Edgar Filing: PEOPLES HOLDING CO

Form S-4

As filed with the Securities and Exchange Commission on October 6, 2004

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

THE PEOPLES HOLDING COMPANY

(Exact name of registrant as specified in its charter)

MISSISSIPPI

6022

64-0676974

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

209 Troy Street

Tupelo, Mississippi 38802-0709

(662) 680-1001

(Address, including zip code, and telephone number,

including area code, of Registrant’s principal executive offices)


	*Copies to:*	*Copies to:*
Stephen M. Corban	Mark A. Fullmer, Esq.	Paul S. Ware, Esq.
The Peoples Holding Company	Phelps Dunbar, LLP	Bradley Arant Rose & White LLP
209 Troy Street	365 Canal Street, Suite 2000	One Federal Place
Tupelo, Mississippi 38802-0709	New Orleans, LA 70130	1819 Fifth Avenue North
(662) 680-1001	(504) 566-1311	Birmingham, Alabama 35203 (205) 521-8000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Approximate Date of Commencement of Proposed Sale of the Securities to the Public: As soon as practicable after the effective date of this Registration Statement and the satisfaction or waiver of all other conditions to the merger described in the enclosed proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

CALCULATION OF REGISTRATION FEE

Title of each class

of securities to be registered

Amount to be
registered⁽¹⁾

Proposed
maximum
offering price
per share

Proposed
maximum
aggregate
offering price⁽²⁾

Amount of
registration fee

Common stock, par value $5.00 per share

1,800,000 shares

Not applicable

25,146,090

3,187

(1)

This amount is based upon the number of shares of common stock (i) anticipated to be issued upon completion of the transactions contemplated in the Agreement and Plan of Merger dated as of July 15, 2004 (the “Merger Agreement”), by and among The Peoples Holding Company (“Peoples”), The Peoples Bank & Trust Company, Heritage Financial Holding Corporation (“Heritage”) and Heritage Bank and (ii) potentially issuable if vested options to purchase shares of Heritage common stock are exercised prior to the completion of the transactions described in (i) above.

(2)

Determined pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended, solely for the purpose of calculating the registration fee, based on the book value of a share of Heritage common stock, $0.01 par value per share, as of the latest practicable date prior to the filing date (June 30, 2004). Pursuant to Rule 457(f)(3), the cash portion of the consideration to be paid by Peoples pursuant to the Merger Agreement has been deducted from the book value of the securities to be received by Peoples or cancelled in the transaction.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

[Heritage logo]

Heritage Financial Holding Corporation

Dear Heritage Stockholders:

You are cordially invited to attend the special meeting of stockholders of Heritage Financial Holding Corporation which will be held at , on , December , 2004, at Central time.

At the special meeting, you will be asked to vote upon a proposal to adopt and approve a merger agreement, a related plan of merger and a merger of Heritage Financial Holding Corporation with and into The Peoples Holding Company. If the merger of Heritage and Peoples is completed, all of the Heritage common stock you hold will be exchanged for either (1) $6.25 in cash, without interest, for each share of Heritage common stock, (2) 0.20 shares of Peoples common stock for each share of Heritage common stock or (3) a combination consisting of cash for 40% of your common stock and shares of Peoples common stock for 60% of your common stock at the same price and exchange ratio set forth above. You will be asked to elect your form of payment. Regardless of your election, elections will be limited by the requirements that not less than 60% or more than 65% of the aggregate shares of Heritage common stock owned by Heritage stockholders be exchanged for Peoples common stock and that not less than 35% or more than 40% of the aggregate shares of Heritage common stock owned by Heritage stockholders be exchanged for cash. Thus, your election may be redesignated as described in this proxy statement/prospectus. Immediately after the merger of Heritage with and into Peoples is completed, Heritage Bank will be merged with and into The Peoples Bank & Trust Company.

If you wish, you may exercise your appraisal rights under Delaware law and obtain a cash payment for the fair value of your shares rather than receive the merger consideration described above. To exercise appraisal rights, you must not vote in favor of the adoption and approval of the merger agreement, the related plan of merger or the merger and you must strictly comply with all of the applicable requirements of Delaware law summarized in the accompanying proxy statement/prospectus under the heading “The Merger—Appraisal Rights.” A copy of the Delaware law regarding appraisal rights is attached as Annex D to this proxy statement/prospectus.

