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, 2000
                         Commission file number 1-13253

                           THE PEOPLES HOLDING COMPANY
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                             Mississippi 64-0676974
                ------------------------------------------------
                (State or other jurisdiction of (I.R.S. Employer
               incorporation or organization) identification No.)

                                 209 Troy Street
                         Tupelo, Mississippi 38802-0709
                   -------------------------------------------
                    (Address of principal offices) (Zip Code)

                  Registrant's Telephone Number: (662) 680-1001

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  periods that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.  YES__X___NO_____

Disclosure of delinquent  filings pursuant to Item 405 of Regulation S-K will be
contained in the  registrant's  proxy  statement for its 2000 annual  meeting of
shareholders,  which  statement is incorporated by reference in Part III of this
Form 10-K.  YES_____NO__X___

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of February 27, 2001, was $115,788,560,  based on 6,046,400 shares
of common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of annual Proxy Statement dated March 19, 2001,  relating to the annual
meeting of  shareholders  of The Peoples Holding  Company,  are  incorporated by
reference into Part III.

  2

                           THE PEOPLES HOLDING COMPANY

                                    Form 10-K

                      For the year ended December 31, 2000

                                    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
       Item 13.     Certain Relationships and Related Transactions

PART IV
       Item 14.     Exhibits, Financial Statement Schedules, and Reports on
                       Form 8-K

  3
                                     PART I

This  Annual  Report  (Form  10-K)  may  contain  or  incorporate  by  reference
statements which may constitute "forward-looking  statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended,  and Section 21 of the
Securities Exchange Act of 1934, as amended. Prospective investors are cautioned
that  any  such  forward-looking   statements  are  not  guarantees  for  future
performance  and involve risks and  uncertainties,  and that actual  results may
differ materially from those  contemplated by such  forward-looking  statements.
Important  factors currently known to management that could cause actual results
to  differ  materially  from  those  in   forward-looking   statements   include
significant  fluctuations  in interest  rates,  inflation,  economic  recession,
significant  changes in the federal and state legal and regulatory  environment,
significant  underperformance  in the Company's  portfolio of outstanding loans,
and competition in the Company's  markets.  The Company undertakes no obligation
to update or revise  forward-looking  statements to reflect changed assumptions,
the occurrence of unanticipated  events,  or changes to future operating results
over time.

ITEM 1. BUSINESS

General

The Peoples  Holding Company (the Registrant or Company) was organized under the
laws of the State of Mississippi and incorporated on November 10, 1982, in order
to acquire all of the common stock of The Peoples Bank & Trust Company,  Tupelo,
Mississippi (the Bank).

Organization

The Registrant  commenced  business on July 1, 1983, and the  acquisition of the
Bank  was  also  consummated  at that  time.  All of the  Registrant's  business
activities  are  conducted   through  the  Bank  and  the  Bank's   wholly-owned
subsidiaries,  Peoples Insurance Agency, Dominion Life and Health P.A., Alliance
Finance Company and Dominion Company (Dominion companies). The Bank accounts for
substantially all of the assets and revenues of the Registrant.  On December 31,
2000,  the  Registrant  had 41  banking  offices  in  Tupelo,  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,  Verona,  Water
Valley,  West Point,  and Winona,  Mississippi.  The  Registrant  also had three
insurance offices located at Corinth, Louisville and Tupelo.

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

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

As a commercial  bank,  a complete  range of banking and  financial  services is
provided to  individuals  and small to  medium-size  businesses.  These services
include  checking and savings  accounts,  business and personal  loans,  interim
construction and residential mortgage loans,  student loans,  equipment leasing,
as well as safe  deposit  and  night  depository  facilities.  Automated  teller
machines  located  throughout our market area and our PC Banking product provide
24-hour banking  services.  Accounts  receivable  factoring is also available to
qualified businesses.  In addition to a wide variety of fiduciary services,  the
Bank administers (as trustee or in other fiduciary or representative capacities)
pension,  profit-sharing  and other employee  benefit plans, and personal trusts
and estates. In addition to offering annuities and mutual funds, the acquisition
of the  insurance  agencies has expanded the  Registrant's  product and delivery
network to include  personal  and  business  insurance  coverages.  Neither  the
Registrant nor the Bank has any foreign activities.
  4

Competition

Vigorous  competition  exists in all major  areas where the  Registrant  Company
conducts  business.  Not only does the Registrant compete through its subsidiary
bank with state and national banks in its service  areas,  but also with savings
and loan associations,  credit unions,  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. Within the
Registrant's market area, none of the competitors are dominant.

Supervision and Regulation

The Registrant is a bank holding  company within the meaning of the Bank Holding
Company Act of 1956,  as amended (the Act),  and is  registered as such with the
Board of Governors of the Federal Reserve System (the Board).  The Registrant is
required to file with the Board an annual report and such other  information  as
the Board may require.  The Board may also make  examinations  of the Registrant
and its subsidiary  pursuant to the Act. The Board also has the authority (which
it has not  exercised) to regulate  provisions  of certain bank holding  company
debt.

The Act  requires  every bank holding  company to obtain  prior  approval of the
Board before acquiring  direct or indirect  ownership or control of more than 5%
of the voting  shares of any bank  which is not  already  majority-owned  by the
Registrant.  The Act provides that the Board shall not approve any  acquisition,
merger or  consolidation  which  would  result in  monopoly or which would be in
furtherance  of any  combination  or  conspiracy  to  monopolize  or  attempt to
monopolize  the  business of banking,  or any other  transactions  the effect of
which might substantially lessen competition, or in any manner be a restraint on
trade,  unless the  anti-competitive  effects of the  proposed  transaction  are
clearly  outweighed  in the  public  interest  by  the  probable  effect  of the
transaction in meeting the convenience and needs of the community to be served.

The Act also prohibits a bank holding  company,  with certain  exceptions,  from
itself  engaging in or acquiring  direct or indirect  control of more than 5% of
the  voting  shares  of any  company  engaged  in  non-banking  activities.  The
principal  exception is for engaging in or acquiring  shares of a company  whose
activities  are  found by the  Board to be so  closely  related  to  banking  or
managing banks as to be a proper incident thereto. In making such determinations
the Board is required to consider  whether the performance of such activities by
a bank holding company or its subsidiaries can reasonably be expected to produce
benefits to the public such as greater convenience,  increased  competition,  or
gains in efficiency of resources  versus the risks of possible  adverse  effects
such as decreased  or unfair  competition,  conflicts  of  interest,  or unsound
banking practices.

The Act prohibits the  acquisition by a bank holding  company of more than 5% of
the  outstanding  voting shares of a bank located outside the state in which the
operations of its banking subsidiaries are principally conducted, unless such an
acquisition is specifically authorized by statute of the state in which the bank
to be acquired is located.  The  Registrant  and its  subsidiary  are subject to
certain  restrictions imposed by the Federal Reserve Act and the Federal Deposit
Insurance  Act on any  extensions  of credit to the bank holding  company or its
subsidiary,  on investments in the stock or other securities of the bank holding
company  or its  subsidiary,  and on taking  such stock or other  securities  as
collateral for loans of any borrower.

The Bank Holding Company Act of 1956 was recently  amended to permit  "financial
bank holding companies" to engage in a broad range of financial activities.  The
new legislation,  the Gramm-Leach-Bliley  Act, was enacted on November 12, 1999,
and became  effective on March 11, 2000. The Act sets forth  requirements  to be
met in order to engage in  financial  activities  and  defines  those  financial
activities.  Presently,  the Company is considering the implications of the Act,
but has no current plans to form a financial holding company.

  5

The Bank was chartered under the laws of the State of Mississippi and is subject
to the supervision  of, and is regularly  examined by, the Department of Banking
and Consumer  Finance of the State of  Mississippi.  The Bank is also insured by
the Federal  Deposit  Insurance  Corporation  and is subject to examination  and
review by that regulatory authority.

Mississippi banks are permitted to merge with other existing banks statewide and
to acquire or be acquired by banks or bank holding companies. Section 102 of the
Riegle-Neal  Interstate  Banking and  Branching  Efficiency  Act of 1994 removed
territorial  restrictions  for interstate  bank mergers,  effective May 1, 1997.
Out-of-state  bank holding companies may establish a bank in Mississippi only by
acquiring a Mississippi bank or Mississippi bank holding company.

Certain  restrictions  exist regarding the ability of the Bank to transfer funds
to the Company in the form of cash dividends,  loans, or advances.  The approval
of the Mississippi  Department of Banking and Consumer Finance is required prior
to the Bank paying dividends and is limited to earned surplus in excess of three
times the Bank's capital stock.

Federal  Reserve  regulations  also  limit the  amount  the Bank may loan to the
Company  unless  such  loans are  collateralized  by  specific  obligations.  At
December 31, 2000,  the maximum  amount  available for transfer from the Bank to
the  Company  in the form of cash  dividends  and loans was 17.06% of the Bank's
consolidated net assets.

Mississippi  laws  authorize  multi-bank  holding  companies  but  there  are no
statutes regulating the operation of such companies.

Monetary Policy and Economic Controls

The  earnings  and growth of the  banking  industry,  the Bank and,  to a larger
extent,  the Registrant are affected by the policies of regulatory  authorities,
including  the Federal  Reserve  System.  An  important  function of the Federal
Reserve  System is to regulate  the  national  supply of bank credit in order to
combat  recession and curb  inflationary  pressures.  Among the  instruments  of
monetary policy used by the Federal  Reserve to implement  these  objectives are
open market operations in U. S. Government  securities,  changes in the discount
rate on bank  borrowings,  and  changes in  reserve  requirements  against  bank
deposits.  These  instruments are used in varying  degrees to influence  overall
growth of bank loans,  investments,  and deposits  and may also affect  interest
rates charged on loans or paid for deposits.

The  monetary  policies of the  Federal  Reserve  System have had a  significant
effect on the operating results of commercial banks in the past and are expected
to do so in the future.  In view of changing  conditions in the national economy
and in the various money  markets,  as well as the effect of actions by monetary
and fiscal  authorities  including  the Federal  Reserve  System,  the effect on
future  business and earnings of the  Registrant  and its  subsidiary  cannot be
predicted with accuracy.

In the past few years, the trend seems to be toward competitive  equality within
the financial services industry.  This was evidenced in 1980 by the formation of
the Depository  Institution  Deregulation  Committee (the DIDC). The DIDC's sole
purpose was to eliminate the  restrictions  imposed upon the rates of interest a
depository  institution  could  pay on a  deposit  account.  The trend was again
evidenced  in  1982  with  the  passage  of  the  Garn-St.   Germain  Depository
Institutions  Act. This act provided for,  among other things,  the money market
account.  This account was designed to operate in a manner  similar to the money
market mutual funds being  offered by the  investment  brokers.  It would earn a
market rate of  interest  with  limited  third-party  withdrawals  and a minimum
balance requirement.

  6

Sources and Availability of Funds

The funds essential to the business of the Registrant and its subsidiary consist
primarily of funds  derived from  customer  deposits and  borrowings  of federal
funds by the  banking  subsidiary  and from  loans  under  established  lines of
credit. The availability of such funds is primarily  dependent upon the economic
policies of the  federal  government,  the  economy in general,  and the general
credit market for loans.

Personnel

At December 31, 2000, the Registrant and its subsidiary employed 581 people on a
full-time equivalent basis.

Dependence Upon a Single Customer

Neither the Registrant nor its subsidiary is dependent upon a single customer or
upon a limited number of customers.

Segment Reporting

The  information  under the  caption  "Note L - Segment  Reporting"  on pages 48
through  50 of the  Registrant's  2000  Form  10-K  is  incorporated  herein  by
reference.

Acquisition of Certain Assets and Liabilities

The information  under the caption "Note B - Business  Combinations" on pages 38
through  39 of the  Registrant's  2000  Form  10-K  is  incorporated  herein  by
reference.

Executive Officers of the Registrant

The principal executive officer of the Company and its subsidiary as of December
31, 2000, is as follows:

              Name                       Age
       E. Robinson McGraw                 54

Position and Office:
Director,  President,  and Chief Executive Officer of the Company since November
2000.

Executive  Vice  President of the Bank from  September  1993 until October 2000;
Director, President and Chief Executive Officer of the Bank since November 2000.

All of the Registrant's officers are appointed annually by the appropriate Board
of Directors to serve at the discretion of the Board.

  7

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

                                                                                    2000
                                                            -------------------------------------------------
                                                             Tax Equivalent    Average Balance      Yields/
                                                            Income or Expense    Sheet Amount        Rates
                                                            -----------------  -----------------  -----------
                                                                                             
 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%
      Other securities ....................................           700               7,935         8.82%
                                                            -----------------  -----------------
            Total Taxable Securities ......................        12,271             196,269         6.25%

   Tax-exempt securities
      Obligations of states and political subdivisions ....         6,633              84,146         7.88%
                                                            -----------------  -----------------
            Total Securities ..............................        18,904             280,415         6.74%
                                                            -----------------  -----------------
                    Total 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.
  8

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

                                                                                    1999
                                                            -------------------------------------------------
                                                             Tax Equivalent    Average Balance      Yields/
                                                            Income or Expense    Sheet Amount        Rates
                                                            -----------------  -----------------  -----------
                                                                                             
 Earning Assets
   Loans, net of unearned income
      Commercial ..........................................      $ 32,541        $    382,089         8.52%
      Consumer ............................................        18,940             210,706         8.99%
      Other loans .........................................        15,727             172,404         9.12%
                                                            -----------------  -----------------
            Total Loans, Net ..............................        67,208             765,199         8.78%

   Other ..................................................           401               8,328         4.82%

   Taxable securities
      U. S. Government securities .........................         3,128              52,200         5.99%
      U. S. Government agencies ...........................         3,040              48,772         6.23%
      Mortgage-backed securities ..........................         6,008              98,525         6.10%
      Other securities ....................................           266               3,671         7.25%
                                                            -----------------  -----------------
            Total Taxable Securities ......................        12,442             203,168         6.12%

   Tax-exempt securities
      Obligations of states and political subdivisions ....         6,612              82,901         7.98%
                                                            -----------------  -----------------
            Total Securities ..............................        19,054             286,069         6.66%
                                                            -----------------  -----------------
                    Total Earning Assets ..................        86,663           1,059,596         8.18%

Cash and due from banks ...................................                            38,659
Other assets, less allowance for loan losses ..............                            48,356
                                                                               -----------------
                        Total Assets ......................                      $  1,146,611
                                                                               =================

