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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

Commission File Number 1-13253

THE PEOPLES HOLDING COMPANY

(Exact name of the registrant as specified in its charter)

209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38802-0709

(Address of principal executive offices) (Zip code)

Registrant’s telephone number including area code 662-680-1001

Indicate by check 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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES__X__ NO_____

Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES__X__ NO _____

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as to the latest practicable date: Common stock, $5 Par Value, 8,186,826 shares outstanding as of April 30, 2004.

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

See Notes to Condensed Consolidated Financial Statements

THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)

See Notes to Condensed Consolidated Financial Statements

THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)

See Notes to Condensed Consolidated Financial Statements

THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(in thousands, except share data)

Note 1 Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2004, are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

For further information, refer to the consolidated financial statements and footnotes thereto included in The Peoples Holding Company and Subsidiary’s annual report on Form 10-K for the year ended December 31, 2003. For purposes of this quarterly report on Form 10-Q, the term “Company” refers to The Peoples Holding Company and the term “Bank” refers to The Peoples Bank and Trust Company.

Certain amounts in prior periods have been reclassified to conform to the current presentation.

Note 2 Shareholders' Equity

On October 21, 2003, the board of directors authorized a three-for-two stock split effected in the form of a share dividend to shareholders of record on November 7, 2003. All references in financial statements and notes to financial statements to number of shares, per share amounts, and market prices of the Company's common stock have been restated to reflect the increased number of shares outstanding.

We are currently operating under a share buy-back plan authorized by the Company's board of directors in September 2002 which allows for the purchase of 418,157 shares, or approximately 5% of our outstanding common stock, subject to a monthly purchase limit of $2,000 of our common stock. This plan will remain in effect until all authorized shares are repurchased or until otherwise instructed by the board of directors. As of March 31, 2004, 137,207 shares of our common stock had been purchased and 280,950 shares remained authorized under this plan. The reacquired common shares are held as treasury shares and may be reissued for various corporate purposes.

The cash dividend declared for the first quarter of 2004 was $0.20 per share. This represents a 11.11% increase over the dividend declared during the first quarter of 2003, which was $0.18 per share. During 2003, we marked our seventeenth consecutive year of dividend increases. Total cash dividends paid to shareholders by the Company were $1,638 and $1,505 for the three month periods ended March 31, 2004 and 2003, respectively.

Note 3 Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an Interpretation of ARB 51." In December 2003, the FASB revised FIN 46 to incorporate several FASB Staff Positions and change the effective date. FIN 46 addresses consolidation by business enterprises of variable interest entities (VIE). In general, FIN 46 defines a VIE as any legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 excludes certain interests from its scope including transfers to qualifying special purpose entities subject to Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" and employee benefit plans subject to specific accounting requirements in existing FASB Statements. Effective February 1, 2003, we adopted the provisions of FIN 46 for all variable interests in entities created or modified after January 31, 2003. In addition, we adopted FIN 46 on December 31, 2003, for entities created before February 1, 2003, that are considered to be special-purpose entities. The adoption of FIN 46 for special-purpose entities resulted in the deconsolidation of a subsidiary trust, which has issued trust-preferred securities. Effective March 31, 2004, we adopted FIN 46 for entities created before February 1, 2003, that are not considered to be special-purpose entities. The adoption of FIN 46 did not have a material effect on our financial position or results of operations.

In December 2003, President Bush signed into law a bill that expands Medicare benefits, primarily adding a prescription drug benefit for Medicare-eligible retirees beginning in 2006. The law also provides a federal subsidy to companies sponsoring postretirement benefit plans that provide prescription drug coverage. FASB Staff Position 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" permits deferral of recognition of new Medicare provisions' impact due to lack of specific authoritative guidance on accounting for the federal subsidy. We have elected to defer accounting for the effects of this new legislation until specific authoritative guidance is issued. Accordingly, the postretirement benefit obligations and the net periodic costs reported in this report do not reflect the impact of this new legislation. The accounting guidance could potentially require changes to previously reported financial data. The adoption of this standard is not expected to have a material impact on our results of operation, financial position, or liquidity.