Peoples common stock is listed on the American Stock Exchange under the symbol “PHC”. On , 2004, the closing price of a share of Peoples common stock was $ .

Approval of the merger requires the affirmative vote of a majority of the outstanding shares of Heritage common stock entitled to vote in favor of the adoption and approval of the merger agreement, the related plan of merger and the merger. The proposed merger is discussed in detail in the accompanying proxy statement/prospectus. We encourage you to read this entire document carefully. You can also obtain more information about Peoples and Heritage in documents that each of them has filed with the Securities and Exchange Commission.

The Heritage board of directors has unanimously determined that the merger agreement, the related plan of merger and the merger are in the best interests of Heritage and its stockholders and Heritage Bank. On behalf of your board of directors, we encourage you to vote “FOR” the adoption and approval of the merger agreement, the related plan of merger and the merger. Regardless of your vote, please sign and date the enclosed proxy and return it in the enclosed envelope to make sure that your vote is counted.


/s/ TIMOTHY A. SMALLEY		/s/ LARRY R. MATHEWS
Chairman of the Board of Directors		President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of common stock to be issued by Peoples in the merger, as described in this proxy statement/prospectus, or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The shares of Peoples common stock to be issued in the merger are not savings or deposit accounts or other obligations of any bank or savings association or non-bank subsidiary of Peoples and are not insured by the Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or any other governmental agency.

You should read “ Risk Factors” beginning on page 16 for a description of the factors that may affect the value of the Peoples common stock to be issued in the merger and other risk factors that should be considered with respect to the merger.

This proxy statement/prospectus is dated , 2004, and it is first being mailed to Heritage stockholders, along with the enclosed form of proxy card, on or about , 2004.

TABLE OF CONTENTS


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1
QUESTIONS AND ANSWERS ABOUT THE MERGER		2
SUMMARY		7
The Companies		7
The Merger		8
What You Will Receive in the Merger		8
The Special Meeting		9
Vote of Management-Owned Shares		9
Heritage’s Reasons for the Merger; Recommendation of the Heritage Board		10
Conditions to the Merger		10
Covenants and Agreements		11
Termination of the Merger Agreement		12
Termination Fees		13
Interests of Certain Persons in the Merger		14
Appraisal Rights		14
Tax Consequences of the Merger		15
Regulatory and Third Party Approvals		15
RISK FACTORS		16
You May Receive a Form of Consideration Different from the Form of Consideration You Elect.		16
Changes in Peoples’ Stock Price May Affect the Total Value of the Consideration You Receive in the Merger.		16
The Low Trading Volume of Peoples Common Stock Could Lead to Volatility in the Price of Such Stock.		16
The Interests of Certain Directors and Executive Officers of Heritage May Cause Them to View the Merger Differently than You Would.		16
Combining Our Two Companies May Be More Difficult, Costly or Time Consuming than We Expect.		16
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PEOPLES		17
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF HERITAGE		19
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA OF PEOPLES		20
COMPARATIVE PER SHARE DATA		28
COMPARATIVE STOCK PRICES AND DIVIDENDS		29
THE SPECIAL MEETING		30
Purpose, Time and Place		30
Record Date; Voting Power		30
Quorum		30
Votes Required		30
Share Ownership of Management and Certain Stockholders		31
Voting of Proxies		31
Revocability of Proxies		31
Solicitation of Proxies		31
Directors and Officers of Surviving Corporation		32
THE MERGER		32
General		32
Background of the Merger		33
Heritage’s Reasons for the Merger; Recommendation of the Heritage Board		35
Peoples’ Reasons for the Merger		36
Opinion of Sterne, Agee & Leach, Inc.		37
Material United States Federal Income Tax Consequences		42
Accounting Treatment		44
Regulatory and Third-Party Approvals		44
Appraisal Rights		46


Interests of Certain Persons in the Merger		50
Restrictions on Resales by Affiliates		50
THE MERGER AGREEMENT		51
General		51
Form of the Merger		51
Effective Time of the Merger		51
Merger Consideration		51
Election and Election Procedures		52
Redesignation Procedures		53
Procedures for Exchanging Heritage Common Stock Certificates		54
Shares as to which Appraisal Rights Have Been Exercised		55
Assumption of Heritage Stock Options		55
Representations and Warranties		56
Covenants and Agreements		56
Conditions to the Completion of the Merger		60
Termination of the Merger Agreement		61
Termination Fee		63
COMPARISON OF RIGHTS OF STOCKHOLDERS OF HERITAGE AND PEOPLES		64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		73
EXPERTS		75
LEGAL MATTERS		75
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING OF STOCKHOLDERS		75
WHERE YOU CAN FIND MORE INFORMATION		76