Interest-Bearing Liabilities
   Interest-bearing demand deposit accounts ...............         1,856        $     56,752         3.27%
   Savings and money market accounts ......................         8,584             283,647         3.03%
   Time deposits ..........................................        25,037             503,348         4.97%
                                                            -----------------  -----------------
        Total Interest-Bearing Deposits ...................        35,477             843,747         4.20%

        Total Other Interest-Bearing Liabilities ..........         1,865              32,029         5.82%
                                                            -----------------  -----------------
                  Total Interest-Bearing Liabilities ......        37,342             875,776         4.26%

Noninterest-bearing sources
   Noninterest-bearing deposits ...........................                           144,451
   Other liabilities ......................................                            14,340
   Shareholders' equity ...................................                           112,044
                                                                               -----------------
            Total Liabilities and Shareholders' Equity ....                      $  1,146,611
                                                                               =================
Net interest income/net interest margin ...................      $ 49,321                             4.65%
                                                            =================

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.
  9

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

                                                                                     1998
                                                            -------------------------------------------------
                                                             Tax Equivalent    Average Balance      Yields/
                                                            Income or Expense    Sheet Amount        Rates
                                                            -----------------  -----------------  -----------
                                                                                             
 Earning Assets
   Loans, net of unearned income
      Commercial ..........................................      $ 28,749        $   315,445          9.11%
      Consumer ............................................        18,524            197,272          9.39%
      Other loans .........................................        16,255            168,846          9.63%
                                                            -----------------  -----------------
            Total Loans, Net ..............................        63,528            681,563          9.32%

   Other ..................................................           968             18,486          5.24%

   Taxable securities
      U. S. Government securities .........................         3,892             62,367          6.24%
      U. S. Government agencies ...........................         3,174             51,162          6.20%
      Mortgage-backed securities ..........................         6,418            101,892          6.30%
      Other securities ....................................           262              3,274          8.00%
                                                            -----------------  -----------------
            Total Taxable Securities ......................        13,746            218,695          6.29%

   Tax-exempt securities
      Obligations of states and political subdivisions ....         5,730             70,396          8.14%
                                                            -----------------  -----------------
            Total Securities ..............................        19,476            289,091          6.74%
                                                            -----------------  -----------------
                 Total Earning Assets .....................        83,972            989,140          8.49%

Cash and due from banks ...................................                           34,612
Other assets, less allowance for loan losses ..............                           44,788
                                                                               -----------------
                    Total Assets ..........................                      $ 1,068,540
                                                                               =================

Interest-Bearing Liabilities
    Interest-bearing demand deposit accounts ..............         2,031        $    59,834          3.39%
    Savings and money market accounts .....................         7,235            235,831          3.07%
    Time deposits .........................................        26,677            496,358          5.37%
                                                            -----------------  -----------------
        Total Interest-Bearing Deposits ...................        35,943            792,023          4.54%

        Total Other Interest-Bearing Liabilities ..........         1,491             24,820          6.01%
                                                            -----------------  -----------------
                  Total Interest-Bearing Liabilities ......        37,434            816,843          4.58%

Noninterest-bearing sources
   Noninterest-bearing deposits ...........................                          130,769
   Other liabilities ......................................                           13,286
   Shareholders' equity ...................................                          107,642
                                                                               -----------------
            Total Liabilities and Shareholders' Equity ....                      $ 1,068,540
                                                                               =================
Net interest income/net interest margin ...................      $ 46,538                             4.70%
                                                             ================

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.
  10

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.

                                                                               2000 Compared To 1999
                                                                     ----------------------------------------
                                                                             Increase (Decrease) Due To
                                                                     ----------------------------------------
                                                                        Volume          Rate        Net (1)
                                                                     ------------  -------------  -----------
                                                                                            
Interest income:
Loans, net of unearned income ....................................     $ 4,422        $  1,767       $ 6,189

Securities
   U. S. Government and agency securities ........................        (149)           (131)         (280)
   Obligations of states and political subdivisions ..............          62             (54)            8
   Mortgage-backed securities ....................................        (521)            206          (315)
   Other securities ..............................................         286              (7)          279

Other ............................................................         (38)             91            53
                                                                     ------------  -------------  -----------
Total interest-earning assets ....................................       4,062           1,872         5,934

Interest expense:
Interest-bearing demand deposit accounts .........................         478             141           619
Savings accounts .................................................        (316)            810           494
Time deposits ....................................................       2,101           3,478         5,579
Other ............................................................         662            (564)           98
                                                                     ------------  -------------  -----------
Total interest-bearing liabilities ...............................       2,925           3,865         6,790
                                                                     ------------  -------------  -----------
Change in net interest income ....................................     $ 1,137        $ (1,993)      $  (856)
                                                                     ============  =============  ===========

(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.

  11
Table 2 - Volume/Rate Analysis (continued)

                                                                               1999 Compared To 1998
                                                                     ----------------------------------------
                                                                             Increase (Decrease) Due To
                                                                     ----------------------------------------
                                                                        Volume          Rate        Net (1)
                                                                     ------------  -------------  -----------
                                                                                            
Interest income:
Loans, net of unearned income ....................................     $ 7,748        $ (4,158)      $ 3,590

Securities
   U. S. Government and agency securities  .......................        (753)           (128)         (881)
   Obligations of states and political subdivisions ..............         648            (156)          492
   Mortgage-backed securities ....................................        (209)           (196)         (405)
   Other securities ..............................................          30             (28)            2

Other ............................................................        (542)            (36)         (578)
                                                                     ------------  -------------  -----------
Total interest-earning assets ....................................       6,922          (4,702)        2,220

Interest expense:
Interest-bearing demand deposit accounts .........................        (105)            (70)         (175)
Savings accounts .................................................       1,467            (118)        1,349
Time deposits ....................................................         376          (2,016)       (1,640)
Other ............................................................         433             (59)          374
                                                                     ------------  -------------  -----------
Total interest-bearing liabilities ...............................       2,171          (2,263)          (92)
                                                                     ------------  -------------  -----------
Change in net interest income ....................................     $ 4,751        $ (2,439)      $ 2,312
                                                                     ============  =============  ===========

(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.

  12
Table 3 - Investment Portfolio
(In Thousands)

The following tables set forth the amortized cost of securities at December 31:

                                                       2000          1999          1998
                                                   -----------   -----------   -----------
                                                                       
Held to maturity:

U. S. Government and agency securities ...........   $            $             $   2,234
Obligations of state and political subdivisions ..     85,658        85,611        76,893
Other securities .................................                                     49
                                                   -----------   -----------   -----------
                                                     $ 85,658     $  85,611     $  79,176
                                                   ===========   ===========   ===========

                                                       2000          1999          1998
                                                   -----------   -----------   -----------
Available for sale:

U. S. Government and agency securities ...........   $ 98,998     $  92,858     $ 104,997
Other securities .................................     94,023        93,508       108,141
                                                   -----------   -----------   -----------
                                                    $ 193,021     $ 186,366     $ 213,138
                                                   ===========   ===========   ===========

The  following  table sets forth the  maturity  distribution  in  thousands  and
weighted average yield by maturity of securities at December 31, 2000:

                                                       After One               After Five
                                 Within                But Within              But Within                After
                                One Year               Five Years              Ten Years               Ten Years
                         ---------------------   ---------------------   ---------------------   ---------------------
                                                                                       
Held to Maturity:
Obligations of state
   and political
   subdivisions ........  $  3,045     8.78%      $ 21,128     7.68%      $ 46,468     7.34%      $ 15,017     7.31%
                         ==========              ==========              ==========              ==========
Available for Sale:
U. S. Government
  and agency
  securities ...........  $ 34,629     5.72%      $ 64,369     6.08%      $
Other securities .......    10,681     6.55%        53,316     6.76%        30,026     6.70%
                         ----------              ----------              ----------
                 Total    $ 45,310                $117,685                $ 30,026
                         ==========              ==========              ==========

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.

  13

Table 4 - Loan Portfolio
(In Thousands)

The following table sets forth loans, net of unearned income,  outstanding as of
December 31, 2000, which, based on remaining scheduled  repayments of principal,
are due in the periods indicated.  Real estate mortgage loans and consumer loans
are  excluded,  while  net  receivables  on leased  equipment  are  included  in
commercial,  financial  and  agricultural  loans in the  consolidated  financial
statements.  Also, amounts due after one year are classified  according to their
sensitivity to changing interest rates.

                                                         Loan Maturities
                                -------------------------------------------------------------------
                                                     After One         After
                                     Within         But Within          Five
                                    One Year        Five Years         Years             Total
                                ---------------  ---------------  ---------------  ----------------
                                                                            
Commercial, financial and
   agricultural ...............   $   94,931         $  53,931        $  13,799         $ 162,661
Real estate - construction ....       23,998             1,708                             25,706
                                ---------------  ---------------  ---------------  ----------------
                                  $  118,929         $  55,639        $  13,799         $ 188,367
                                ===============  ===============  ===============  ================

                                                     Interest Sensitivity
                                                 ---------------------------
                                                    Fixed        Variable
                                                     Rate          Rate
                                                 ------------  -------------
Due after 1 but within 5 years .................   $ 53,791      $  1,848
Due after 5 years ..............................     13,752            47
                                                 ------------  -------------
                                                   $ 67,543      $  1,895
                                                 ============  =============

Table 5 - Time Deposits
(In Thousands)

The  following  table shows the maturity of time  deposits over $100 at December
31, 2000:

             Less than 3 Months .............  $   49,765
             3 Months- 6 Months .............      53,788
             6 Months-12 Months .............      68,468
               Over 12 Months ...............      21,756
                                              --------------
                                                $ 193,777
                                              ==============

  14

Short-term Borrowings
(In Thousands)

The bank borrowed  $20,000 in short-term  borrowings  from the Federal Home Loan
Bank (FHLB) on October 20, 1999, in  anticipation of potential Y2K cash needs at
a rate of 5.85%.  The $20,000 was  outstanding on December 31, 1999. The Federal
Home Loan Bank note  matured  and was repaid on January  21,  2000.  The average
balances  of other  short-term  borrowings  for 2000 and 1999 were  $11,259  and
$3,243 at weighted average rates of 6.15% and 5.00%, respectively.

ITEM 2. PROPERTIES

The main  offices of the  Registrant  and its  subsidiary,  The Peoples Bank and
Trust Company, are located at 209 Troy Street, Tupelo,  Mississippi.  All floors
of the five-story  building are occupied by various departments within the Bank.
The  Technology  Center,  also  located  in  Tupelo,  Mississippi,   houses  the
electronic data processing,  proof, and statement  rendering.  In addition,  the
Bank   operated   thirty-two   (32)   full-service   branches,   and   nine  (9)
limited-service  branches.  The Bank has two (2)  full-service  branches in West
Point;  one (1)  full-service  branch and two (2)  limited-service  branches  in
Booneville;  one (1) full-service branch and one (1)  limited-service  branch in
Amory, Corinth, Louisville, Pontotoc, and Southaven; one (1) full-service branch
each at Aberdeen,  Batesville,  Calhoun  City,  Coffeeville,  Grenada,  Guntown,
Hernando,  Iuka, New Albany, Okolona, Olive Branch,  Saltillo,  Sardis, Shannon,
Verona, Water Valley, and Winona, Mississippi; one (1) limited service branch at
Smithville,  Mississippi;  and  seven  (7)  full-service  branches  and  one (1)
limited-service branch in Tupelo, Mississippi.  The Insurance divisions have one
office each in Corinth, Louisville and Tupelo.

The  Registrant  leases three branch  locations  for use in  conducting  banking
activities and one location for Dominion Insurance.  The aggregate annual rental
for all leased premises during the year ending December 31, 2000, did not exceed
five percent of the Bank's operating expenses.

It is  anticipated  that in the  next  several  years,  branch  renovations  and
construction will be completed at Corinth and Pontotoc,  Mississippi.  The other
facilities  owned  or  occupied  under  lease  by the  Bank  are  considered  by
management to be adequate.

ITEM 3. LEGAL PROCEEDINGS

There were no material legal  proceedings  pending or threatened at December 31,
2000,  which in the opinion of the Company could have a material  adverse effect
upon the Company's operations or financial position.

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

None during the fourth quarter of 2000.

  15

                                     PART II

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

The public market for The Peoples Holding  Company common stock is limited.  The
stock  trades on the American  Stock  Exchange  under the ticker  symbol PHC. At
February 16, 2001, there were  approximately  2,745 shareholders of record based
on the number of record holders.

                                                      Prices
                            Dividends      ----------------------------
                            Per Share          Low             High
                           -----------     ------------   -------------
2000
1st Quarter ..............   $ .220         $ 23.75          $ 28.50
2nd Quarter ..............     .220           18.88            25.25
3rd Quarter ..............     .220           19.00            21.25
4th Quarter ..............     .220           17.81            21.00

1999
1st Quarter ..............   $ .210         $ 30.50          $ 36.75
2nd Quarter ..............     .210           29.63            36.00
3rd Quarter ..............     .210           27.00            34.00
4th Quarter ..............     .210           28.38            34.25

  16

ITEM 6. SELECTED FINANCIAL DATA

(Not covered by Report of Independent Auditors)
(In Thousands, Except Share Data)

                                            2000         1999         1998         1997          1996
                                        ------------ ------------ ------------ ------------ -------------
                                                                               
Year ended December 31:
Interest Income .......................  $   89,434   $   83,500   $   81,280   $   75,321   $    69,221
Interest Expense ......................      44,132       37,342       37,434       33,428        29,710
Provision for Loan Losses .............       6,373        3,192        2,591        2,304         2,837
Noninterest Income ....................      18,529       19,476       14,461       12,181        11,182
Noninterest Expense ...................      42,474       41,480       39,338       36,051        33,987
                                        ------------ ------------ ------------ ------------- ------------
Income Before Income Taxes ............      14,984       20,962       16,378       15,719        13,869
Income Taxes ..........................       3,800        6,182        4,697        4,716         4,151
                                        ------------ ------------ ------------ ------------- ------------
Net Income ............................  $   11,184   $   14,780   $   11,681   $   11,003   $     9,718
                                        ============ ============ ============ ============= ============

Per Common Share:
Net Income ............................  $     1.83   $     2.38   $     1.88   $     1.77   $      1.57
Book Value at December 31 .............       20.09        18.71        17.80        16.61         15.35
Market Value at December 31 ...........       18.00        28.88        32.31        35.67         24.50
Cash Dividends Declared and Paid-PHC ..         .88          .84          .72          .57           .50
Cash Dividends Declared and
   Paid-Inter-City ....................                                   .36          .27          1.48

At December 31:
Loans, Net of Unearned Income .........  $  815,854   $  799,085   $  729,156   $  661,572   $   593,381
Securities ............................     278,574      266,744      293,639      250,923       246,924
Assets ................................   1,211,940    1,162,959    1,107,795    1,011,942       927,451
Deposits ..............................   1,046,605      978,958      960,295      870,082       801,545
Borrowings ............................      24,549       51,269       22,476       18,959        11,729
Shareholders' Equity ..................     121,661      116,089      110,209      103,113        95,253

Selected Ratios
Return on Average:
   Total Assets .......................        .93%        1.29%        1.09%        1.13%         1.08%
   Shareholders' Equity ...............       9.49%       13.19%       10.85%       11.07%        10.53%
Average Shareholders' Equity to
   Average Assets .....................       9.85%        9.77%       10.07%       10.25%        10.22%

At December 31:
Shareholders' Equity
   To Assets ..........................      10.04%        9.98%        9.95%       10.19%        10.27%
Allowance for Loan Losses
   To Total Loans .....................       1.29%        1.26%        1.34%        1.39%         1.59%
Allowance for Loan Losses
   To Nonperforming Loans .............     147.89%      126.47%      261.95%      191.39%       206.29%
Nonperforming Loans to
   Total Loans ........................        .87%        1.00%         .51%         .73%          .77%
Dividend Payout .......................      47.76%       35.24%       36.89%       31.38%        33.52%

  17

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

Overview

Year 2000, much like 1999, was a year of challenge for the banking industry. The
year began with rising  interest  rates,  the moving toward an inflation bias by
the  Federal  Reserve  (the  Fed),  and  robust   competition   among  financial
institutions. Specials, particularly in certificates of deposit, became a weekly
norm.  As the year  progressed,  the  stock  market  began to  falter  somewhat,
especially in high-tech stocks.