At its March 31, 2004 meeting, the FASB ratified the consensuses reached by the Emerging Issues Task Force in EITF Issue No. 03-6 (EITF 03-6), "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share." EITF 03-6 concludes that a forward contract to issue an entity's own shares that has a provision that reduces the contract price per share when dividends are declared on the issuing entity's common stock is a participating security, and therefore, earnings per share must be calculated using the two-class method under FASB Statement No. 28. EITF 03-6 must be applied in the first reporting period beginning after March 31, 2004, by restating previously reported earnings per share to apply the two-class method to any participating securities that were outstanding for any period presented in comparative financial statements. We are currently assessing the impact of EITF 03-6 on our earnings per share calculation.

Note 4 Comprehensive Income

For the three month periods ended March 31, 2004 and 2003, total comprehensive income was $5,416 and $3,860, respectively. Total comprehensive income consists of net income and the change in the unrealized gain (loss) on securities available for sale.

Note 5 Employee Benefit Plans

The following table provides the net pension cost and other benefit cost recognized for the three months ended March 31, 2004 and 2003.

Note 6 Net Income Per Common Share

Weighted average shares outstanding have been adjusted for prior periods for the effect of the three-for-two stock split effected in the form of a share dividend issued in 2003. Basic and diluted net income per common share calculations follow:

Basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding for the period. The Company has no preferred stock to consider in this calculation.

Diluted net income per common share reflects the pro forma dilution assuming outstanding unexercised stock option awards were exercised into common shares. For the quarters ended March 31, 2004 and 2003, all options to purchase shares of common stock were dilutive because the fair value of the stock exceeded the option exercise price. If the option exercise price exceeded the fair value of the stock, there would have been an anti-dilutive effect on earnings per share. Consequently, those shares would not have been included in the stock awards adjustment.

Note 7 Pending Merger

The Company announced on February 17, 2004, the signing of a definitive merger agreement pursuant to which the Company will acquire Renasant Bancshares, Inc., a Tennessee-chartered bank holding company ("Renasant") headquartered in Germantown, Tennessee. Renasant is the parent of Renasant Bank and, at December 31, 2003, had total assets of $226,000, total deposits of $186,000 and total stockholders' equity of $17,000. Renasant operates two banking offices in Germantown and Cordova, both in Tennessee, and a loan production office in Hernando, Mississippi.

Based on PHC's market close of $31.85 on February 13, 2004, the aggregate transaction value, including the dilutive impact of Renasant's options and warrants, is approximately $56,700. The acquisition is expected to close on July 1, 2004 and is subject to regulatory and Renasant shareholder approval and other conditions set forth in the merger agreement.

Renasant Bank will maintain its name and charter, operating as an indirect subsidiary of the Company, and the management and board of Renasant Bank will remain in effect. Two board members of Renasant Bank will be added to the Company's Board.

Note 8 Segment Reporting

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

Changes to the Company's internal reporting process during 2001 prompted management to reorganize into two segments that account for the Company's principal activities: the delivery of financial services through its community banks; and the delivery of insurance services through its insurance agencies. The net income generated by the insurance subsidiary is immaterial to the Company's performance and, therefore, is not separately disclosed.

The Company changed its internal reporting mechanism in 2001 in order to more closely match expenses with revenues at the community bank level. Direct and indirect expenses and revenues are now allocated to the respective community banks based on various factors, including percentage of loans, percentage of deposits, percentage of loans and deposits together, full-time equivalent employees, number of accounts serviced, and actual sales. The activities unrelated to community banking do not comprise a separate, material segment for disclosure. All of the Company's products are offered to similar classes of customers and markets, are distributed using the same methods, and operate in similar regulatory environments.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts in thousands, except per share data)

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

Financial Condition

Total assets for The Peoples Holding Company increased from $1,415,214 on December 31, 2003, to $1,469,269 on March 31, 2004, representing an increase of 3.82%.

Interest bearing bank balances and investments increased $29,475 and $11,339, respectively, from the balances at December 31, 2003. Security purchases during the quarter totaled $63,604. As in recent quarters, the majority of our security purchases was in the mortgage-backed sector. These securities provide an enhancement to our investment portfolio yield when compared to other alternatives while offering a monthly cash flow from paybacks of principal and interest that will be useful in meeting loan demand as the economy continues to improve.