Annex A-1		Agreement and Plan of Merger, dated as of July 15, 2004, by and among The Peoples Holding Company, The Peoples Bank & Trust Company, Heritage Financial Holding Corporation and Heritage Bank
Annex A-2		Plan of Merger by and among The Peoples Holding Company and Heritage Financial Holding Corporation
Annex B-1		Form of Lock-Up and Non-Competition Agreement
Annex B-2		Form of Lock-Up Agreement
Annex C		Opinion of Sterne, Agee & Leach, Inc.
Annex D		Section 262 of the Delaware General Corporation Act

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Peoples and Heritage from documents that Peoples and Heritage, respectively, have filed with the Securities and Exchange Commission and that have not been included in or delivered with this proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain documents incorporated by reference in this proxy statement/prospectus, other than exhibits to those documents, by requesting them in writing or by telephone from Peoples or Heritage, as the case may be, at the following addresses:


The Peoples Holding Company		Heritage Financial Holding Corporation
209 Troy Street		211 Lee Street NE
Tupelo, Mississippi 38802		Decatur, Alabama 35602
Attention: Stuart R. Johnson		Attention: William M. Foshee
Telephone: (662) 680-1001		Telephone: (256) 355-9500

IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO PRIOR TO , 2004, IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.

See “Where You Can Find More Information” on page 76 of this proxy statement/prospectus for more information about the documents referred to in this proxy statement/prospectus.

[Heritage Financial Holding Corporation letterhead]

Heritage Financial Holding Corporation

Notice of Special Meeting

, 2004

To the Stockholders of Heritage Financial Holding Corporation:

A special meeting of stockholders of Heritage Financial Holding Corporation will be held at , on , December , 2004 at Central time, and at any adjournments or postponements thereof, to consider and act upon the following matters:

•

To consider and vote upon a proposal to approve and adopt (a) the Agreement and Plan of Merger dated as of July 15, 2004, by and among Heritage Financial Holding Corporation, Heritage Bank, The Peoples Holding Company and The Peoples Bank & Trust Company, a wholly-owned subsidiary of Peoples, pursuant to which, upon satisfaction of specified conditions, Heritage Financial Holding Corporation will merge with and into The Peoples Holding Company, with Peoples surviving the merger, (b) the related plan of merger contemplated by the Agreement and Plan of Merger and (c) the merger of Heritage with and into Peoples. Immediately after the merger of Heritage and Peoples, Heritage Bank will merge with and into The Peoples Bank & Trust Company, with The Peoples Bank & Trust Company surviving the merger.

•

Any other business properly brought before the special meeting or any adjournment or postponement thereof.

As a result of the merger, you, as a holder of Heritage common stock, will have the right to receive for all of your shares of Heritage common stock either (i) $6.25 in cash per share of Heritage common stock, (ii) 0.20 shares of Peoples common stock per share of Heritage common stock or (iii) a combination consisting of cash for 40% of your Heritage common stock and shares of Peoples common stock for 60% of your Heritage common stock at the same price and exchange ratio set forth above. You will be asked to elect your form of payment. Regardless of your election, however, elections will be limited by the requirements that not less than 60% or more than 65% of the aggregate shares of Heritage common stock owned by Heritage stockholders be exchanged for Peoples common stock and not less than 35% or more than 40% of the aggregate shares of Heritage common stock owned by Heritage stockholders be exchanged for cash. Accordingly, your election may be redesignated as described on pages 53 and 54 of the accompanying proxy statement/prospectus.

You may exercise appraisal rights for your shares if the merger is completed, but only if you do not vote in favor of the merger agreement, the related plan of merger and the merger, and you otherwise comply with the applicable statutory provisions of Delaware law. By properly exercising such appraisal rights, you will be entitled to receive payment in cash equal to the “fair value” of your shares, as determined in accordance with Delaware law in lieu of the right to receive either the cash, shares of Peoples common stock or the combination of cash and shares of Peoples common stock in exchange for each share of Heritage common stock as described above. A copy of these provisions is included as Annex D to this proxy statement/prospectus. You should also review the information included under the heading “The Merger—Appraisal Rights” on page 46 of the accompanying proxy statement/prospectus.