Economic reports in early 2000 indicated strong growth. Consumer spending either
met or exceeded  expectations  during the 1999 holiday season.  Growth continued
during  the first  quarter  as  indicated  by the  strong  industrial  activity,
consumer spending, and commercial and residential construction.  Even though the
labor market was tight, wages showed only moderate increases. Loan demand, while
still strong, was beginning to soften as interest rates continued to rise.

By mid year, reports indicated that the economy was still growing, but at a more
moderate  rate.   Consumer  spending,   manufacturing,   and  construction  were
softening. Energy prices were increasing as demand outpaced supply. Retail sales
were flat to low and loan demand at banks was weaker.  Credit  quality  concerns
began to surface at banks across the  country.  And while the Fed did not change
interest rates during this time, an inflationary bias was maintained.

By year end, the labor market,  while still tight,  was showing further signs of
easing. In particular,  the softening of automobile sales had led to the scaling
back of  production.  While  residential  and  commercial  real estate  remained
strong,  signs of slowing had begun. Loan demand was weaker as lenders tightened
credit  standards and banks found themselves with smaller margins as competition
for deposits drove prices for certificates of deposit well over Treasury rates.

While the Fed voiced  concerns over inflation,  rumblings among  economists were
beginning  to spell the need to cut rates.  News of the slowing  economy had hit
the airways,  but the Fed continued to keep the federal funds rate at 6.50%,  up
from 5.50% from the previous year. Then, at its December meeting,  the Fed moved
from an inflation bias to a weakness  bias.  This  ultimately  preceded the rate
cuts in  federal  funds in early  January  2001 by 50 basis  points and again in
early February by an additional 50 basis points.

The  Company's  performance  for 2000 was down due to two primary  reasons:  the
decline  in the net  interest  margin and credit  deterioration.  Interest  rate
pressures  resulted  in  higher  funds  cost  due to  both  higher  rates  and a
dis-intermediation  of deposit  accounts.  In following a national  trend,  loan
losses  accelerated  during 2000. Losses were prevalent in most loan categories.
Noninterest  income,  excluding  the gain from the credit card sale during 1999,
was up 17.58%.  Noninterest expense was up a moderate 2.40%, of which 41.85% was
due to depreciation on new technological systems.

Net income was $11,184,  down 24.33% from 1999. Net income for 1999 and 1998 was
$14,780 and $11,681,  respectively.  Earnings per share were $1.83,  $2.38,  and
$1.88 for 2000, 1999, and 1998, respectively.

Two primary  measures of performance  that are used by the Company are return on
average assets (ROA) and return average equity (ROE).

Return on Average Assets

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
         .93%     1.29%     1.09%     1.13%     1.08%

  18

Return on Average Equity

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        9.49%    13.19%    10.85%    11.07%    10.53%

The Company ended the year with total assets of $1,211,940,  up 4.21% over 1999.
Growth was 4.98% in 1999 with total assets at December 31, 1999, of $1,162,959.

On May 1, the  Company  acquired,  through  its bank  subsidiary,  Reed  Johnson
Insurance Agency, the Southern Insurance Group. The Company issued 70,500 shares
of stock for the agency.  In conjunction with the acquisition,  the two agencies
were renamed The Peoples  Insurance  Agency,  Incorporated.  On September 1, the
Company's  bank  subsidiary  purchased,  in a  cash  transaction,  the  Dominion
Insurance Agency. Both acquisitions were accounted for under the purchase method
of accounting.

Effective  November 1, E.  Robinson  McGraw  became the eighth  president of the
Company, replacing John W. Smith who retired after 29 years of service.

Results of Operations

Net interest  income on a tax equivalent  basis  declined  $566, or 1.15%,  from
$49,321 in 1999 to $48,755 in 2000. Of the tax equivalent change, $1,232 was due
to the favorable growth in earning assets with a decrease of $1,798 due to rate.
While the tax equivalent  yield on earnings  assets was up 23 basis points,  the
cost of interest-bearing  liabilities rose 47 basis points. This increase in the
costing liabilities resulted from competitive pressure for deposits to fund loan
growth.  The most  significant  growth  in  deposits  was from  certificates  of
deposits.

Net interest income on a tax equivalent basis rose 5.98% from $46,538 in 1998 to
$49,321 in 1999. This growth  resulted  primarily from an increase in the volume
of earning  assets over the decrease in the yield on those  assets.  While rates
began to rise  during  1999,  both  yields on  earning  assets and rates paid on
liabilities were lower than those from 1998.  Specifically,  net interest income
on a tax equivalent basis increased  approximately  $3,809 due to an increase in
the volume of earning assets and costing liabilities and decreased approximately
$1,026 due to changes in rates.  The Company  experienced  the most  significant
volume  increase  in  loans,   interest  bearing   transaction   accounts,   and
certificates of deposit.

Average Earning Assets to Total Average Assets

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
       92.26%    92.41%    92.57%    92.54%    91.90%

Tax equivalent  net interest  income for 1998 was up 5.59% from $44,075 in 1997.
This  change in net  interest  income  was  primarily  due to the growth of both
earning  assets  and  deposits.  As in 1999,  yields  in 1998 were down from the
previous year. However, in contrast with 1999, the cost of deposits and borrowed
funds in 1998 was up slightly over 1997. Net interest income on a tax equivalent
basis increased  approximately  $4,504 due to increases in the volume of earning
assets and costing liabilities and decreased approximately $2,041 due to changes
in rates.  The  Company's  growth  came from  loans,  savings  and money  market
accounts.

Net interest margin, the tax equivalent net yield on earning assets, was down 24
basis points for 2000.  In past periods,  the Company's net interest  margin had
generally been above peer banks; however, during the year as deposit costs rose,
the margin  declined to peer  average.  The trend of a falling  margin is due to
interest rate changes and intense competition from other banks and non-banks.

  19

Net Interest Margin - Tax Equivalent

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        4.41%     4.65%     4.70%     4.91%     5.00%

Net interest  margin was down for 1999.  While the Company's  trend followed the
national trend, its net interest margin was higher than most peer banks.

Loan interest income is the largest component of interest income.  Loans are the
most significant earning asset of the Company and comprised 67.32% and 68.71% of
the assets at December 31, 2000 and 1999, respectively. During 2000, the Company
sold  approximately  $7,951 in student  loans and  curtailed  its sales  finance
division  (indirect  lending) which reduced the loan growth to 2.10%.  The major
growth came from mortgage loans, up 8.93% over 1999. Loan growth was much higher
in 1999 despite  rate  increases  during the year and the sale of  approximately
$18,000 in credit card loans.  Overall  loan growth in 1999 was 9.59%,  with the
most significant percentage growth in real estate construction and mortgages.

The table below sets forth loans  outstanding,  according  to loan type,  net of
unearned income, at December 31:

Loan Portfolio

                                            2000           1999          1998          1997         1996
                                        -----------    -----------   -----------   -----------  -----------
                                                                                   
Commercial, financial, agricultural ...   $162,661       $155,785      $136,249      $119,509     $112,092
Real estate-construction ..............     25,706         37,437        26,410        24,930       21,022
Real estate-mortgage ..................    501,454        460,348       405,352       368,688      323,283
Consumer ..............................    126,033        145,515       161,145       148,445      136,984
                                        -----------    -----------   -----------   -----------  -----------
   Total loans net of discount ........   $815,854       $799,085      $729,156      $661,572     $593,381
                                        ===========    ===========   ===========   ===========  ===========

The tax equivalent  loan interest income was $73,524,  $67,208,  and $63,528 for
the years ended December 31, 2000,  1999, and 1998,  respectively.  The increase
for 2000 was  attributable  to an increase in loan  volume  that  accounted  for
$4,466 in income,  and an increase in pricing which  accounted  for $1,850.  The
increase  in 1999 was due to an  increase  in the  average  volume  over 1998 of
$83,636,  up 12.27%.  The tax equivalent  yield on those loans was down 54 basis
points to 8.78%. Although the tax equivalent yield on loans for 1998 was down 14
basis  points,  loan  interest  income grew from an increase of 9.63% in average
loan volume.

Investment  income is the second  largest  component  of  interest  income.  The
securities portfolio is used to provide term investments, to provide a source of
meeting liquidity needs, and to supply securities to be used in  collateralizing
public  funds.  Interest  income on a tax  equivalent  basis from the  portfolio
decreased $150 or .79% for 2000.  Even though the Company ended the year with an
increase  in the  portfolio  of  $11,830,  the  average  balance  on  securities
decreased  $5,654.  By third quarter the loan market had softened leaving excess
deposits  dollars to be invested in  securities.  The  portfolio  yield on a tax
equivalent  basis increased from 6.66% in 1999 to 6.74%,  or 8 basis points,  in
2000.

  20

Securities by Sector Allocation

                 Sector                               2000       1999
                 ------                             -------    -------
U. S. Treasury securities ........................     18%        17%
U. S. Government agencies ........................     18%        17%
Mortgage-backed securities .......................     30%        33%
Obligations of states and political subdivisions .     31%        32%
FHLB stock .......................................      3%         1%
                                                    -------    -------
                                                      100%       100%

For 1999 the portfolio decreased $26,895, or 9.16%, from the previous year. This
reduction  was the result of  allocating  additional  resources to the growth in
higher yielding  loans.  The majority of the Company's  investments  were in the
mortgage-backed  and municipal  sectors.  Investment  income on a tax equivalent
basis was down  from  $19,476  in 1998 to  $19,054  in 1999.  This  decrease  in
interest  was the  result of a drop in the  average  volume of  securities  from
$289,091  to  $286,069  and a decrease  in the tax  equivalent  yield of 8 basis
points.  The tax equivalent  yield of the portfolio was 6.66% and 6.74% for 1999
and 1998, respectively. The investment income for 1998 was up slightly due to an
increase in volume.  The average  portfolio was up $25,777.  The tax  equivalent
yield on the portfolio was down 9 basis points from 1997.

The tax equivalent  yields on earning assets were 8.41%,  8.18%,  and 8.49%, for
2000, 1999, and 1998, respectively.  The Company relies on deposits as its major
source of funds.  Deposits  represented  86.36%  and  84.18% of total  assets at
December 31, 2000 and 1999,  respectively.  Non  interest-bearing  deposits were
$131,718  and  $140,015  at  December  31,  2000 and  1999,  respectively.  This
represented  10.87% and 12.04% of total  assets at those  dates.  The balance in
this account may fluctuate  significantly  from day to day. The average  balance
for 2000 was down $3,357  primarily  due to consumers  continuing  to move their
deposits to interest-bearing  accounts.  During 1999, the Company experienced an
average growth in non-interest bearing accounts of $13,682 over 1998.

Interest-bearing  deposits  at  December  31,  2000 and 1999 were  $914,887  and
$838,943,  respectively. These deposits grew 9.05% during 2000, principally from
certificates of deposit.  The market place remained very competitive  during the
year as banks became  creative in  developing  products  that would  attract new
customers.  The high loan demand  early in the year fueled the need for banks to
raise deposits to support the growth in loans.

During 1999 these deposits grew 3.86%. On an average basis,  these accounts were
up from $792,023 in 1998 to $843,747 in 1999 representing a 6.53% growth. During
1999 new products were introduced for the interest-bearing transaction and money
market accounts.  These accounts were well received and resulted in the majority
of the growth experienced during that year.

Interest-Bearing Deposits to Total Deposits

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
       86.32%    85.38%    85.83%    85.42%    85.06%

Interest expense for deposits was $42,169,  $35,477, and $35,943 for 2000, 1999,
and 1998, respectively.  The cost of interest-bearing deposits was 4.74%, 4.20%,
and 4.54% for the same periods.

  21

Less reliance was placed on borrowed  funds toward the end of 2000.  The balance
in borrowed  funds,  including  the treasury tax and loan account and loans from
the Federal Home Loan Bank, was down $26,720, or 52.12%. The average balances of
borrowed  funds  were  $43,396  and  $32,029  for 2000 and  1999,  respectively.
Interest  expense was up from $1,865 in 1999 to $1,963.  The cost of those funds
was 4.52%, down from 5.82% in 1999.

Interest  expense for borrowed funds  increased from $1,491 in 1998 to $1,865 in
1999. These funds were necessary to fund the loan growth for 1999,  particularly
to fund longer-term loans. In addition,  the bank borrowed 90-day funds from the
Federal  Home Loan Bank to meet its Y2K needs.  In 1998,  the Company  also used
Federal Home Loan Bank money to fund longer-term loans.  Interest rates were low
and customers were taking  advantage of the  environment by locking in rates for
longer terms. In order to minimize interest rate risk, the Company  match-funded
these loans with funds from the Federal Home Loan Bank.

