments")  shall be  reduced  (but  not  below  zero) to the  Reduced
          Amount. For purposes of this paragraph,  the "Reduced Amount" shall be
          an amount  expressed in present  value which  maximizes  the aggregate
          present value of Agreement  Payments without causing any payment to be
          nondeductible  by the Company  because of Code Section 280G or without
          causing  any  portion  of the  Payment to be subject to the excise tax
          imposed by Code Section 4999.

          If the  independent  accountant  determines  that any Payment would be
          nondeductible  by the Company because of Code Section 280G or that any
          portion of the  Payment  would be subject to the excise tax imposed by
          Code Section 4999, the Company shall promptly give Executive notice to
          that effect.  The  Executive may then  elect,in the  Executive's  sole
          discretion,  which  and how much of the  Agreement  Payments  shall be
          eliminated  or reduced (as long as after such  election the  aggregate
          present value of the Agreement Payments equals the Reduced Amount, and
          shall advise the Company in writing of the Executive's election within
          ten (10) days after the Executive's receipt of such notice. If no such
          election is made by the  Executive  within such  ten-day  period,  the
          Company may elect which and how much of the Agreement  Payments  shall
          be eliminated or reduced (as long as after such election the aggregate
          present value of the Agreement Payments equals the Reduced Amount) and
          shall notify the Executive promptly of such election.  For purposes of
          this  paragraph,  present value shall be determined in accordance with
          Code Section  280G(d)(4).  All determinations  made by the independent
          accountant  under this paragraph shall be binding upon the Company and
          the  Executive  and  shall  be  made  within  sixty  (60)  days  of  a
          termination of employment of the Executive. As promptly as practicable
          following such determination and the elections hereunder,  the Company
          shall pay to or distribute to or for the benefit of the Executive such
          amounts as are then due to the Executive  hereunder and shall promptly
          pay to or  distribute  for the benefit of the  Executive in the future
          such amounts as become due to the Executive hereunder.

                                       7

          As a result of the uncertainty in the application of Code Section 280G
          and 4999 at the time of the initial  determination  by the independent
          accountant  hereunder,  it is possible that Agreement Payments will be
          made by the Company which should not have been made ("Overpayment") or
          that  additional  Agreement  Payments  which have not been made by the
          Company  should  have  been  made  ("Underpayment"),   in  each  case,
          consistent  with the calculation of the Reduced Amount  hereunder.  In
          the event that the independent accountant, based upon the assertion of
          a deficiency by the Internal  Revenue  Service  against the Company or
          the Executive  which the  independent  accountant  believes has a high
          probability of success,  determines that an Overpayment has been made,
          any such  Overpayment  shall be treated for all  purposes as a loan to
          the Executive which the Executive shall repay to the Company, together
          with  interest at the  applicable  Federal  rate  provided for in Code
          Section 7872(f)(2); provided, however, that no amount shall be payable
          by the  Executive  to the  Company if and to the extent  such  payment
          would not reduce the amount  which is subject to  taxation  under Code
          Section 4999 or if the period of  limitations  for  assessment  of tax
          under Code Section 4999 against the Executive  shall have expired.  If
          the Executive is required to repay an amount under this  Section,  the
          Executive  shall repay such amount over a period of time not to exceed
          one (1) year for each twenty-five thousand dollars ($25,000) which the
          Executive must repay to the Company. In the event that the independent
          accountant,  based  upon  controlling  precedent,  determines  that an
          Underpayment  has occurred,  any such  Underpayment  shall be promptly
          paid by the  Company to or for the benefit of the  Executive  together
          with  interest at the  applicable  Federal  rate  provided for in Code
          Section 7872(f)(2)(A).

4.2  Death.  If the  Executive's  employment  is  terminated  by  reason  of the
     Executive's  death during the Term hereof  (either prior or subsequent to a
     Change  in  Control  but  prior  to a  termination  of  employment  by  the
     Executive),  this Agreement shall terminate  without further  obligation to
     the Executive's legal representatives hereunder.

4.3  Disability.  If the  Executive's  employment is terminated by reason of the
     Executive's  Disability  during the Term hereof  subsequent  to a Change in
     Control,  this Agreement shall terminate without further obligations to the
     Executive.

4.4  Termination for Cause;  Executive's  Termination Other Than for Good Reason
     After  a  Change  in  Control.  If  the  Executive's  employment  shall  be
     terminated  for Cause during the Term hereof (either prior to or subsequent
     to a Change in Control),  this Agreement  shall  terminate  without further
     obligations to the Executive.  If the Executive terminates  employment with
     the  Company  during the Term hereof  (other  than for Good Reason  after a
     Change  in  Control),   this  Agreement  shall  terminate  without  further
     obligations to the Executive.