The loan balance at March 31, 2004, was $882,484, representing an increase of $19,832, or 2.30%, from $862,652 at December 31, 2003. New loans made in the first quarter of 2004 totaled approximately $65,000. The largest increase was in the 1-4 family mortgage real estate category. Total loans made in this category were in excess of $26,000 and made up approximately 40% of our new loan volume for the first quarter of 2004. There were a number of duplex loans made throughout our market, as well as loans made for business purposes but collateralized by primary residences. In addition, there was a significant increase in construction real estate loans; these loans will be transferred to permanent financing upon completion. The new construction loans made up approximately 8% of new loans for the first quarter of 2004, or $5,300. The remaining increase in construction loans was due to advances on existing lines of credit. We made approximately $13,000 in new commercial, financial and agricultural loans during the first quarter of 2004, or approximately 20% of our new loan volume. Though the balance of commercial, financial and agricultural loans remained relatively unchanged due to payments received.

The increased loan originations generated during the first quarter of 2004 are attributed in part to improvements within the economy. We also established a greater loan presence in our DeSoto County market with the creation of a commercial lending office, the hiring of several seasoned lenders, and the opening of our Horn Lake community bank. DeSoto County, located just south of Memphis, Tennessee, is one of the fastest growing counties in both Mississippi and the nation. Most of the additional lenders were hired during the month of February; the Horn Lake community bank opened for business on February 17. We began to experience the impact of this expansion late in the first quarter. Of the total new loans generated in 2004, approximately 35% were originated in the Lee County area, and 19% in the DeSoto County area. The table below sets forth loans outstanding, according to loan type, net of unearned income.

Our average loan to deposit ratio was 74.41% at March 31, 2004, compared to 74.99% at December 31, 2003. The decrease in our average loan to deposit ratio was due to an increase in average deposits for the first quarter of 2004.

Total deposits increased from $1,133,931 on December 31, 2003, to $1,198,025 on March 31, 2004, or 5.65%. The largest components of our deposit growth have been demand deposits, interest bearing transaction accounts, and public fund interest bearing demand deposit accounts, which increased $41,758, $12,061, and $21,984, respectively, from December 31, 2003. A significant portion of our growth for the first quarter is due to an influx of public fund deposits. This increase is seasonal, due primarily to tax deposits, and will be short-term. The growth in demand deposits and interest bearing transaction accounts is primarily attributed to the continuation of Haberfeld Associates' High Performance Checking Account Marketing ("HPC") Program, which was implemented during the second quarter of 2003. The intent of this program is to attract and retain new deposit clients in a cost efficient manner for the Bank, providing greater cross-sales opportunities. This program provides the client with a choice of seven value-priced transaction accounts. The cornerstone of this program is the free, full-service checking account.

Under the current interest rate environment, time deposits decreased $14,969 from December 31, 2003. Time deposits added in the first quarter of 2004, both from new business and renewals of maturing accounts, total $55,949. These accounts have had a weighted average life of sixteen months with a weighted average interest rate of 1.40%. Our average interest bearing deposits as a percentage of total average deposits have decreased from 85.96% at December 31, 2003, to 85.82% at March 31, 2004.

The treasury tax and loan note account decreased from $6,958 at December 31, 2003, to $2,961 at March 31, 2004. This balance is contingent on the amount of funds we pledge as collateral as well as the Federal Reserve’s need for funds.

We continue to utilize advances from the Federal Home Loan Bank (FHLB) to minimize interest rate risk. In order to mitigate interest rate risk, long term fixed rate loans have been match-funded with FHLB borrowings. In addition, we have funded two arbitrages of mortgage-backed securities with advances from the FHLB. The first arbitrage of $30,000 was completed in the fourth quarter of 2002; the second arbitrage, in the amount of $25,000, was completed in the fourth quarter of 2003. Advances from the FHLB decreased from $90,987 at December 31, 2003, to $88,356 at March 31, 2004, as a result of scheduled payments and maturities.

During the fourth quarter of 2003, we formed PHC Statutory Trust I with U. S. Bank National Association for the purpose of issuing corporation- obligated mandatorily redeemable capital securities to third-party investors and investing the proceeds from the sale of such capital securities solely in floating rate junior debentures of the Company. The $20,000 issue allowed us to raise funds for potential acquisitions and for operating capital.

The equity capital to total assets ratios were 9.62% and 9.72% at March 31, 2004, and December 31, 2003, respectively. Capital increased $3,661, or 2.66%, from December 31, 2003, to March 31, 2004. Several factors contributed to the change in capital. Earnings and unrealized security portfolio gains improved capital while treasury stock purchases and cash dividends declared decreased capital. Unrealized security portfolio gains increased as a result of higher portfolio yields.