The provision for loan losses was $6,373, $3,192, and $2,591 for 2000, 1999, and
1998,  respectively.  The Company  experienced  deterioration in credit for both
commercial and mortgage loans.

Provision for Loan Losses to Average Loans

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        .78%      .42%      .38%      .37%      .50%

Total noninterest income includes service charges on deposit accounts,  fees and
commissions,  trust  revenue,  security  gains,  and other  non-interest  income
accounts. Noninterest income for 2000 increased 17.58% over the core noninterest
income for 1999.  During the second quarter of 1999, the company sold its credit
card portfolio and reported a gain of $3,717.  Noninterest  income was up 8.98%,
excluding the credit card gain, over 1998. The Company experienced 18.72% growth
in 1998.

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

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        1.55%     1.37%*    1.35%     1.26%     1.23%

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

Service charges on deposit  accounts  comprised 9.00% of gross revenue for 2000.
These  fees were up  17.01%  over the prior  year  with a total of  $9,722.  The
Company continued to implement  recommendations  from the Sheshunoff  Management
engagement through  establishing a new fee structure  primarily for servicing of
deposit accounts.

Service  charges on deposit  accounts in 1999 were $8,309,  up 13.62% over 1998.
The  Company  implemented  a number  of  service  charge  changes  that had been
recommended  during 1998 and 1999 by the Alex  Sheshunoff  Management  Services,
Inc. These changes involved  restructuring the charges related to overdrafts and
other products.  Service charges for 1998 were up 6.08% over 1997. This increase
was due to charges related to the growth in transaction accounts.

Fees and  commissions of $5,209,  representing  4.82% of gross revenue,  were up
57.75% for 2000 over 1999. While the Company is cognizant of the significance of
fees as a source of revenue,  the largest contributor to this increase came from
the sale of insurance products. The Company expanded its commitment to enhancing
products and their related fees by acquiring Southern Insurance and the Dominion
companies  during 2000.  Integration  of insurance  products  into the bank will
continue during 2001.

  22

Fees and commissions for 1999 were $3,302, up 22.12% over 1998. The increase was
due to  commissions  from the sale of annuities and mutual funds,  loan document
preparation  fees,  and other loan fees.  The Company  experienced a decrease in
mortgage  and  underwriting  fees due to a slowdown  in the demand for  mortgage
products.  For 1998, fees and commissions were $2,704,  up 55.40% over 1997. The
growth for 1998 was attributable to commissions on annuity and mutual fund sales
and sales of mortgage loans.

While the growth in trust  revenue had slowed  during 2000,  its fees  increased
8.82% from 1999 to $1,024.  This  increase  is due to both the  offering of cash
management  products as well as increased volume of business.  Trust revenue for
1999 was up 11.23% from $846 due to increased volume. In 1998, trust revenue was
up 17.66% over 1997.

During 1999, the Company sold its credit card portfolio.  Approximately  $18,000
in loans were sold resulting in a gain of $3,717.

Other noninterest income was $2,574, down from $3,122, or 17.55%, for 2000. This
decrease  was the  result  of a loss in fees  from the sale of the  credit  card
portfolio  in mid 1999 and the  continued  decline  in the sale of  credit  life
insurance.

Other noninterest income for 1999 was $3,122, down 11.73% from 1998. Despite the
loan growth  experienced  during 1999,  credit life income was down  19.81%,  an
impairment  charge  related to the  mortgage  servicing  value was  recorded for
approximately  $100,  and due to the sale of the credit card  portfolio,  credit
card interchange fees were down 40.49%.  For 1998, other noninterest  income was
up 23.28%.  The  primary  growth  came from  credit  card income and the sale of
mortgage loans.

Total  noninterest  expense  includes  salaries  and  employee  benefits,   data
processing, net occupancy, equipment, and other noninterest expense. Noninterest
expense was $42,474,  $41,480,  $39,338 for 2000,  1999 and 1998,  respectively.
Noninterest  expense  grew  2.40%,  5.45%,  and  9.12%  for  2000,  1999,  1998,
respectively.  The increase is attributable to the purchase of new computers and
software  during 1999 and 2000. The  expenditures  were made in order to provide
better  customer  service,  enhance  productivity,  and  establish  better  risk
measurements.

Noninterest Expense to Average Assets

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        3.55%     3.62%     3.68%     3.72%     3.76%

Salaries and benefits were up a modest 1.21%, or $270 for 2000. This slow growth
resulted  from the  increase in staff  efficiencies,  the changing of health and
life insurance carriers,  the reduction of employee overtime, and the absence of
nonrecurring  personnel costs from 1999.  Overall,  staffing  increased from the
addition of two insurance agencies in 2000. In addition, the Company did not pay
an incentive bonus or make an ESOP contribution for 2000.

Salaries and employee  benefits  were $22,398 for 1999,  up $1,033 or 4.84% over
1998.  While  regular  payroll  was down  approximately  2% from the prior year,
overtime  pay jumped  $192 or 36.57%.  On January  2, 1999,  the  Company  began
implementing  changes aimed at streamlining its operation.  Namely,  the support
functions for loans as well as other  back-office  functions were  consolidated.
Due to the  installation  of new computer  systems,  employees spent overtime in
getting those systems  operational.  Health insurance,  pension,  and ESOP costs
were down 6.95%, 4.44%, and 46.67%, respectively. The Company expensed $1,564 in
employee  incentive  pay for 1999  compared to $332 for 1998.  In addition,  the
Company did incur a  substantial  cost  related to  employment  contracts in the
merger with Inter-City Federal Bank for Savings. This resulted in an increase in
other  benefits of 12.32%.  Salaries  and employee  benefits  were up 6.48% over
1997. This increase was the result of increases in regular payroll, overtime and
incentives, health insurance, and other employee benefits.

  23

Data processing expenses were down 20.61% from $4,007 in 1999 to $3,181 in 2000.
The decrease in this account was due to the reduction in data processing related
to the sale of the credit card  portfolio  in 1999,  the  reduction  in computer
costs  related to running dual systems  during the computer  conversion  for the
Trust profit  center  during 1999,  and the  renegotiation  of the contract with
Metavante, the company's primary service provider.

Net occupancy  expense was up 8.96% for 2000.  The $256 change was  attributable
the addition of new  facilities  during the year. A new branch was  completed in
the fourth quarter that replaced a facility that was being leased.

In 1999, net occupancy  expense was $2,858, up 4.69% over 1998. During 1999, the
Company  capitalized two new facilities and renovated one other facility.  These
facilities are located in the growing markets of the Company. They were designed
to enhance the Company's service quality by providing more convenient locations.
In addition,  a building that had been acquired in a prior  acquisition was sold
at a loss. For 1998, net occupancy  expense was $2,730,  up 3.29% over 1997. The
increase for 1998 compared to 1997 was also attributable primarily to additional
locations.

Equipment  expense for 2000 increased $765, or 36.12% over 1999 as the result of
increased  depreciation  costs of $525.  During  late 1999 and early  2000,  the
Company installed a number of computer systems. Due to the specifications of the
software, major purchases were made for microcomputers.

Equipment  expense for 1999 was $2,118,  or 7.19% over 1998.  During  1999,  the
Company  installed  new computer and  software  systems,  resulting in increased
depreciation  charges  of 11.87%.  In  addition,  the  Company  purchased  other
non-capitalized  equipment  that  resulted in a 77.73%  increase  over the prior
year.  These expenses were somewhat offset by a gain on the sale of the residual
value on leased equipment. For 1998, equipment expense was $1,976, up 7.04% over
1997 due to depreciation charges and repairs and maintenance increases.

Other  noninterest  expense  increased  5.24%,  or $529,  for 2000 and were more
routine when compared to 1999.  This  increase  primarily  came from  marketing,
correspondent bank fees, credit bureau fees, intangible amortization,  telephone
expense,  and  stationery  and  supplies.  Reductions  in this account were from
customer relations  expenses,  remuneration and temp service fees, fees paid for
professional services, and expenses related to other real estate.

For 1999, other noninterest expense was $10,099. With the changes resulting from
the  Sheshunoff  recommendations,  both  work  processes  and  computer  systems
changed. Incorporated into these changes was a move toward a more sales-oriented
environment  with  consolidation  of the support  areas.  This led to additional
training and travel costs.  Travel expenses were up $70, or 21.04% over 1998. In
addition,  the Company was a sponsor of the LPGA U.S. Open Golf  Tournament that
was held at Old Waverly.  This cost resulted in an increase in public  relations
expenses of approximately  58.54%. The Company also incurred expenses related to
conversions in  outsourcing  the servicing of its mortgage loan portfolio and in
the merger with Inter-City Federal Bank for Savings. Other costs contributing to
the increase were temporary employment expenses, marketing, and data processing.
Telephone  expense was up 17.00% due to the  installation of a new phone system.
The Call Center was put in place to handle  24-hour  service to customers.  This
system  will  substantially  reduce  the  calls  being  handled  by  the  retail
divisions.  Other  expenses  for 1998 were  $9,866,  up 13.82%  over  1997.  The
increase  in 1998  compared  to 1997  was due to  education,  special  community
functions  sponsored by the Company,  correspondent  bank fees, and fees paid to
Alex Sheshunoff Management Services, Inc. (consultant).

  24

Efficiency Ratio

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
       63.13%    63.82%    64.56%    64.04%    64.66%

Income tax expense for 2000,  1999,  and 1998 was  $3,800,  $6,182,  and $4,697,
respectively.  The effective tax rates for those years were 25.36%,  29.49%, and
28.68%.  During the last three years,  the Company has increased its holdings in
tax  exempt  securities,  tax-free  leases  and  loans.  Note H of the  Notes to
Consolidated  Financial  Statements  provides  further details of the income tax
expense.

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. The Company's credit risk is
monitored  and  managed by a Loan  Committee  and a Loss  Management  Committee.
Credit quality and policies are major concerns of these committees.  The Company
tries to maintain diversification within its loan portfolio in order to minimize
the effect of economic conditions within a particular industry.

The  allowance  for loan losses is available to absorb  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 losses
on loans assessed as impaired  under SFAS No. 114,  "Accounting by Creditors for
Impairment  of a Loan." The balance of these loans  determined  as impaired  and
their related  allowance is included in management's  estimation and analysis of
the allowance for loan losses. If the allowance is deemed inadequate, management
sets aside additional reserves by increasing the provision for loan losses.

The  allowance  for loan losses was $10,536 and $10,058 at December 31, 2000 and
1999, respectively. The Company performed a loan loss adequacy evaluation at the
end of the year and has accrued  its  provision  for loan  losses  based on that
calculation.

Allowance for Loan Losses to Loans

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        1.29%     1.26%     1.34%     1.39%     1.59%

The  Company's  net  charge-offs  for 2000  and 1999  were  $5,895  and  $2,876,
respectively.  Below is a chart  showing net  charge-offs  as a percent of total
charge-offs by each sector.

                                          2000        1999       1998       1997      1996
                                        --------    --------   --------   --------  --------
                                                                      
Commercial, financial, agricultural ...   36.25%      25.17%     14.06%      7.02%     9.40%
Real estate-construction ..............    0.56        1.18       1.11       6.42
Real estate-mortgage ..................   27.92        6.36       8.65      18.86      8.50
Consumer ..............................   35.27       67.29      76.18      67.70     82.10
                                        --------    --------   --------   --------  --------
   Total Charge-offs ..................  100.00%     100.00%    100.00%    100.00%   100.00%
                                        ========    ========   ========   ========  ========

  25

During 2000, the Company experienced losses on a limited number of larger dollar
loans within its accounts  receivable  financing  portfolio  and also within the
loan portfolio at two branch  locations.  These events comprise 62% of the total
increase in  charge-offs,  and are  reflected  in the  commercial  and  mortgage
charge-off  totals herein.  Management has taken actions to correct the cause of
the losses,  and does not believe these losses are indicative of losses inherent
in the December 31, 2000 portfolio.

The remaining  charge-offs from commercial,  financial,  and agricultural  loans
came from  certain  specialized  farming and timber  operations,  inventory  and
accounts receivable financing,  trucking operations, and commercial real estate.
In a number of cases, the remaining  increase in net charge-offs for real estate
mortgages  resulted from primary  residences  being  pledged as  collateral  for
commercial business purposes.

During 2000, net charge-offs  for consumer loans resulted  primarily from losses
on  automobiles.  During 1999,  automobile and credit card losses  comprised the
majority of consumer  charge-offs.  Management  continues  to monitor  loans and
utilize diligent collection efforts.

Net Charge-Offs to Average Loans

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        .72%      .38%      .30%      .40%      .41%

Nonperforming  loans are those on which the accrual of  interest  has stopped or
the loan is contractually past due 90 days. Generally,  the accrual of income is
discontinued  when the full  collection of principal or interest is in doubt, or
when the payment of principal or interest  has been  contractually  90 days past
due,  unless  the  obligation  is  both  well  secured  and  in the  process  of
collection.

During 2000, the Company continued to refine the credit scoring process that was
implemented in August 1999. The scoring is used as a tool for evaluating  credit
risk  and  is  proving  itself  as  an  effective  tool  in  evaluating  credit.
Approximately  85% of the losses sustained by the Company during 2000 were loans
outstanding before the credit scoring system was implemented.

The loan  grading  system is also used to assist the Company in  evaluating  the
adequacy of the allowance for loan losses.  Loans are segregated  according to a
grade.  Loan grades  range  between 1 and 7. Grade 1 loans would  require only a
small  allowance  while grade 7 loans would be classified  as loss,  with a 100%
reserve.