4.5  Non-Exclusivity  of  Rights.  Nothing  herein  shall  prevent  or limit the
     Executive's continuing or future participation in any plan, program, policy
     or  practice  provided  by the  Company  and for  which the  Executive  may
     qualify, nor shall anything herein limit or otherwise affect such rights as
     the  Executive  may have under any contract or agreement  with the Company.
     Amounts  which are vested  benefits  of which the  Executive  is  otherwise
     entitled to receive under any plan, policy, practice or program of , or any
     contract or agreement  with,  the Company at or  subsequent  to the Date of
     Termination,  shall be  payable  in  accordance  with  such  plan,  policy,
     practice or program or contract or agreement except as explicitly  modified
     by this Agreement.

                                       8

4.6  Full Settlement. The Company's obligation to make the payments provided for
     herein and  otherwise  to perform its  obligations  hereunder  shall not be
     affected by any set-off, counterclaim,  recoupment, defense or other claim,
     right or action which the Company may have against the Executive or others,
     other  than for the  repayment  of any debt  owed the  Company  which is in
     default or to receive  reimbursement of funds determined to have been taken
     through  malfeasance.  In no event shall the Executive be obligated to seek
     other  employment  or take any  other  action by way of  mitigation  of the
     amount  payable to the Executive  under any of the provisions  hereof.  The
     Company agrees, only on and after a Change in Control Date, to pay promptly
     as incurred all reasonable  legal fees and expenses which the Executive may
     reasonably incur as a result of any unsuccessful  contest by the Company or
     successful   contest   by   the   Executive,    his   heirs,    agents   or
     attorneys-in-fact,  of the  validity  or  enforceability  of, or  liability
     under, any provision hereof or any guarantee of performance  thereof,  plus
     in each case interest on any delayed payment at the applicable Federal rate
     provided for in Code Section  7872(f)(2)(A).  If Executive  commits acts of
     malfeasance  during his  employment  which result in the conviction of said
     Executive of a crime, Executive shall be entitled to no benefits under this
     agreement from and after the date of such conviction.

4.7  Resolution of Disputes.  If there shall be any dispute  between the Company
     and the Executive (a) in the event of any  termination  of the  Executive's
     employment by the Company,  whether or not such  termination was for Cause,
     or (b) in the event of any  termination  of  employment  by the  Executive,
     whether Good Reason existed,  then, the entire amount payable under Section
     4.1 of this  agreement  shall  be held in  escrow  until  there  is a final
     nonappealable  judgment  by a  court  of  competent  jurisdiction.  If said
     judgment  declares  that such  termination  was  without  Cause or that the
     determination  by the Executive of the existence of Good Reason was made in
     good faith,  the Escrow Agent shall,  only on and after a Change in Control
     Date, pay all amounts,  including any interest  earned on any funds held in
     escrow,  and provide all benefits,  to the Executive and/or the Executive's
     family or other  beneficiaries,  as the case may be, that the Company would
     be  required  to pay or  provide  pursuant  to Section  4.1 as though  such
     termination were by the Company without Cause or by the Executive with Good
     Reason.  In the event,  however,  that the Company shall not be required to
     pay any disputed  amounts  pursuant to this paragraph,  such funds shall be
     payable to the Company.

     During the period of time the funds are held in  escrow,  the Escrow  Agent
     shall pay to the Executive,  the Executive's  spouse, or named beneficiary,
     as the case may be, a monthly  amount of 1/36 of the severance  amount less
     any monthly W-2,  Schedule C or Schedule F earnings  reportable on Internal
     Revenue  Service  Form 1040 which are  received by the  Executive  from his
     present employer, or any future employer or employers, until the earlier of
     36 months or the  exhaustion of the entire  severance  amount plus interest
     thereon.

     The severance amount set aside in escrow shall be invested according to the
     provisions of the escrow  agreement  attached hereto as "Exhibit A" and the
     interest earned included in the Amount payable to the Executive.

     As a condition of placing the  severance  amount in escrow,  the  Executive
     shall execute an agreement which shall be binding on Executive's  spouse or
     other  beneficiaries  to repay all such  amounts to which the  Executive is
     ultimately adjudged by such court not to be entitled.

                                       9

Section 5:  Confidential  Information.

     The  Executive  shall hold in a fiduciary  capacity  for the benefit of the
     Company all secret or confidential information,  knowledge or data relating
     to the Company  and its or their  respective  businesses,  which shall have
     been obtained by the  Executive  during the  Executive's  employment by the
     Company and which shall not be or become  public  knowledge  (other than by
     acts of the Executive or  representatives  of the Executive in violation of
     this Agreement).  After termination of the Executive's  employment with the
     Company,  the Executive shall not, without the prior written consent of the
     Company,  or as  may  otherwise  be  required  by  law  or  legal  process,
     communicate  or divulge any such  information,  knowledge or data to anyone
     other than the  Company  and those  designated  by it. In no event shall an
     asserted violation of the provisions of this Section constitute a basis for
     deferring or  withholding  any amounts  otherwise  payable to the Executive
     under this Agreement.