The Heritage board of directors has fixed the close of business on , 2004 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting. Therefore, only stockholders of record on , 2004 are entitled to notice of, and to vote at, the special meeting. A list of stockholders entitled to vote will be available at Heritage’s main office in Decatur, Alabama at least ten days prior to the meeting date through the date of the special meeting as well as at the special meeting for examination by any stockholder, his agent or his attorney.

The accompanying proxy statement/prospectus describes the terms and conditions of the merger agreement and includes a complete text of the merger agreement and the related plan of merger as Annex A-1 and Annex A-2, respectively. We urge you to read the enclosed materials carefully for a complete description of the merger agreement, the plan of merger, and the merger. The accompanying proxy statement/prospectus forms a part of this notice.

Your vote is very important. The merger agreement, the related plan of merger and the merger must be adopted and approved by the holders of a majority of the outstanding shares of Heritage common stock. Even if you plan to attend the special meeting, we urge you to promptly submit a valid proxy so that your shares will be voted.

Your board of directors unanimously recommends that you vote “FOR” the adoption and approval of the merger agreement, the related plan of merger and the merger.

By Order of the Board of Directors

/s/ BINGHAM D. EDWARDS

Its Secretary

, 2004

Decatur, Alabama

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents that are made part of this proxy statement/prospectus by reference to other documents filed with the Securities and Exchange Commission include various forward-looking statements about The Peoples Holding Company and Heritage Financial Holding Corporation that are subject to risks and uncertainties. Forward-looking statements include information concerning future financial performance, business strategy, projected plans and objectives of Peoples and Heritage.

Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “may increase,” “may fluctuate,” “will likely result,” and similar expressions, or future or conditional verbs such as “will,” “should,” “would,” and “could” are generally forward-looking in nature and not historical facts. You should understand that the following important factors, in addition to those discussed elsewhere in this proxy statement/prospectus and in the documents which are incorporated by reference into this proxy statement/prospectus, could affect the future results of the combined company following the merger, and could cause results to differ materially from those expressed in such forward-looking statements:

•

the effect of economic conditions and interest rates on a national, regional or international basis;

•

the performance of Peoples’ businesses following the merger;

•

the timing of the implementation of changes in operations to achieve enhanced earnings or effect cost savings;

•

the ability of Peoples and Heritage to successfully integrate their operations, the compatibility of the operating systems of the combining companies, and the degree to which existing administrative and back-office functions and costs of Peoples and Heritage are complementary or redundant;

•

the ability to satisfy all conditions precedent to the merger (including stockholder and various regulatory approvals);

•

competitive pressures in the consumer finance, commercial finance, insurance, financial services, asset management, retail banking, mortgage lending and auto lending industries;

•

the financial resources of, and products available to, competitors;

•

changes in laws and regulations, including changes in accounting standards;

•

changes in policy by regulatory agencies;

•

changes in the securities and foreign exchange markets; and

•

opportunities that may be presented to and pursued by the combined company following the merger.

Management of each of Peoples and Heritage believes the forward-looking statements about Peoples and Heritage, as applicable, are reasonable. However, you should not place undue reliance on them. Any forward-looking statements in the proxy statement/prospectus are not guarantees of future performance. They involve risks, uncertainties and assumptions, and actual results, developments and business decisions may differ from those contemplated by those forward-looking statements. Many of the factors that will determine these results are beyond Peoples’ and Heritage’s ability to control or predict. Peoples and Heritage disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section.

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: What is the proposed transaction for which I am being asked to vote?

A: You are being asked to vote to adopt and approve an agreement and plan of merger by and among Peoples, Peoples Bank, Heritage and Heritage Bank, a related plan of merger and the merger contemplated thereby. In this proxy statement/prospectus, we refer to the agreement and plan of merger and the related plan of merger as the “merger agreement”. In the merger, Heritage will be merged with and into Peoples, and Peoples will be the surviving corporation and will continue its corporate existence under Mississippi law. Immediately thereafter, Heritage Bank will merge with and into The Peoples Bank & Trust Company, and The Peoples Bank & Trust Company will be the surviving bank and will continue its corporate existence under Mississippi law. References to the “merger” refer to the merger of Heritage with and into Peoples, unless the context clearly indicates otherwise.