Non-Accrual, Past Due and Restructured Loans to Loans

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
        .87%     1.01%      .53%      .76%      .81%

  26

Summary of Loan Loss Experience

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

                                            2000            1999            1998           1997           1996
                                       ------------    ------------    ------------   ------------   ------------
                                                                                         
Balance at beginning of year .........    $ 10,058        $  9,742        $  9,221       $  9,409       $  8,902

Provision for loan losses ............       6,373           3,192           2,591          2,304          2,837

Charge-Offs
     Commercial, financial,
          agricultural ...............       2,237             882             433            248            273
     Real estate-construction ........          37              41              34            228
     Real estate-mortgage ............       1,746             223             267            667            247
     Consumer ........................       2,338           2,288           1,803          1,909          2,085
                                       ------------    ------------    ------------  ------------    ------------
Total Charge-Offs ....................       6,358           3,434           2,537          3,052          2,605

Recoveries
     Commercial, financial,
           agricultural ..............         100             158             142             73             54
     Real estate-construction ........           4               7              11             68
     Real estate-mortgage ............         100              40              88            197             49
     Consumer ........................         259             353             226            222            172
                                       ------------    ------------    ------------   ------------    ------------
Total Recoveries .....................         463             558             467            560            275
                                       ------------    ------------    ------------   ------------    ------------
     Net Charge-offs .................       5,895           2,876           2,070          2,492          2,330
                                       ------------    ------------    ------------   ------------    ------------
Balance at end of year ...............    $ 10,536        $ 10,058        $  9,742       $  9,221       $  9,409
                                       ============    ============    ============   ============    ============

The following  table presents the allocation of the allowance for loan losses by
loan category at December 31 for each of the years presented:

                                            2000        1999        1998         1997         1996
                                         ---------   ---------   ----------   ----------   ----------
                                                                             
Commercial, financial, agricultural ...   $ 6,841     $ 7,519     $  7,099     $  6,570     $  6,479
Real estate - construction ............
Real estate - mortgage ................     1,246         195          283          305          202
Consumer ..............................     2,238       1,982        1,933        1,892        1,813
Unallocated ...........................       211         362          427          454          915
                                         ---------   ---------   ----------   ----------   ----------
Total .................................   $10,536     $10,058     $  9,742     $  9,221     $  9,409
                                         =========   =========   ==========   ==========   ==========

  27

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:

                                             2000          1999          1998          1997          1996
                                         -----------   -----------   -----------   -----------   -----------
                                                                                  
Commercial, financial, agricultural ...      19.94%        19.50%        18.69%        18.06%        18.89%
Real estate - construction ............       3.15          4.68          3.62          3.77          3.54
Real estate - mortgage ................      61.46         57.61         55.59         55.73         54.48
Consumer ..............................      15.45         18.21         22.10         22.44         23.09
                                         -----------   -----------   -----------   -----------   -----------
Total .................................     100.00%       100.00%       100.00%       100.00%       100.00%
                                         ===========   ===========   ===========   ===========   ===========

Loan Loss Analysis
                                             2000          1999          1998          1997          1996
                                         -----------   -----------   -----------   -----------   -----------
Loans-average .........................  $  816,588    $  765,199    $  681,563    $  621,716    $  563,155
Loans-year end ........................     815,854       799,085       729,156       661,572       593,381
Net charge-offs .......................       5,895         2,876         2,070         2,492         2,330
Allowance for loan losses .............      10,536        10,058         9,742         9,221         9,409

Loan Ratios
                                             2000          1999          1998          1997          1996
                                         -----------   -----------   -----------   -----------   -----------
Net Charge-offs to:
  Loans-average .......................        .72%          .38%          .30%          .40%          .41%
  Allowance for loan losses ...........      55.95%        28.59%        21.25%        27.03%        24.76%

Allowance for loan losses to:
  Loans-year end ......................       1.29%         1.26%         1.34%         1.39%         1.59%
  Non-performing loans ................     147.89%       126.47%       261.95%       191.39%       206.29%

Non-performing loans to:
  Loans-year end ......................        .87%         1.00%          .51%          .73%          .77%
  Loans-average .......................        .87%         1.04%          .55%          .77%          .81%

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

                                             2000          1999          1998          1997          1996
                                         -----------   -----------   -----------   -----------   -----------
                                                                                   
Non-performing loans
  Non-accruing .......................    $   1,209     $     136     $     204     $   1,070     $   1,655
  Accruing loans past due 90 days or
    more .............................        5,915         7,817         3,515         3,748         2,906
                                         -----------   -----------   -----------   -----------   -----------
Total non-performing loans ...........        7,124         7,953         3,719         4,818         4,561

Restructured loans ...................                        146           178           203           224
                                         -----------   -----------   -----------   -----------   -----------
Total ................................    $   7,124     $   8,099     $   3,897     $   5,021     $   4,785
                                         ===========   ===========   ===========   ===========   ===========

  28

Management  and the Loss  Management  Committee  closely  monitor loans that are
considered to be  nonperforming.  The Company's  loan review staff also monitors
the  performance of these loans.  The interest  income forgone and recognized on
restructured and nonaccruing loans during 2000 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 a reduction in interest rates, or a 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 to the Company.
OREO grew to $2,276 at December 31, 2000, up $1,670 from December 31, 1999,  due
to the  acquisition  of the  commercial  and  residential  real  estate  through
foreclosure.

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
the  Company's  ability  to react  to  changes  in  interest  rates.  Therefore,
management is constantly monitoring the Company's rate sensitivity.

The Company has an Asset/Liability Committee (ALCO), which is duly authorized by
the Board of  Directors  to monitor  the  position  of the  Company  and to make
decisions relating to that process.  The ALCO's goal is to maximize net interest
income while  providing the Company with an acceptable  level of market risk due
to changes in interest rates.

Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's  market risk arises  primarily from interest rate risk inherent in
its lending and  deposit-taking  activities.  To that end,  management  actively
monitors and manages its interest rate risk exposure.

The Company's  profitability  is affected by  fluctuations  in interest rates. A
sudden  and  substantial  change in  interest  rates may  adversely  impact  the
Company's  earnings  to the extent that the  interest  rates borne by assets and
liabilities do not change at the same speed, to the same extent,  or on the same
basis.  The Company  monitors the impact of changes in interest rates on its net
interest  income using several tools.  One measure of the Company's  exposure to
differential  changes in interest rates between assets and  liabilities is shown
in the Company's Maturity and Rate Sensitivity Analysis (GAP Analysis).  Another
test measures the impact on net interest income and 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.  Following is the estimated  impact of immediate  changes in interest
rates at the specified levels at December 31:

  29

                                            Percentage Change In:
                              -------------------------------------------------
Change in Interest Rates      Net Interest Income (1)    Net Portfolio Value(2)
   (In Basis Points)             2000         1999         2000         1999
- ------------------------       --------     --------     --------     --------
          +400 ...............     9.5%       18.7%       (16.1%)      (14.1%)
          +300 ...............     7.2%       14.2%       (11.9%)      (10.2%)
          +200 ...............     4.9%        9.8%        (7.8%)       (6.5%)
          +100 ...............     2.5%        6.2%        (3.7%)       (3.1%)
          -100 ...............    (3.0%)      (2.6%)        3.4%         2.6%
          -200 ...............    (7.0%)      (7.7%)        4.2%         2.3%
          -300 ...............   (11.1%)     (11.1%)        5.8%         5.9%
          -400 ...............   (15.5%)     (15.4%)        6.5%         6.1%

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

The Company's  primary  objective in managing  interest rate risk is to minimize
the adverse  impact of changes in interest  rates on the  Company's net interest
income and capital, while structuring the Company's asset-liability structure to
obtain the maximum  yield-cost  spread on that  structure.  The  Company  relies
primarily on its  asset-liability  structure to control  interest rate risk. The
results  of the  interest  rate  shock are within the limits set by the Board of
Directors.

The Company continually  evaluates interest rate risk management  opportunities,
including  the  possible use of  derivative  financial  instruments.  Management
believes that hedging  instruments  currently  available are not cost-effective,
and therefore,  has focused its efforts on increasing  the Company's  yield-cost
spread through retail growth opportunities.

Computation of  prospective  effects of  hypothetical  interest rate changes are
based on numerous  assumptions,  including  relative  levels of market  interest
rates,  loan  prepayments,  and deposits decay, and should not be relied upon as
indicative of actual results.  Further,  the computations do not contemplate any
actions the ALCO could undertake in response to changes in interest rates.

Certain  shortcomings  are  inherent in the method of analysis  presented in the
computation of net interest  income and NPV. Actual values may differ from those
projections  presented 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  67% of the  Company's
time  deposits  is  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 the Company  continues to attract  deposits that can be used
to meet cash flow needs.  Other  sources  available  for  meeting the  Company's
liquidity needs include  available for sale  securities.  The available for sale
portfolio is composed of securities with a readily  available market that can be
used to convert to cash if the need arises. In addition, the Company maintains a
federal funds position that provides  day-to-day  funds to meet liquidity  needs
and may also obtain advances from the Federal Home Loan Bank or the treasury tax
and loan note account in order to meet liquidity needs.

  30

Repayments and maturities of loans provide substantial sources of liquidity. The
Company  has  approximately  40.58% of loans  maturing  within  the next  twelve
months.

Average Loan to Deposit Ratio

        2000      1999      1998      1997      1996
       ------    ------    ------    ------    ------
       79.18%    77.43%    73.86%    74.33%    71.36%

Capital Resources

Total shareholders'  equity of the Company was $121,661 and $116,089 at December
31, 2000 and 1999,  respectively.  Shareholders'  equity grew 4.80% during 2000,
and 5.34% during 1999. The growth in capital for both years was  attributable to
earnings less dividends  declared.  During 2000, the Company  purchased  218,385
shares of its stock and issued 70,500 shares in an acquisition. During 1999, the
Company  purchased  27,600 shares of stock,  retiring 20,100.  In addition,  the
change in the net  unrealized  gain  (loss)  on  securities  available  for sale
decreased capital in 2000 by $66 and $3,281 in 1999.  Shareholders'  equity as a
percentage  of assets  was  10.04%  and  9.98% at  December  31,  2000 and 1999,
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 9.48 % and 9.95% at  December  31,  2000 and 1999,
respectively, meeting the guidelines for a well capitalized company. At December
31,  2000,  the total Tier 1 and total  risk-based  capital  were  $112,711  and
$122,855,  respectively.  Tier 1 and total  risk-based  capital at December  31,
1999, were $113,423 and $123,339,  respectively.  See Note K of the Consolidated
Financial Statements for capital ratios.

Cash dividends have  increased  each  consecutive  year since 1987 (see selected
financial data on page 14 for the previous five years). Book value per share was
$20.09 and $18.71 at December 31, 2000 and 1999,  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 52.25% and 64.76% during 2000 and 1999, respectively.

SEC Form 10-K

A copy of the annual  report on Form  10-K,  as filed  with the  Securities  and
Exchange  Commission,  may be  obtained  without  charge by  directing a written
request to: Stuart Johnson,  Executive Vice President,  The Peoples Bank & Trust
Company, P. O. Box 709, Tupelo, MS 38802-0709.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information under the caption "Interest Rate Risk" on pages 28 through 29 of
the Registrant's 2000 Form 10-K is incorporated herein by reference.

  31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         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, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  2000.  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,  2000  and  1999,  and  the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

                                     /s/ Ernst & Young LLP

Memphis, Tennessee
January 31, 2001

  32

                                                  The Peoples Holding Company
                                                  Consolidated Balance Sheets

                                               (In Thousands, Except Share Data)

                                                                         December 31
                                                                 ---------------------------
                                                                     2000           1999
                                                                 ------------   ------------
                                                                          
Assets
    Cash and due from banks .................................... $    27,676    $    42,956
    Interest-bearing balances with banks .......................      29,141            915
                                                                 ------------   ------------
                                       Cash and Cash Equivalents      56,817         43,871
    Time deposits with banks ...................................                        152
    Securities available for sale ..............................     192,916        181,133
    Securities held to maturity (fair value - $85,981  and
        $83,373 at December 31, 2000, and 1999, respectively) ..      85,658         85,611

    Loans ......................................................     815,854        799,085
        Allowance for loan losses ..............................     (10,536)       (10,058)
                                                                 ------------   ------------
                                                       Net Loans     805,318        789,027

    Premises and equipment, net ................................      30,105         27,730
    Other assets ...............................................      41,126         35,435
                                                                 ------------   ------------
                                                    Total Assets $ 1,211,940    $ 1,162,959
                                                                 ============   ============
Liabilities and Shareholders' Equity

Liabilities
    Deposits
        Noninterest-bearing .................................... $   131,718    $   140,015
        Interest-bearing .......................................     914,887        838,943
                                                                 ------------   ------------
                                                  Total Deposits   1,046,605        978,958
   Treasury tax and loan note account ..........................       4,603         12,000
   Advances from the Federal Home Loan Bank ....................      19,946         39,269
   Other liabilities ...........................................      19,125         16,643
                                                                 ------------   ------------
                                               Total Liabilities   1,090,279      1,046,870

Shareholders' Equity
   Common stock, $5 par value - 15,000,000 shares authorized,
        6,212,284 issued; 6,056,899 and 6,204,784 outstanding
        at December 31, 2000 and 1999, respectively.............      31,061         31,061
   Treasury stock, at cost .....................................      (3,688)          (230)
   Additional paid-in capital ..................................      39,931         39,959
   Retained earnings ...........................................      54,423         48,580
   Accumulated other comprehensive loss ........................         (66)        (3,281)
                                                                 ------------   ------------
                                      Total Shareholders' Equity     121,661        116,089
                                                                 ------------   ------------
                      Total Liabilities and Shareholders' Equity $ 1,211,940    $ 1,162,959
                                                                 ============   ============

See notes to consolidated financial statements.

  33

                               The Peoples Holding Company
                            Consolidated Statements of Income

                            (In Thousands, Except Share Data)

                                                      Year ended December 31
                                               ------------------------------------
                                                  2000         1999         1998
                                               ----------   ----------   ----------
                                                                
Interest Income
   Loans ..................................... $  72,919    $  66,730    $  63,140
   Securities
      Taxable ................................    11,934       12,222       13,506
      Tax-exempt .............................     4,122        4,142        3,650
   Other  ....................................       459          406          984
                                               ----------   ----------   ----------
                        Total Interest Income     89,434       83,500       81,280

Interest Expense
   Deposits ..................................    42,169       35,477       35,943
   Borrowings ................................     1,963        1,865        1,491
                                               ----------   ----------   ----------
                       Total Interest Expense     44,132       37,342       37,434
                                               ----------   ----------   ----------

Net Interest Income ..........................    45,302       46,158       43,846
Provision for loan losses ....................     6,373        3,192        2,591
                                               ----------   ----------   ----------
                 Net Interest Income After
                    Provision for Loan Losses     38,929       42,966       41,255

Noninterest Income
   Service charges on deposit accounts .......     9,722        8,309        7,313
   Fees and commissions ......................     5,209        3,302        2,704
   Trust revenue .............................     1,024          941          846
   Securities gains ..........................                     85           61
   Gain on sale of credit card portfolio .....                  3,717
   Other .....................................     2,574        3,122        3,537
                                               ----------   ----------   ----------
                     Total Noninterest Income     18,529       19,476       14,461
                                               ----------   ----------   ----------

Noninterest Expense
   Salaries and employee benefits ............    22,668       22,398       21,365
   Data processing ...........................     3,181        4,007        3,401
   Net occupancy .............................     3,114        2,858        2,730
   Equipment .................................     2,883        2,118        1,976
   Other .....................................    10,628       10,099        9,866
                                               ----------   ----------   ----------
                    Total Noninterest Expense     42,474       41,480       39,338

Income before income taxes ...................    14,984       20,962       16,378
Income taxes .................................     3,800        6,182        4,697
                                               ----------   ----------   ----------
Net Income ................................... $  11,184    $  14,780    $  11,681
                                               ==========   ==========   ==========

Basic and diluted earnings per share ......... $    1.83    $    2.38    $    1.88
                                               ==========   ==========   ==========

Weighted average shares outstanding .......... 6,108,196    6,205,752    6,201,061
                                               ==========   ==========   ==========

See notes to consolidated financial statements.