Results of Operations

Summary

The increase in net income for the first quarter of 2004 when compared to the first quarter of 2003 has been the result of usual and customary deposit gathering and lending operations, improvements in loan quality, and an emphasis on effective and efficient delivery of specialized products. Net income for the three month period ended March 31, 2004, was $4,647. This represented an increase of $95, or 2.09%, from net income of $4,552 for the three month period ended March 31, 2003. Basic and diluted earnings per share for the three month period ended March 31, 2004, were $0.57. This represented an increase of 5.56% from basic and diluted earnings per share of $0.54 for the comparable period a year ago.

The annualized return on average assets and the annualized return on average equity are presented in the table below.

Net Interest Income

Net interest income is the difference between interest earned on earning assets and the cost of interest-bearing liabilities, which are two of the largest components contributing to our net income. The primary concerns in managing net interest income are the mix and the repricing of rate-sensitive assets and liabilities. While the current interest rate environment and soft loan demand have been unfavorable for net interest income, several factors have lessened the impact, including an increase in earning assets, risk based loan pricing, and a shift from time deposits to less costly transaction deposits.

Net interest income for the three month periods ended March 31, 2004 and 2003, was $12,450 and $12,481, respectively. Average earning assets and the resulting earning asset ratios for the same periods averaged $1,307,160 and $1,222,027, and 90.79% and 90.22%, respectively. On a tax equivalent basis, net interest margin for the three month period ended March 31, 2004, declined to 4.09% from 4.39% for the comparable period in 2003. Our margin declined 76 basis points due to repricing loans at lower rates and the change in the mix of earning assets. The decline in margin due to loans was offset somewhat by an improvement of 9 basis points from the investment portfolio as a result of the additional volume. Our cost of funds decreased 43 basis points, primarily due to time deposit repricing, impacting margin favorably by 37 basis points. The percentage of average loans to average earning assets declined from 70.39% at March 31, 2003, to 66.70% at March 31, 2004. The decline of average loans as a percent of average earning assets was largely attributable to the purchase of $45,000 in mortgage-backed securities and U. S. Government agency securities funded by the issuance of $20,000 in trust preferred securities in December 2003, and the simultaneous creation of a $25,000 arbitrage with the FHLB as previously discussed. These transactions added $45,000 to assets in December 2003 and increased the investment portfolio balance.

Provision for Loan Losses

The provision for loan losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for loan losses at a level that is adequate to meet the inherent risks of losses on our current portfolio of loans. The appropriate level of the allowance is based on a quarterly analysis of the loan portfolio which includes consideration of such factors as the risk rating of individual credits, size and diversity of the portfolio, economic conditions, prior loss experience, and the results of periodic credit reviews by internal loan review and regulators.

The provision for loan losses decreased to $505 for the first quarter of 2004 from $767 for the first quarter of 2003 as a result of improved credit quality. A number of loans in the potential problem category have migrated to the category of problem loans which have specific reserves. This is evidenced by the decline in loans 30 to 89 days past due as a percentage of total loans less non performing loans from 2.12% at March 31, 2003, to 1.70% at March 31, 2004. Our problem loans have specific reserves. For the first quarter of 2004, net charge-offs were $463, or 0.21% annualized as a percentage of average loans, compared to $304, or 0.14% annualized as a percentage of average loans for the first quarter of 2003. The loan loss provision expressed as a percent of net charge-offs was 109.07% and 252.30% at March 31, 2004 and 2003, respectively. The level of net charge-offs is consistent with our strategic goal.

The allowance for loan losses as a percentage of loans was 1.50% at the end of the first quarter 2004 compared to 1.49% at the end of the same period in 2003. Loans are assigned quality grades from 1 to 9, with 1 having no required reserve and 9 requiring 100% of the balance to be reserved. Problem loans are typically impaired and reserved for based upon the difference in the collateral value less disposal costs and the credit amount, inclusive of interest. Non-performing loans as a percentage of total loans increased to 1.05% at March 31, 2004, from 0.33% at March 31, 2003. The non-performing loan coverage ratio was 142.67% at March 31, 2004 compared to 455.28% at March 31, 2003. Almost one half of our non-performing loan ratio is related to one credit. Furthermore, three additional credits comprised approximately 14% of the nonperforming loan balance. All of these credits are secured by real estate, and we believe that we have specifically reserved an adequate amount to cover any losses from these four credits.

The tables below present information and ratios regarding loans and credit quality.

Loans and Credit Quality

* Net of unearned income.