Q: Who is Peoples?

A: The Peoples Holding Company is a Mississippi corporation incorporated in 1982 that is the owner of the fourth largest bank headquartered in Mississippi, The Peoples Bank & Trust Company, a Mississippi-chartered bank incorporated in 1904, and, through its ownership of Peoples Merger Corporation, the owner of Renasant Bank, a Tennessee-chartered bank (acquired July 1, 2004). Peoples and The Peoples Bank & Trust Company are headquartered in Tupelo, Mississippi; Renasant Bank is headquartered in Germantown, Tennessee. Through The Peoples Bank & Trust Company, Peoples also owns The Peoples Insurance Agency. As of June 30, 2004, Peoples had total assets of approximately $1.42 billion, deposits of approximately $1.15 billion and total shareholders’ equity of approximately $138 million. The June 30, 2004 information excludes information for Renasant Bank, which was acquired July 1, 2004. As of June 30, 2004, Renasant Bank had total assets of approximately $220.7 million, total deposits of approximately $185.3 million and total loans of approximately $179.6 million. Subsequent to its acquisition of Renasant Bank, Peoples operates 48 community bank, insurance and financial services offices in 30 cities throughout north and north central Mississippi and southwest Tennessee. The Peoples Bank & Trust Company’s and Renasant Bank’s deposits are insured by the Federal Deposit Insurance Corporation.

Q: What will I receive in exchange for my Heritage common stock in the merger?

A: In the merger, all of your shares of Heritage common stock will be converted into the right to receive either (i) $6.25 in cash for each share of Heritage common stock, (ii) 0.20 shares of Peoples common stock for each share of Heritage common stock or (iii) a combination of cash for 40% of your shares of Heritage common stock and Peoples common stock for 60% of your shares of Heritage common stock at the same price and exchange ratio set forth above. If the average closing price of Peoples common stock drops below a specified price over the measurement period and the decline in the Peoples common stock over the measurement period exceeds by 20% or more the decline in the NASDAQ Bank Index over the measurement period, the exchange ratio may be adjusted if Heritage elects to terminate the merger agreement, as described on page 61 under the heading “The Merger Agreement—Termination of the Merger Agreement.”

Q: Can I elect the type of consideration I will receive in the merger?

A: Yes. Subject to the redesignation procedures described in this proxy statement/prospectus at pages 53 and 54, you may elect to receive all cash, all shares of Peoples common stock or a combination of cash and Peoples common stock in exchange for your shares of Heritage common stock.

Under the merger agreement, the aggregate number of shares of Heritage common stock to be converted into the right to receive cash shall not be less than 35% or more than 40% of the total number of shares of Heritage common stock outstanding immediately prior to the closing date of the merger (excluding shares owned by Heritage, Peoples or any subsidiary of Heritage or Peoples (other than in a fiduciary capacity)). The merger agreement also provides that the aggregate number of shares of Heritage common stock to be converted into the right to receive shares of Peoples common stock shall not be less than 60% or more than 65% of the total number of shares of Heritage common stock outstanding immediately prior to the closing date of the merger (excluding shares owned by Heritage, Peoples or any subsidiary of Heritage or Peoples (other than in a fiduciary capacity)).

Q: What happens if the number of shares elected to be converted into cash exceeds 40% of the outstanding shares of Heritage common stock or if the number of shares elected to be converted into shares of Peoples common stock exceeds 65% of the outstanding shares of Heritage common stock?

A: If the aggregate number of shares elected to be converted into cash exceeds 40% of the outstanding shares of Heritage common stock, then shares of Heritage common stock for which a cash election was made will be redesignated on a pro rata basis into shares to be converted into shares of Peoples common stock so that the total number of Heritage shares to be converted into cash does not exceed 40% of the outstanding shares of Heritage common stock.

If the aggregate number of shares elected to be converted into shares of Peoples common stock exceeds 65% of the outstanding shares of Heritage common stock, then shares of Heritage common stock for which a stock election was made will be redesignated on a pro rata basis into shares to be converted into cash so that the total number of Heritage shares to be converted into shares of Peoples common stock does not exceed 65% of the outstanding shares of Heritage common stock.