  34

                                           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, 1997 ................... 6,206,854  $   31,034  $        $   39,876  $  31,637     $     566    $  103,113
Comprehensive income:
Net income .....................................                                                11,681                      11,681
 Other comprehensive income:
  Unrealized holding gains on securities
   available  for sale (net of tax of $159) ....                                                                 302           302
  Less reclassification adjustment for gains
   realized in net income (net of tax of $23) ..                                                                 (38)          (38)
                                                                                             ----------  -------------  ----------
  Comprehensive income .........................                                                11,681           264        11,945
Cash dividends - PHC ($.72 per share) ..........                                                (4,184)                     (4,184)
Cash dividends - Inter-City ($.36 per share) ...                                                  (125)                       (125)
Treasury stock purchased and retired ...........   (15,000)        (75)                (465)                                  (540)
                                                ----------- ----------  -------- ----------  ----------  -------------  ----------

Balance at December 31, 1998 ................... 6,191,854  $   30,959  $        $   39,411  $  39,009     $     830    $  110,209
Comprehensive income:
Net income .....................................                                                14,780                      14,780
 Other comprehensive income:
  Unrealized holding losses on securities
   available for sale (net of tax of ($2,447))..                                                              (4,058)       (4,058)
  Less reclassification adjustment for gains
   realized in net income (net of tax of ($32)).                                                                 (53)          (53)
                                                                                             ----------  -------------  ----------
  Comprehensive income .........................                                                14,780        (4,111)       10,669
Cash dividends ($.84 per share) ................                                                (5,209)                     (5,209)
Common stock issued for acquisition ............    40,530         203                1,078                                  1,281
Treasury stock purchased .......................    (7,500)                (230)                                              (230)
Treasury stock purchased and retired ...........   (20,100)       (101)                (530)                                  (631)
                                                ----------- ----------  -------- ----------  ----------  -------------  ----------

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

See notes to consolidated financial statements.

  35

                                               The Peoples Holding Company
                                          Consolidated Statements of Cash Flows

                                                     (In Thousands)

                                                                         Year ended December 31
                                                                 -------------------------------------
                                                                    2000          1999         1998
                                                                 ----------    ----------   ----------
                                                                                    
Operating Activities
 Net income ..................................................... $ 11,184      $ 14,780     $ 11,681
 Adjustments to reconcile net income to net
    cash provided by operating activities:
      Provision for loan losses .................................    6,373         3,192        2,591
      Net amortization of securities ............................      258           386          765
      Depreciation and amortization .............................    3,773         3,067        2,656
      Deferred income taxes .....................................      (64)         (862)        (429)
      Gain on sales of interest-bearing assets ..................     (246)       (4,253)        (736)
      (Gain) loss on sales of premises and equipment ............      (93)          (53)         157
      Increase in other assets ..................................     (971)       (2,137)      (2,598)
      Increase (decrease) in other liabilities ..................   (1,250)        1,881        1,405
                                                                 ----------    ----------   ----------
                        Net Cash Provided by Operating Activities   18,964        16,001       15,492
                                                                 ----------    ----------   ----------
Investing Activities
 Purchases of securities available for sale .....................  (30,792)      (95,808)    (105,184)
 Proceeds from sales of securities available for sale ...........                 12,410       16,242
 Proceeds from call/maturities of securities available for sale .   23,826       110,074       63,692
 Purchases of securities held to maturity .......................   (3,160)      (11,899)     (23,928)
 Proceeds from calls/maturities of securities held to maturity ..    3,317         5,483        6,735
 Net increase in loans ..........................................  (62,182)     (131,594)    (151,720)
 Proceeds from sales of loans ...................................   37,029        62,397       81,333
 Proceeds from sales of premises and equipment ..................      225           369          272
 Purchases of premises and equipment ............................   (4,171)       (3,506)      (5,362)
 Net cash paid in business combinations .........................     (518)
                                                                 ----------    ----------   ----------
                            Net Cash Used in Investing Activities  (36,426)      (52,074)    (117,920)
                                                                 ----------    ----------   ----------
Financing Activities
 Net increase (decrease) in noninterest bearing deposits ........   (8,297)      (12,481)      28,293
 Net increase in interest-bearing deposits ......................   75,944        31,144       61,920
 Net increase (decrease) in short-term borrowings ...............   (7,397)        7,045       (1,146)
 Proceeds from other borrowings .................................    2,554        24,250        1,000
 Repayment of other borrowings ..................................  (21,877)       (2,502)      (2,439)
 Acquisition of treasury stock ..................................   (5,178)         (861)        (540)
 Cash dividends paid ............................................   (5,341)       (5,209)      (4,309)
                                                                 ----------    ----------   ----------
                        Net Cash Provided by Financing Activities   30,408        41,386       82,779
                                                                 ----------    ----------   ----------

             Net Increase (Decrease) in Cash and Cash Equivalents   12,946         5,313      (19,649)
Cash and Cash Equivalents at Beginning of Year ..................   43,871        38,558       58,207
                                                                 ----------    ----------   ----------
                         Cash and Cash Equivalents at End of Year $ 56,817      $ 43,871     $ 38,558
                                                                 ==========    ==========   ==========

Supplemental Disclosures:
   Cash paid for:
      Interest .................................................. $ 41,356      $ 36,823     $ 37,528
      Income taxes ..............................................    5,291         7,209        5,404
   Transfers of loans to other real estate ...................... $  2,735      $    560     $  1,531

See notes to consolidated financial statements.

  36
                           The Peoples Holding Company
                   Notes to Consolidated Financial Statements
                                December 31, 2000
                        (In Thousands, Except Share Data)

Note A - Significant Accounting Policies

Nature of Operations:  The Peoples  Holding  Company (the Company) is a one-bank
holding company,  offering a diversified  range of financial  services to retail
and commercial  customers,  primarily in North Mississippi,  through The Peoples
Bank & Trust  Company  (the Bank),  Peoples  Insurance  Agency and the  Dominion
companies.

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:  All prior period  amounts have been restated to reflect
business combinations accounted for as  poolings-of-interests  and, accordingly,
the financial  position,  results of operations  and cash flows are presented as
though  the  companies  were  combined  for  all  historical  periods.  Business
combinations  accounted for using the purchase method of accounting  reflect the
net  assets  of the  companies  recorded  at  their  fair  value  at the date of
acquisition.  Goodwill is amortized on a straight-line  basis over 15 years, the
estimated period benefited. The results of operations of the purchased companies
are included since 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.

  37

Note A - Significant Accounting Policies (continued)

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 the 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.

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.

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 $2,276 and $606 at December 31, 2000 and
1999,  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.

  38

Note A - Significant Accounting Policies (continued)

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  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.

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.

Impact of Recently  Issued  Accounting  Standards:  In June 1998,  the Financial
Accounting  Standards  Board (FASB)  issued  Statement  of Financial  Accounting
Standards  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities,"  as amended by FASB No. 137 and FASB No. 138,  which is required to
be adopted in years beginning after June 15, 2000.  Because the Company does not
currently use  derivatives  or intend to use  derivatives,  the adoption of this
Statement  will not have an impact on earnings or the financial  position of the
Company.

Note B - Business Combinations

Southern Insurance Group, Incorporated, 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 for a total price
of  $1,692.  The  acquired  companies  were  merged  into the  Bank's  insurance
subsidiary.  The  transaction  was accounted for as a purchase.  Southern offers
both property and casualty insurance  products,  life and health insurance,  and
annuity and mutual funds.

The Bank acquired  Dominion  Company  (Dominion),  Dominion Health and Life P.A.
(Dominion)  and Alliance  Finance  Company  (Alliance)  (collectively,  Dominion
companies) on September 1, 2000.  Dominion offers  products  similar to Southern
and used Alliance to finance  insurance  premiums.  The Bank paid $450 in a cash
transaction for the companies. The transaction was accounted for as a purchase.

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, is an independent insurance
agency  representing  property and casualty companies and providing personal and
business  coverage.  Reed-Johnson  retained its name and staff and operates as a
wholly-owned subsidiary of The Peoples Bank and Trust Company.  Subsequently, in
May 2001,  Reed-Johnson and Southern were renamed The Peoples  Insurance Agency.
The transaction was accounted for as a purchase.

  39

Note B - Business Combinations (continued)

The  results of  operations  of all  purchase  business  combinations  have been
included in the  financial  statements  of the Company  since their  acquisition
dates.  All intangibles  resulting from these  transactions  are being amortized
over a 15 year life. The proforma results,  giving effect to these  transactions
as though they  occurred as of the beginning of the  reporting  periods,  do not
vary significantly from actual results.

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, $33,812, and $37,751,  respectively.  The merger was
accounted for using the pooling of interests  method of accounting.  The Company
exchanged  347,382  shares of its common  stock for all the  outstanding  common
stock of Inter-City.

The following table presents selected financial  information,  split between the
Company and Inter-City.

                                                     Year ended December 31
                                                   --------------------------
                                                       1999          1998
                                                   ------------  ------------
Interest Income
   The Peoples Holding Company ...................   $82,720       $77,913
   Inter-City Federal Bank for Savings (1) .......       780         3,367
                                                   ------------  ------------
      Total ......................................   $83,500       $81,280
                                                   ============  ============
Interest Expense
   The Peoples Holding Company ...................   $36,916       $35,643
   Inter-City Federal Bank for Savings (1) .......       426         1,791
                                                   ------------  ------------
      Total ......................................   $37,342       $37,434
                                                   ============  ============
Net Income
   The Peoples Holding Company ...................   $14,910       $11,368
   Inter-City Federal Bank for Savings (1) .......      (130)          313
                                                   ------------  ------------
      Total ......................................   $14,780       $11,681
                                                   ============  ============

(1) The results of operations from March 27, 1999, through December 31, 1999,
    are included in The Peoples Holding Company amounts.

  40

Note C - Securities

The amortized  cost and fair value of securities  available for sale and held to
maturity at December 31, 2000, are as follows:

                                                             Securities Available For Sale
                                            ----------------------------------------------------------------
                                            Amortized     Gross Unrealized    Gross Unrealized
                                              Cost             Gains               Losses         Fair Value
                                            ---------     ----------------    ----------------    ----------
                                                                                      
U. S. Treasury securities ................. $  49,698         $   169           $     (20)        $   49,847
Obligations of other U. S.
   Government agencies and corporations ...    49,300             109                (300)            49,109
Mortgage-backed securities ................    84,976             356                (444)            84,888
FHLB stock ................................     9,047              25                                  9,072
                                            ---------     ----------------    ----------------    ----------
                                            $ 193,021         $   659           $    (764)        $  192,916
                                            =========     ================    ================    ==========

                                                                 Securities Held to Maturity
                                            ----------------------------------------------------------------
                                            Amortized     Gross Unrealized    Gross Unrealized
                                              Cost             Gains               Losses         Fair Value
                                            ---------     ----------------    ----------------    ----------
Obligations of states and
   political subdivisions ................. $  85,658         $   799           $    (476)        $   85,981
                                            =========     ================    ================    ==========

The amortized  cost and fair value of securities  available for sale and held to
maturity at December 31, 1999, are as follows:

                                                             Securities Available For Sale
                                            ----------------------------------------------------------------
                                            Amortized     Gross Unrealized    Gross Unrealized
                                              Cost             Gains               Losses         Fair Value
                                            ---------     ----------------    ----------------    ----------
                                                                                      
U. S. Treasury securities ................. $  45,564         $                 $    (494)        $   45,070
Obligations of other U. S.
   Government agencies and corporations ...    47,294                              (1,885)            45,409
Mortgage-backed securities ................    89,828              13              (2,867)            86,974
FHLB stock ................................     3,680                                                  3,680
                                            ---------     ----------------    ----------------    ----------
                                            $ 186,366         $    13           $  (5,246)        $  181,133
                                            =========     ================    ================    ==========

                                                                 Securities Held to Maturity
                                            ----------------------------------------------------------------
                                            Amortized     Gross Unrealized    Gross Unrealized
                                              Cost             Gains               Losses         Fair Value
                                            ---------     ----------------    ----------------    ----------
Obligations of states and
   political subdivisions ................. $  85,611         $   357           $  (2,595)        $   83,373
                                            =========     ================    ================    ==========

  41
Note C - Securities (continued)

The amortized  cost and fair value of securities  available for sale and held to
maturity  at  December 31,  2000,  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 ................. $                $
Due after one year through five years ...    34,629           34,665
Due after five years through ten years ..    64,369           64,291
                                         -----------      -----------
                                             98,998           98,956

Mortgage-backed securities ..............    84,976           84,888
FHLB stock ..............................     9,047            9,072
                                         -----------      -----------
                                          $ 193,021        $ 192,916
                                         ===========      ===========

                                          Amortized          Fair
Securities Held to Maturity                  Cost            Value
                                         -----------      -----------
Due in one year or less ................. $   3,045        $   3,056
Due after one year through five years ...    21,128           21,369
Due after five years through ten years ..    46,468           46,795
Due after ten years .....................    15,017           14,761
                                         -----------      -----------
                                          $  85,658        $  85,981
                                         ===========      ===========

At  December  31,  2000  and  1999,   securities   with  an  amortized  cost  of
approximately  $197,434  and  $196,349,  respectively,  were  pledged  to secure
government, public, and trust deposits.