Section 6: Successors.

6.1  Successors of Executive.  This  Agreement is personal to the Executive and,
     without the prior written  consent of the Company,  shall not be assignable
     by the  Executive  otherwise  than  by  will or the  laws  of  descent  and
     distribution.  This  Agreement  shall  inure  to  the  benefit  of  and  be
     enforceable by the Executive's legal representatives.

6.2  Successors  of Company.  The Company  will require any  successor  (whether
     direct or indirect, by purchase, merger, consolidation or otherwise) to all
     or substantially all of the business and/or assets of the Company to assume
     expressly and agree to perform this Agreement in the same manner and to the
     same  extent  that the  Company  would be required to perform it if no such
     succession had taken place. Failure of the Company to obtain such agreement
     upon the  effectiveness of any such succession shall be a breach hereof and
     shall entitle the  Executive to terminate  under the terms of the Agreement
     at the  Executive's  option on or after  the  Change  in  Control  for Good
     Reason.  As used herein,  "Company"  shall mean the Company as hereinbefore
     defined and any  successor to its business  and/or assets which assumes and
     agrees to perform this Agreement by operation of law, or otherwise.

Section 7: Miscellaneous.

7.1  Notice.   For   purposes   of  this   Agreement,   notices  and  all  other
     communications  provided for herein shall be in writing and shall be deemed
     to have been duly given when delivered or mailed by certified or registered
     mail, return receipt requested,postage prepaid, addressed to the respective
     addresses  as set forth  below;  provided  that all  notices to the Company
     shall be  directed  to the  attention  of the  Chairman of the Board of the
     Company with copies to the Chief Executive Officer and the Secretary of the
     Company,  or to such other  address as one party may have  furnished to the
     other in writing in  accordance  herewith,  except that notice of change of
     address shall be effective only upon receipt.

     Notice to Executive:

     James W. Gray
     4630 Ridgemoor
     Tupelo, MS 38801

     Notice to Company:

     The Peoples Holding Company
     209 Troy Street
     P. O. Box 709
     Tupelo, MS 38802-0709

                                       10

7.2  Validity.  The invalidity or unenforceability of any provision hereof shall
     not affect the  validity  or  enforceability  of any other  portion of this
     Agreement.

7.3  Withholding.  The Company may withhold from any amounts  payable  hereunder
     such  federal,  state,  or local  taxes as shall be required to be withheld
     pursuant to any applicable law or regulation.

7.4  Waiver.  The  Executive's or the Company's  failure to insist upon a strict
     compliance with any provision  hereof or any other provision  hereof or the
     failure  to  assert  any  right  the  Executive  or the  Company  may  have
     hereunder,  including,  without  limitation,the  right of the  Executive to
     terminate  employment for Good Reason  pursuant to Section 3.4 shall not be
     deemed to be a waiver of such provision or right or any other  provision or
     right hereof.

7.5  Effect on Other Employment Agreements. The terms hereof shall supersede all
     other employment or other agreements with respect to severance entered into
     by and between the  Executive  and the Company,  or the  Executive  and any
     other employer, and this Agreement shall constitute the governing agreement
     pursuant to which the Company shall have  obligations to the Executive upon
     the  termination of the  Executive's  relationship  with the Company or any
     subsidiary.

IN WITNESS WHEREOF, the Executive and the Company, pursuant to the authorization
from its Board,  have  caused this  Agreement  to be executed in its name on its
behalf,all as of the day and year first above written.

                                           By : /s/ James W. Gray
                                                ----------------------
                                                    James W. Gray
                                                      EXECUTIVE

       ATTEST                                THE PEOPLES HOLDING COMPANY

By : /s/ Martha Webb                       By : /s/ E. Robinson McGraw
     ----------------------                     ----------------------
        Martha Webb                                E. Robinson McGraw
         Secretary                        President and Chief Executive Officer

                                       11

Exhibit 23

                         Consent of Independent Auditors

We consent to the  incorporation  by  reference in the  Registration  Statements
(Form S-3 No.  33-20108  and Form S-8 No.  333-102152)  of The  Peoples  Holding
Company and in the related Prospectus of our report dated January 21, 2003, with
respect to the consolidated  financial statements of The Peoples Holding Company
included in this Annual Report (Form 10-K) for the year ended December 31, 2002.

Memphis, Tennessee                               /s/ Ernst & Young LLP
March 5, 2003