Allowance for Loan Losses

Noninterest Income

Noninterest income, excluding gains from the sales of securities, was $8,082 for the three month period ended March 31, 2004, compared to $7,667 for the same period in 2003, or an increase of 5.41%. Approximately 77% of the increase between 2004 and 2003 was the result of fees generated from usual and customary loan and deposit services.

Fees generated from deposit services during the first quarter of 2004 increased $478, or 10.75%, compared to the three month period ended March 31, 2003. This increase is largely attributable to deposit growth and the improvement in the economy. Over the first three months of 2004, deposits, excluding time deposits, increased 13.31% as compared to the same period in 2003. These deposit services include service charges, overdraft charges, debit card fees, merchant discounts, and deposit box rent. Our debit card and ATM fees were up $87 and $25, or 35.76% and 33.14%, respectively, for the first three months of 2004 compared to the same period of 2003. This increase is attributable to improvement in the economy as well as the increase in the number of cardholders as a result of Haberfeld Associates' High Performance Checking Marketing Program (HPC). Service charges were up $277, or 8.08%, in the first quarter of 2004 over the same period in 2003, again primarily due to the implementation of the HPC program. The HPC program was implemented during the second quarter of 2003.

Income attributable to loan services for the three month period ended March 31, 2004, decreased $151, or 14.01%, from the same period in 2003. The mortgage loan business was not as strong during the first three months of 2004 compared to the same period of 2003, as evidenced by decreases of $101 and $91 in mortgage loan fees and gains from sales of mortgage loans, respectively. In 2003, the refinancing sector of the mortgage loan business was particularly strong.

We continue to emphasize sales of specialized products and services to better meet the needs of our clients. Contingency income related to our insurance subsidiary was up $277 from the same period of 2003. Contingency income is a bonus received from the insurance underwriters and is based on claims paid on our customers during the previous year. Insurance commissions were down $30 for the three month period ended March 31, 2004, compared to the same period in 2003. In addition, fees earned from the sale of annuities and mutual funds for the first three months of 2004 was $60 greater than the same period of 2003, resulting in record first quarter earnings for this product.

Noninterest Expense

Noninterest expense was $13,686 for the three month period ended March 31, 2004, compared to $13,001 for the same period in 2003, or an increase of 5.27%. Salaries and employee benefits for the three month period ended March 31, 2004, were $372 greater than the same period last year. Salaries for the first three months of 2004 increased $355, or 7.26%, over the same period last year. The increase was related to normal salary increases and staff additions. Additional lenders were hired for the two new locations in one of our fastest growing markets, Desoto County, Mississippi, in an effort to enhance loan business. Expenses related to employee incentives and pensions were $92 and $36 higher, respectively, for the first quarter of 2004 when compared to the same period of 2003. Over the same periods, health insurance costs and overtime expense were $115 and $40 lower, respectively.

Net occupancy expense for the three month period ended March 31, 2004, increased $50 over the comparable period for the prior year, primarily due to additional expenses related to opening three new offices in 2004. We opened a commercial lending office and the Horn Lake community bank in DeSoto County and our Fair Park office in Lee County. Several factors contributed to the increase in other noninterest expense for the three month period ended March 31, 2004, compared to the same period of 2003. The most notable was a charge of $245 incurred during the first quarter of 2004 related to the HPC program. This program was not in place during the first quarter of 2003. Data processing costs for the three month period ended March 31, 2004, increased $213 compared to the same period last year as the result of continued technological enhancements, increased account volume as a result of the HPC program, and increased processing volume of ATM cards due in part to general economic improvement.

Noninterest expense as a percentage of average assets was 3.80% for the three month period ended March 31, 2004, and 3.83% for the comparable period in 2003. We anticipate a continued positive impact on the future through our investments in personnel, technology, and programs such as High Performance Checking. As a result of the growth rate in noninterest income exceeding the growth rate in noninterest expense, the net overhead ratio improved to 1.55% for the first quarter of 2004 from 1.65% for same period during 2003. The net overhead ratio is defined as noninterest expenses less noninterest income, expressed as a percent of average assets. Our efficiency ratio increased to 63.99% for the three month period ended March 31, 2004, compared to 62.04% for the same period of 2003.

Income tax expense was $1,783 for the three month period ended March 31, 2004, (with an effective tax rate of 27.73%) compared to $1,907 (with an effective tax rate of 29.52%) for the same period in 2003. The decrease in the effective tax rate is primarily due to tax-exempt income on securities. We continue to seek investing opportunities in assets whose earnings are given favorable tax treatment.