Note D - Loans and Allowance for Loan Losses

Loans are summarized as follows:                        December 31
                                               -----------------------------
                                                  2000               1999
                                               ----------         ----------
Commercial, financial, and agricultural ...... $ 165,370          $ 158,107
Real estate - construction ...................    25,706             37,437
Real estate - mortgage .......................   501,454            460,349
Consumer .....................................   129,898            150,831
                                               ----------         ----------
                                                 822,428            806,724
Unearned income ..............................    (6,574)            (7,639)
Allowance for loan losses ....................   (10,536)           (10,058)
                                               ----------         ----------
                                               $ 805,318          $ 789,027
                                               ==========         ==========

Changes in the allowance for loan losses were as follows:
                                                    Year ended December 31
                                             ---------------------------------
                                               2000        1999        1998
                                             --------    --------    --------
Balance at beginning of year ............... $ 10,058    $  9,742    $  9,221
  Provision for loan losses ................    6,373       3,192       2,591
  Loans charged-off ........................   (6,358)     (3,434)     (2,537)
  Recoveries of loans
     previously charged-off.................      463         558         467
                                             --------    --------    --------
Balance at end of year ..................... $ 10,536    $ 10,058    $  9,742
                                             ========    ========    ========
  42

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

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

                                                        December 31
                                               -----------------------------
                                                  2000               1999
                                               ----------         ----------
Impaired loans with a related allowance for
   loan losses ...............................  $ 1,802            $ 1,741
Impaired loans without a specific allowance
   for loan losses ...........................    2,364              2,370
                                               ----------         ----------
Total impaired loans .........................  $ 4,166            $ 4,111
                                               ==========         ==========

                                                      Year ended December 31
                                               ---------------------------------
                                                 2000        1999         1998
                                               --------    --------     --------
Average recorded investment in impaired loans. $ 4,138     $ 4,192      $ 3,841

Interest income recognized using the accrual
    basis of income recognition .............. $   345     $   436      $   340

Interest income recognized using the
   cash-basis of income recognition .......... $   191     $     4      $    13

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 $11,882 and $11,341 at December
31, 2000 and 1999, respectively.  During 2000, $1,283 of new loans were made and
payments received totaled $742.

Note E - Deposits

At December 31, 2000, the approximate  scheduled maturities of time deposits are
as follows:

                  2001 ................ $ 478,561
                  2002 ................    86,455
                  2003 ................    12,511
                  2004 ................     5,654
                  2005 ................     2,373
                  Thereafter ..........     1,157
                                        ---------
                  Total ............... $ 586,711
                                        =========

The  aggregate  amount  of time  deposits  in  denominations  of $100 or more at
December 31, 2000 and 1999 was $193,777 and $141,778, respectively.

Certain executive officers and directors had amounts on deposit with the Bank of
approximately $2,955 at December 31, 2000.

  43

Note F - Advances from the Federal Home Loan Bank

The Company  had  outstanding  advances  from the FHLB of $19,946 and $39,269 at
December 31, 2000 and 1999,  respectively.  The interest rates on these advances
are all at fixed rates which range from 5.29% to 7.93% at December 31, 2000. The
Company had  availability on unused lines of credit with the FHLB of $218,096 at
December 31, 2000.

Future minimum  payments,  by year and in the aggregate,  related to the Federal
Home Loan Bank  advances  with initial or  remaining  terms of one year or more,
consisted of the following at December 31, 2000:

                  2001 ................ $   4,859
                  2002 ................     4,017
                  2003 ................     1,054
                  2004 ................     1,078
                  2005 ................     1,435
                  Thereafter ..........     7,503
                                        ---------
                  Total ............... $  19,946
                                        =========

Note G - Commitments,  Contingent  Liabilities  and Financial  Instruments  with
         Off-Balance Sheet Risk

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

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

The Company's  unfunded  loan  commitments  (unfunded  loans and unused lines of
credit) and standby  letters of credit  outstanding  at December 31, 2000,  were
approximately $90,850 and $7,523,  respectively,  compared to December 31, 1999,
which were approximately $145,758 and $6,598, 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 H - Income Taxes

Deferred income taxes, included in other assets,  reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial  reporting  purposes and the amounts used for income tax purposes.  No
valuation allowance was recognized as the deferred tax assets were determined to
be  realizable in future years.  This  determination  was based on the Company's
earnings  history  with no  basis  for  believing  future  performance  will not
continue to follow the same  pattern.  Significant  components  of the Company's
deferred tax assets and  liabilities  as of December  31, 2000 and 1999,  are as
follows:

  44

Note H - Income Taxes (continued)

                                                        December 31
                                               -----------------------------
                                                  2000               1999
                                               ----------         ----------
Deferred tax assets
   Allowance for loan losses ................. $  3,760           $  3,745
   Net unrealized losses on securities
       available for sale ....................       40              1,952
   Deferred compensation  ....................    1,777              1,572
   Other .....................................      947              1,016
                                               ----------         ----------
      Total deferred tax assets ..............    6,524              8,285

Deferred tax liabilities
   Depreciation ..............................    1,256              1,425
   Other .....................................      990                734
                                               ----------         ----------
      Total deferred tax liabilities .........    2,246              2,159
                                               ----------         ----------
       Net deferred tax assets ............... $  4,278           $  6,126
                                               ==========         ==========

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

                                                      Year ended December 31
                                               --------------------------------
                                                 2000        1999        1998
                                               --------    --------    --------
     Current
          Federal ............................ $  3,555    $  6,307    $  4,654
          State ..............................      309         737         472
                                               --------    --------    --------
                                                  3,864       7,044       5,126
     Deferred
          Federal ............................      (55)       (735)       (373)
          State ..............................       (9)       (127)        (56)
                                               --------    --------    --------
                                                    (64)       (862)       (429)
                                               --------    --------    --------
                                               $  3,800    $  6,182    $  4,697
                                               ========    ========    ========

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
                                               --------------------------------
                                                 2000        1999        1998
                                               --------    --------    --------
    Tax at U.S. statutory rate ............... $ 5,244     $ 7,337     $ 5,732
    Tax-exempt interest income ...............  (1,784)     (1,709)     (1,498)
    State income tax, net of federal benefit .     195         401         271
    Amortization of intangible assets ........      62          27          27
    Dividends received deduction .............     (58)         (9)        (12)
    Other items-net ..........................     141         135         177
                                               --------    --------    --------
                                               $ 3,800     $ 6,182     $ 4,697
                                               ========    ========    ========
  45

Note I - Restrictions on Cash, Bank Dividends, Loans, or Advances

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, 2000, was
approximately $16,973.

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, 2000,  the  unrestricted
surplus was approximately $105,581.

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, 2000,  the maximum  amount  available for transfer from the Bank to
the  Company  in the form of cash  dividends  and loans was 17.06% of the Bank's
consolidated  net assets.  There were no loans  outstanding from the Bank to the
Company at December 31, 2000.

Note J - Employee Benefit and Deferred Compensation Plans

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 did not make a  contribution  to the Plan for the years 2000,
1999, or 1998.

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,  2000,  and for the year then
ended.

  46

Note J - 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
                                                 --------------------------     ------------------------
                                                    2000            1999           2000          1999
                                                 ----------      ----------     ----------    ----------
                                                                                  
Change in benefit obligation
  Benefit obligation at beginning of year .......$  11,409       $  12,417      $     480     $     455
  Service cost ..................................                                      38            33
  Interest cost .................................      881             867             53            38
  Plan participants' contributions ..............                                      39            44
  Actuarial gain (loss)..........................      645          (1,336)           329            56
  Benefits paid .................................     (487)           (539)          (212)         (185)
  Plan amendment ................................                                                    39
                                                 ----------      ----------     ----------    ----------
Benefit obligation at end of year ...............$  12,448       $  11,409      $     727     $     480
                                                 ==========      ==========     ==========    ==========

Change in plan assets
  Fair value of plan assets at beginning of year.$  13,330       $  13,015
  Actual return on plan assets ..................      (14)            854
  Benefits paid .................................     (487)           (539)
                                                 ----------      ----------
Fair value of plan assets at end of year ........$  12,829       $  13,330
                                                 ==========      ==========

Prepaid (accrued) benefits cost
  Funded status .................................$     381       $   1,921      $    (727)    $    (480)
  Unrecognized net actuarial (gain) loss ........    1,107            (600)           416            90
  Unamortized prior service cost ................      259             290             29            34
                                                 ----------      ----------     ----------    ----------
Prepaid (accrued) benefit cost ..................$   1,747       $   1,611      $    (282)    $    (356)
                                                 ==========      ==========     ==========    ==========

Weighted-average assumptions as of December 31
  Discount rate .................................      7.5%            8.0%           7.5%          8.0%
  Expected return on plan assets ................      8.0%            8.0%           N/A           N/A

  47

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

                                          Year ended December 31                       Year ended December 31
                                   -------------------------------------        ------------------------------------
                                             Pension Benefits                              Other Benefits
                                   -------------------------------------        ------------------------------------
                                      2000          1999         1998              2000         1999         1998
                                   ----------    ----------   ----------        ----------   ----------   ----------
                                                                                        
Components of net periodic
    benefit cost(income)
  Service cost ................... $             $            $                 $      38    $      33    $      27
  Interest cost ..................       881           867          820                53           38           31
  Expected return on plan assets .    (1,047)       (1,022)        (950)
  Prior service cost recognized ..        30            30           30                 8            5
                                   ----------    ----------   ----------        ----------   ----------   ----------
Net periodic benefit cost(income). $    (136)    $    (125)   $    (100)        $      99    $      76    $      58
                                   ==========    ==========   ==========        ==========   ==========   ==========

Effective January 1, 1997, the Company adopted two defined contribution plans: a
money purchase  pension plan and a 401(k) plan. The money purchase  pension plan
is a  noncontributory  pension plan. The Company  contributes 5% of compensation
for each participant annually into this plan. The Company accrued $730, $674 and
$738 to the money purchase  pension plan in 2000,  1999 and 1998,  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 3% 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 2000, 1999 and
1998 were $408, $371 and $381, respectively.

The Company and its  subsidiary  also sponsor an employee  stock  ownership plan
covering  substantially all full-time employees who are 21 years of age and have
completed one year of employment.  Contributions  are determined by the Board of
Directors  and may be paid in either cash or the Company's  common stock.  Total
contributions to the Plan charged to operating  expenses were $0, $160, and $300
in 2000, 1999, and 1998, respectively.

The Company adopted the existing  Incentive  Compensation Plan effective January
1, 1997.  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 growth,  profitability,  asset quality and productivity.  Management
sets key  performance  indicators  for all  applicable  profit centers to reward
employees  on improved  economic  benefit  derived from the profit  center.  The
expense  associated  with the Plan for 2000,  1999 and 1998 was $0,  $1,564  and
$332, respectively.

The Company's Deferred  Compensation Plan is available to eligible directors and
officers. 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 the Plan, are offered  periodically.  The interest
amount accrued on deferrals is tied to Moody's  Average  Corporate Bond Rate for
the previous year. The Plans are unfunded,  and it is anticipated that they will
result  in no cost of the  Company  over  the  term of the  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 2000, 1999 and 1998 for the Employee  Deferred  Compensation  Plans,
inclusive of the salary deferrals,  was $381, $341 and $281,  respectively.  The
expense recorded in 2000, 1999 and 1998 for the Directors Deferred  Compensation
Plans, inclusive of fee deferrals, was $128, $136 and $125, respectively.  There
were no retainer deferrals for 2000, 1999 or 1998.

  48

Note K - Regulatory Matters

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly additional  discretionary,  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
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). Management believes, as of December 31, 2000,
that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2000, 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
                       -----------------------------------------------------
                                 2000                       1999
                       ------------------------ ----------------------------
                          Amount       Ratio        Amount         Ratio
                       ------------ ----------- -------------- -------------
The Company
   Total Capital .....   $122,855       15.15%     $123,339          15.55%
   Tier I Capital ....    112,711       13.90%      113,423          14.30%
   Tier I Leverage ...    112,711        9.48%      113,423           9.95%

The Bank
   Total Capital .....   $122,165       15.06%     $123,208          15.54%
   Tier I Capital ....    112,022       13.81%      113,294          14.29%
   Tier I Leverage ...    112,022        9.42%      113,294           9.94%

Note L - Segment Reporting

The Company  has  defined two  reportable  segments:  branches  and  specialized
products.  Branches offer  commercial,  consumer,  and mortgage loans as well as
full range of deposit services.  Specialized  products include leasing,  student
loans, credit cards,  accounts receivable factoring,  trust services,  financial
investment alternatives and insurance products.

The Company evaluates  performance based on profit or loss from operations.  The
reportable segments do not receive any allocations for income taxes or gains and
losses from security sales. The accounting  policies of the reportable  segments
are the  same as  those  described  in the  summary  of  significant  accounting
policies.

Intersegment  transfers are recorded at cost; there is no intercompany profit or
loss on these transfers. There are no intercompany receivables.

  49

Note L - Segment Reporting (continued)

Branches are defined as a reportable segment because, while they offer a variety
of products,  they offer the same set of products, use the same delivery system,
and are evaluated by the same set of standards. Specialized products are grouped
together,  not  because of  similarities  in the  products,  but  because of the
delivery  system,  which is largely  marketed  through branch  referrals and the
immateriality  of  the  revenue  generated  by  each  division  separately.  The
similarity  in  these  is that  they  are  all  specialized  financial  services
products, which must be supported by experts.