Holders of shares of Heritage common stock who elect to receive a combination of cash for 40% of their Heritage common stock and shares of Peoples common stock for 60% of their Heritage common stock will not be subject to these redesignation procedures. Also, a holder who has elected to receive cash for all of his or her shares of Heritage common stock and would receive less than 10 shares of Peoples common stock if his or her shares were redesignated is not subject to the redesignation procedures.

Q: If I elect to receive Peoples common stock in the merger, how many shares will I receive?

A: Subject to the redesignation procedures described in this proxy statement/prospectus, if you elect to receive Peoples common stock for all or a portion of your Heritage common stock, you will receive 0.20 shares of Peoples common stock for each share of Heritage common stock that you own. If the average closing price of Peoples common stock drops below a specified price over the measurement period and the decline in the Peoples common stock over the measurement period exceeds by 20% or more the decline in the NASDAQ Bank Index over the measurement period, the exchange ratio may be adjusted if Heritage elects to terminate the merger agreement, as described on page 61 under the heading “The Merger Agreement—Termination of the Merger Agreement.”

You will not receive any fractional shares of Peoples common stock. Instead, you will be paid cash in an amount equal to the fraction of a share of Peoples common stock otherwise issuable multiplied by the average closing price as reported by the American Stock Exchange of one share of Peoples common stock for the ten trading days immediately preceding the last trading day prior to the closing date of the merger (the closing date is described in more detail on page 51 of this proxy statement/prospectus).

For instance, if you own 1,011 shares of Heritage common stock and the ten-day average closing price of Peoples common stock is $33.00 per share, a Heritage stockholder who elects to receive Peoples common stock in exchange for all 1,011 shares of Heritage common stock would receive 202 shares of Peoples common stock, plus $6.60 in cash instead of a fractional share.

Q: How do I elect the form of consideration I prefer to receive?

A: A form of election is being mailed to you concurrently with the mailing of this proxy statement/prospectus. If your shares of Heritage common stock are registered in your own name, complete and sign the form of election and send it to Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572, the exchange agent for the merger. If your shares of Heritage common stock are held in the name of your nominee or other representative, such as the trustee of a trust of which you are the beneficiary, you must have such nominee or other representative submit the form of election on your behalf.

Q: Is there a deadline for making an election?

A: Yes. Your completed election form must be received by the exchange agent not later than 5:00 p.m. eastern time on December , 2004.

Q: What if I do not send an election form, it is not received before the deadline or I improperly complete or sign my election form?

A: If the exchange agent does not receive from you a properly completed and signed election form before the deadline, then it will be assumed that you have elected to receive a combination of cash for 40% of your shares of Heritage common stock and Peoples common stock for the remaining 60% of your shares of Heritage common stock.

Q: When should I send in my stock certificate?

A: The exchange agent will deliver the necessary stock certificate transmittal materials to you within ten business days after the closing date of the merger. You should complete and sign the transmittal letter and deliver it, together with your stock certificate or certificates (and any other documents required by the exchange agent or Peoples), to the exchange agent at the address listed in the transmittal materials. Do not send in your stock certificates prior to receiving the transmittal materials.

The exchange agent, upon receipt of your stock certificates and other documents, will deliver to you the cash, stock or combination of cash and stock which you have elected to receive, as may be modified by the redesignation procedure described in this proxy statement/prospectus. This delivery is subject to the payment of any transfer taxes that may arise if such cash, stock or combination of cash and stock is to be paid to a person other than the person in whose name the surrendered Heritage stock certificate is registered.

Q: Am I entitled to appraisal rights?

A: Yes. If you wish, you may seek an appraisal of the fair value of your shares of Heritage common stock, but only if you comply with all of the requirements of Delaware law as described under the heading “The Merger—Appraisal Rights” on page 46 of this proxy statement/prospectus. Depending upon the determination of the Delaware Chancery Court, the appraised fair value of your shares of Heritage common stock, which will be paid to you if you seek an appraisal, may be more than, less than, or equal to the $6.25 per share of Heritage common stock to be paid in the merger. Any holder of Heritage common stock who loses his or her appraisal rights on account of a failure to perfect or otherwise shall be deemed to have elected to receive the combination of cash and Peoples common stock described above.