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 a key to assuring liquidity. When evaluating the movement of these funds even during times of large interest rate changes, it is apparent that we continue to attract deposits that can be used to meet cash flow needs, as evidenced by our increase in deposits in the first quarter of 2004. Management continues to monitor the liquidity and potentially volatile liabilities ratios to ensure compliance with Asset-Liability Committee targets. These targets are set to ensure that we meet the liquidity requirements deemed necessary by management.

Other sources available for meeting our liquidity needs are available-for-sale securities and mortgage loans held-for-sale. These assets have readily available markets that offer conversions to cash as needed. Other sources available for meeting liquidity needs include federal funds sold and interest bearing balances with the FHLB. We also maintain established lines of credit with other commercial banks. In addition, we may obtain advances from the FHLB or the Federal Reserve Bank. Funds obtained from the FHLB are used primarily to match-fund real estate loans in order to minimize interest rate risk, and may be used to meet day to day liquidity needs. The total amount of credit available to us from the FHLB is $235,750. As of March 31, 2004, our outstanding balance with the FHLB was $88,356.

Capital Resources

The Company announced on February 17, 2004, the signing of a definitive merger agreement pursuant to which the Company will acquire Renasant Bancshares, Inc., a Tennessee-chartered bank holding company ("Renasant") headquartered in Germantown, Tennessee. Based on the Company's market close of $31.85 on February 13, 2004, the aggregate transaction value, including the dilutive impact of Renasant's options and warrants, is approximately $56,700. The acquisition is expected to close on July 1, 2004 and is subject to regulatory and Renasant shareholder approval and other conditions set forth in the merger agreement. In accordance with the merger agreement, the Company will deliver to Renasant shareholders either cash, Company common stock, or a combination of cash and Company common stock, in exchange for the shares of Renasant common stock owned by a shareholder. The Company intends to fund the cash portion of the merger consideration through available cash and dividends from the Bank.

We are 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 our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Our 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 us to maintain minimum balances and ratios. All banks are required to have core capital (Tier I) of at least 4% of risk-weighted assets (as defined), 4% of average assets (as defined), and total capital of 8% of risk-weighted assets (as defined). As of March 31, 2004, we met all capital adequacy requirements to which we are subject.

As of March 31, 2004, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized us as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, we must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of management, there are no conditions or events since the last notification that have changed the institution’s category. The actual capital amounts and applicable ratios are as follows.

Management recognizes the importance of maintaining a strong capital base. As the above ratios indicate, we exceed the requirements for a well capitalized bank.

Book value per share was $17.26 and $16.79 at March 31, 2004 and December 31, 2003, respectively.

Our capital policy is to evaluate future needs based on growth, earnings trends and anticipated acquisitions.

Off Balance Sheet Arrangements

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 March 31, 2004, were approximately $131,845 and $8,976 respectively, compared to December 31, 2003, which were approximately $132,181 and $10,042, respectively.

Market risk resulting from interest rate changes on particular off-balance sheet financial instruments may be offset by other on- or off-balance sheet transactions. Interest rate sensitivity is monitored by the Company for determining the net effect of potential changes in interest rates on the market value of both on- or off-balance sheet financial instruments.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our disclosure on quantitative and qualitative disclosures about market risk since December 31, 2003. For additional information, see our Form 10-K for the year ended December 31, 2003.

Item 4. CONTROLS AND PROCEDURES

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective for timely alerting them to material information required to be included in our periodic SEC reports. There were no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Part II. OTHER INFORMATION

Item 2. ISSUER PURCHASES OF EQUITY SECURITIES AND RESTRICTIONS ON DIVIDENDS

The following table summarizes the Company's purchases of its own securities for the three month period ended March 31, 2004:

The Company's ability to pay dividends to its shareholders is substantially dependent on the transfer from the Bank of sufficient funds to pay such dividends. 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 March 31, 2004, the unrestricted surplus was approximately $118,489. Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specific obligations. At March 31, 2004, the maximum amount available for transfer from the Bank to the Company in the form of loans was $13,982. There were no loans outstanding from the Bank to the Company at March 31, 2004.

Item 6. (a)  EXHIBITS

         Exhibit No. and Description

               (b)    REPORTS ON FORM 8-K

SIGNATURES

Pursuant to the requirements 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.