Year ended December 31, 2000
                                                             Specialized
                                                Branches       Products        All Other        Total
                                             ------------- ---------------- --------------- -------------
                                                                                
Net interest income .......................  $     42,994    $   2,267      $         41    $     45,302
Provision for loan losses .................         4,788        1,388               197           6,373
                                             ------------- ---------------- --------------- -------------
Net interest income after provision
   for loan losses ........................        38,206          879              (156)         38,929

Noninterest income ........................        12,877        5,018               634          18,529
Noninteret expense ........................        23,986        5,705            12,783          42,474
                                             ------------- ---------------- --------------- -------------
Income before income taxes ................        27,097          192           (12,305)         14,984
Income taxes ..............................                                        3,800           3,800
                                             ------------- ---------------- --------------- -------------
Net income ................................  $     27,097    $     192      $    (16,105)   $     11,184
                                             ============= ================ =============== =============
Intersegment revenue (expense) ............  $        482    $    (482)
                                             ============= ================
Segment assets ............................  $  1,085,758    $  70,053      $     56,129    $  1,211,940
                                             ============= ================ =============== =============

Year ended December 31, 1999

Net interest income .......................  $     42,369    $   3,752      $         37    $     46,158
Provision for loan losses .................         1,780        1,209               203           3,192
                                             ------------- ---------------- --------------- -------------
Net interest income after provision
   for loan losses ........................        40,589        2,543              (166)         42,966

Noninterest income ........................        11,310        7,510               656          19,476
Noninteret expense ........................        24,061        4,595            12,824          41,480
                                             ------------- ---------------- --------------- -------------
Income before income taxes ................        27,838        5,458           (12,334)         20,962
Income taxes ..............................                                        6,182           6,182
                                             ------------- ---------------- --------------- -------------
Net income ................................  $     27,838    $   5,458      $    (18,516)   $     14,780
                                             ============= ================ =============== =============
Intersegment revenue (expense) ............  $        551    $    (551)
                                             ============= ================
Segment assets ............................  $  1,044,751    $  68,857      $     49,351    $  1,162,959
                                             ============= ================ =============== =============

  50

Note L - Segment Reporting (continued)

Year ended December 31, 1998                                Specialized
                                               Branches       Products        All Other        Total
                                             ------------- ---------------- --------------- -------------
                                                                                
Net interest income .......................  $     40,276    $   3,519      $         51    $     43,846
Provision for loan losses .................         1,707          714               170           2,591
                                             ------------- ---------------- --------------- -------------
Net interest income after provision
   for loan losses ........................        38,569        2,805              (119)         41,255

Noninterest income ........................         9,964        4,233               264          14,461
Noninteret expense ........................        24,830        5,275             9,233          39,338
                                             ------------- ---------------- --------------- -------------
Income before income taxes ................        23,703        1,763            (9,088)         16,378
Income taxes ..............................                                        4,697           4,697
                                             ------------- ---------------- --------------- -------------
Net income ................................  $     23,703    $   1,763      $    (13,785)   $     11,681
                                             ============= ================ =============== =============
Intersegment revenue (expense) ............  $        517    $    (517)
                                             ============= ================
Segment assets ............................  $    984,273    $  91,385      $     32,137    $  1,107,795
                                             ============= ================ =============== =============

Note M - Disclosures About Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and due from  banks:  The  carrying  amount  reported  in the  consolidated
balance sheet for cash and due from banks approximates fair value.

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

Securities:  Fair values for securities are based on quoted market prices, where
available.  If quoted market prices are not available,  fair values are based on
quoted market prices of comparable instruments.

Loans: For variable-rate  loans that reprice  frequently and with no significant
change in credit risk, fair values are based on carrying values. Fixed-rate loan
fair values, including mortgages,  commercial,  agricultural, and consumer loans
are  estimated  using a discounted  cash flow analysis  based on interest  rates
currently  being  offered for loans with  similar  terms to borrowers of similar
credit quality.

Deposits:  The fair values disclosed for demand deposits,  both interest-bearing
and non  interest-bearing,  are, by  definition,  equal to the amount payable on
demand at the reporting  date.  The fair values of  certificates  of deposit and
individual  retirement accounts are estimated using a discounted cash flow based
on currently effective interest rates for similar types of accounts.

Treasury  tax and loan  note  account:  The  carrying  amounts  reported  in the
consolidated balance sheet approximate the fair value.

Borrowings: The fair value was determined by discounting the cash flow using the
current market rate.

Off-balance sheet: 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.
  51

Note M - Disclosures About Fair Value of Financial Instruments (continued)

                                                            2000                     1999
                                                    -----------------------  ----------------------
                                                     Carrying       Fair      Carrying      Fair
                                                      Value         Value       Value       Value
                                                    ----------    ---------  ----------   ---------
                                                                               
Financial assets:
   Cash and due from banks ......................... $  27,676     $ 27,676   $  42,956    $ 42,956
   Interest-bearing balances with banks ............    29,141       29,141       1,067       1,067
   Securities ......................................   278,574      278,897     266,744     264,506
   Loans, net ......................................   805,318      800,962     789,027     782,928

Financial liabilities:
   Deposits ........................................ 1,046,605      953,544     978,958     978,295
   Treasury tax and loan note account ..............     4,603        4,603      12,000      12,000
   FHLB Borrowings .................................    19,946       20,547      39,269      38,704

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

                                                          December 31
                                                  -------------------------
Balance Sheets                                        2000         1999
                                                  ------------ ------------
Assets
  Cash* ..........................................  $     557    $     209
  Stock ..........................................         75           75
  Investment in bank subsidiary* .................    120,971      115,959
  Dividends receivable* ..........................      1,367        1,305
  Other assets ...................................         95
                                                  ------------ ------------
    Total Assets .................................  $ 123,065    $ 117,548
                                                  ============ ============

Liabilities and Shareholders' Equity
  Dividends payable* .............................  $   1,367    $   1,305
  Accrued interest payable and other liabilities .         37          154
  Shareholders' equity ...........................    121,661      116,089
                                                  ------------ ------------
    Total Liabilities and Shareholders' Equity ...  $ 123,065    $ 117,548
                                                  ============ ============
*Eliminates in consolidation

  52

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

                                                          Year ended December 31
                                                 -----------------------------------------
Statements of Income                                  2000          1999          1998
                                                 ------------- ------------- -------------
                                                                      
Income
   Dividends from bank subsidiary* ..............  $  11,067     $   6,389     $   4,988
   Other dividends ..............................         41            37            51
                                                 ------------- ------------- -------------
                                                      11,108         6,426         5,039
Expenses
   Other ........................................         40           245           256
Income before income tax credits and  equity in
   undistributed net income of bank subsidiary ..     11,068         6,181         4,783
Income tax credits ..............................        (12)          (94)          (84)
                                                 ------------- ------------- -------------
                                                      11,080         6,275         4,867
Equity in undistributed net income of bank
   subsidiary* ..................................        104         8,505         6,814
                                                 ------------- ------------- -------------
   Net Income ...................................  $  11,184     $  14,780     $  11,681
                                                 ============= ============= =============
*Eliminates in consolidation

                                                          Year ended December 31
                                                 -----------------------------------------
Statements of Cash Flows                              2000          1999          1998
                                                 ------------- ------------- -------------
Operating Activities
 Net Income .....................................  $  11,184     $  14,780     $  11,681
 Adjustments to reconcile net income to net cash
   provided by operating activities:
     Equity in undistributed net income of bank
       subsidiary ...............................       (104)       (8,505)       (6,814)
     Increase in dividends receivable and
       other assets .............................       (157)         (195)         (251)
     Increase (decrease) in other liabilities ...        (56)          233           216
                                                 ------------- ------------- -------------
     Net Cash Provided by Operating Activities ..     10,867         6,313         4,832

     Net Cash Used in Investing Activities ......                      (76)

Financing Activities
 Cash dividends .................................     (5,341)       (5,209)       (4,309)
 Purchase of treasury stock .....................     (5,178)         (861)         (540)
                                                 ------------- ------------- -------------
     Net Cash Used in Financing Activities ......    (10,519)       (6,070)       (4,849)
                                                 ------------- ------------- -------------
     Increase (Decrease) In Cash ................        348           167           (17)
Cash at Beginning of Year .......................        209            42            59
                                                 ------------- ------------- -------------
     Cash at End of Year ........................  $     557     $     209     $      42
                                                 ============= ============= =============

  53

Note O - Quarterly Results of Operations (Unaudited)

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, 2000
  Interest income .......................   $ 21,604    $ 22,115     $ 22,743    $ 22,972
  Interest expense ......................     10,039      10,804       11,445      11,844
                                         ------------ ----------- ------------ -----------
  Net interest income ...................     11,565      11,311       11,298      11,128
  Provision for loan losses .............        989       1,690        1,389       2,305
  Noninterest income ....................      4,383       4,522        4,892       4,732
  Noninterest expense ...................     10,418      10,412       10,774      10,870
                                         ------------ ----------- ------------ -----------
  Income before income taxes ............      4,541       3,731        4,027       2,685
  Income taxes ..........................      1,273       1,015        1,113         399
                                         ------------ ----------- ------------ -----------
  Net income ............................   $  3,268    $  2,716     $  2,914    $  2,286
                                         ============ =========== ============ ===========
  Basic and diluted earnings per share ..   $   0.53    $   0.44     $   0.48    $   0.38
                                         ============ =========== ============ ===========

Year ended December 31, 1999
  Interest income .......................   $ 20,538    $ 21,002     $ 20,889    $ 21,071
  Interest expense ......................      9,136       9,267        9,291       9,648
                                         ------------ ----------- ------------ -----------
  Net interest income ...................     11,402      11,735       11,598      11,423
  Provision for loan losses .............        746       1,275          530         641
  Noninterest income ....................      3,988       7,548        3,909       4,031
  Noninterest expense ...................     10,327      10,323       10,337      10,493
                                         ------------ ----------- ------------ -----------
  Income before income taxes ............      4,317       7,685        4,640       4,320
  Income taxes ..........................      1,102       2,528        1,448       1,104
                                         ------------ ----------- ------------ -----------
  Net income ............................   $  3,215    $  5,157     $  3,192    $  3,216
                                         ============ =========== ============ ===========
  Basic and diluted earnings per share ..   $   0.52    $   0.83     $   0.51    $   0.52
                                         ============ =========== ============ ===========

  54

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and nominees of the Registrant appear under "Election of Directors" on
pages 3 through 4 of the Company's  definitive Proxy Statement,  dated March 19,
2001, which is incorporated herein by reference.

Information  concerning  executive officers of the Registrant and its subsidiary
appears  on page 6 under  the  caption  "Executive  Officers"  of the  Company's
definitive Proxy Statement,  dated March 19, 2001, which is incorporated  herein
by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information appearing under "Summary Compensation Table-Annual Compensation"
on pages 6 through 10 of the Company's  definitive Proxy Statement,  dated March
19, 2001, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information appearing under "Principal Holders of Voting Security" on page 2
of  the  Company's  definitive  Proxy  Statement,   dated  March  19,  2001,  is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information appearing under "Transactions with Management" on page 10 of the
Company's  definitive  Proxy  Statement,  dated March 19, 2001, is  incorporated
herein by reference.

  55

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) (1) and (2) and (c) The response to this portion of Item 14 is
         submitted as a separate section of this report.

         (3) Listing of Exhibits:

            (3)  Articles of Incorporation and Bylaws of the Registrant are
                 incorporated herein by reference to exhibits filed with the
                 Registration Statement on Form S-14, File No. 2-21776.

            (23) Consent of Independent Auditors

            (27) Financial Data Schedule

     (b) Reports on Form 8-K

         A report on Form 8-K was filed October 2, 2000, to report Item 5:
         Other Events.  At a special called meeting Friday, September 22, 2000,
         the Board of Directors of The Peoples Holding Company elected E.
         Robinson McGraw President and Chief Executive Officer of The Company
         and its subsidiary, The Peoples Bank and Trust Company.  Mr. McGraw
         succeeded John W. Smith, 65, who retired October 31, 2000, after 29
         years of service with the Bank, the last seven as President and Chief
         Executive Officer.  Mr. Smith remains on the Board of Directors of both
         the Company and the Bank.  Mr. McGraw has been with the Bank since
         1974, serving as Executive Vice President since 1993.  The transition
         started immediately and Mr. McGraw assumed the responsibilities of the
         office November 1, 2000.

     (c) Financial Statement Schedules -- None

  56

SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

THE PEOPLES HOLDING COMPANY

DATED: March 19, 2001                  By /s/ E. Robinson McGraw
                                          ----------------------
                                    E. Robinson McGraw, President & CEO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been  signed by the  following  persons  in the  capacities  and on the date
indicated.

E. Robinson McGraw,
President and Director
(Chief Executive Officer) ............................/s/ E. Robinson McGraw

Robert C. Leake,
Chairman of the Board and
Director ............................................./s/ Robert C. Leake

John W. Smith,
Vice Chairman of the
Board and Director .................................../s/ John W. Smith

William M. Beasley, Director ........................./s/ William M. Beasley

George H. Booth, II, Director ......................../s/ George H. Booth, II

Frank B. Brooks, Director ............................/s/ Frank B. Brooks

John M. Creekmore, Director ........................../s/ John M. Creekmore

Marshall H. Dickerson, Director ....................../s/ Marshall H. Dickerson

Eugene B. Gifford, Jr., Director ...................../s/ Eugene B. Gifford, Jr.

J. Niles McNeel, Director ............................/s/ J. Niles McNeel

C. Larry Michael, Director .........................../s/ C. Larry Michael

H. Joe Trulove, Director ............................./s/ H. Joe Trulove

J. Heywood Washburn, Director ......................../s/ J. Heywood Washburn

Robert H. Weaver, Director .........................../s/ Robert H. Weaver

J. Larry Young, Director ............................./s/ J. Larry Young

  57

Form 10-K--Item 14 (a) (1) and (2)

THE PEOPLES HOLDING COMPANY AND SUBSIDIARY

LIST OF FINANCIAL STATEMENTS

The  following  consolidated  financial  statements  and  report of  independent
auditors of The Peoples Holding Company and subsidiary are included in this Form
10-K (Item 8) of the registrant for the year ended December 31, 2000.

                         Report of Independent Auditors

            Consolidated Balance Sheets--December 31, 2000 and 1999

                 Consolidated Statements of Income--Years ended
                       December 31, 2000, 1999, and 1998

          Consolidated Statements of Shareholders' Equity--Years ended
                       December 31, 2000, 1999, and 1998

               Consolidated Statements of Cash Flows--Years ended
                       December 31, 2000, 1999, and 1998

         Notes to Consolidated Financial Statements--December 31, 2000

Schedules  to the  consolidated  financial  statements  required by Article 9 of
Regulation  S-X are not  required  under  the  related  instructions  or are not
applicable and therefore, have been omitted.

                                   Exhibit 23

                          The Peoples Holding Company

                         Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-3 No.  33-20108) of The Peoples Holding Company and in the related  Prospectus
of our report dated January 31, 2001, 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, 2000.

                                           /s/ Ernst & Young LLP

Memphis, Tennessee
March 14, 2001

 9
 1,000

                   YEAR
                          DEC-31-2000
                               DEC-31-2000
                                          27,676
                          29,141
                                     0
                                     0
                    192,916
                          85,658
                            85,981
                                        815,854
                                     10,536
                               1,211,940
                                   1,046,605
                                     4,603
                             19,125
                                     19,946
                                0
                                          0
                                        31,061
                                      90,600
               1,211,940
                                 72,919
                               16,056
                                   459
                                89,434
                              42,169
                              44,132
                           45,302
                                    6,373
                                   0
                                 42,474
                                 14,984
                      14,984
                                      0
                                            0
                                    11,184
                                       1.83
                                     1.83
                                    4.41
                                      1,209
                                     5,915
                                     0
                                      0
                                10,058
                                    6,358
                                       463
                               10,536
                            10,536
                                  0
                            211