We have included a copy of Section 262 of the Delaware General Corporation Law, which addresses appraisal rights, as Annex D to this proxy statement/prospectus.

Q: When and where is the special meeting?

A: The Heritage special meeting is scheduled to take place at on , December , 2004 at Central time.

Q: Who can vote on the merger?

A: Holders of record of Heritage common stock at the close of business on , 2004 can vote at the special meeting. On that date, [10,536,260] shares were outstanding and entitled to vote.

Q: What vote is required for approval?

A: The merger agreement and the merger must be adopted and approved by a majority of the outstanding shares of Heritage common stock. Therefore, if you abstain or fail to vote, it will be the same as voting against the merger agreement and the merger.

If you hold your shares of Heritage common stock in a broker’s name (sometimes called “street name” or “nominee name”), then you must provide voting instructions to your broker. If you do not provide instructions to

the broker, your shares will not be voted on any matter on which the broker does not have discretionary authority to vote, which includes the vote on the merger. A vote that is not cast for this reason is called a “broker non-vote.” Broker non-votes will be treated as shares present for the purpose of determining whether a quorum is present at the meeting. For purposes of the vote on the merger agreement, a broker non-vote has the same effect as a vote AGAINST the merger agreement and the merger. For purposes of the vote on any other matters properly brought at the special meeting, broker non-votes will not be counted as a vote FOR or AGAINST such matters or as an abstention on such matters.

Q: What do I need to do now?

A: After carefully reading and considering the information contained in this proxy statement/prospectus, please complete and mail your proxy card as soon as possible so that your shares may be voted at the special meeting. Your proxy card will instruct the persons named on the proxy card to vote your shares at the special meeting as you direct. If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be voted FOR the adoption and approval of the merger agreement and the merger. If you do not vote or if you abstain, the effect will be a vote against the merger agreement and the merger. Your vote is very important. Your proxy card must be received prior to the special meeting to be held on December , 2004 in order to be counted.

You should also complete the form of election accompanying this proxy statement/prospectus and submit it to Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572, the exchange agent for the merger. The form of election must be received by the exchange agent no later than December , 2004 or you will be deemed to have elected to receive a combination of cash and stock in exchange for your shares of Heritage common stock.

Q: May I change my vote after I have mailed my signed proxy card?

A: You may change your vote at any time before your proxy is voted at the special meeting. You can do this in one of three ways:

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first, you can send a written notice stating that you want to revoke your proxy;

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second, you can complete and submit a new proxy card; or

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third, if you are the record owner of your shares of Heritage common stock, you can attend the Heritage special meeting and vote in person. Simply attending the meeting, however, will not revoke your proxy; you must vote at the meeting.

If you choose either of the first two methods, you must submit your notice of revocation or your new proxy card to:

Heritage Financial Holding Corporation

211 Lee Street NE

Decatur, Alabama 35602

Attention: Bingham D. Edwards, Secretary

If your shares are held in the name of a broker, bank, trustee or other nominee, you should contact such person to change your vote.

Q: If I plan to attend the Heritage special meeting in person, should I still grant my proxy?

A: Yes. Whether or not you plan to attend the special meeting, you should grant your proxy as described above. The failure of a Heritage stockholder to vote in person or by proxy will have the same effect as a vote against the adoption and approval of the merger agreement. The failure to give voting instructions to your broker will have the same effect as a vote against the adoption and approval of the merger agreement.

Q: What does Heritage’s board of directors recommend?

A: Heritage’s board of directors has unanimously determined that the proposed merger is advisable and in the best interests of Heritage and its stockholders and Heritage Bank and unanimously recommends that you vote FOR the proposal to adopt and approve the merger agreement and the merger.

Q: Who can help answer my questions?

A: If you have any questions about the merger or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card or form of election, you should contact:

Larry R. Mathews

Heritage Financial Holding Corporation

211 Lee Street NE

Decatur, Alabama 35602

(256) 355-9500

SUMMARY

This summary highlights selected information from this proxy statement/prospectus and may not contain all the information that is important to you. For a more complete understanding of the merger and for a more complete description of the legal terms of the merger and the merger agreement, you should read this entire document carefully, as well as the additional documents to which we refer you. See “Where You Can Find More Information.” References in this summary and elsewhere in this proxy statement/prospectus to the “merger” are to the merger of Heritage with and into Peoples, unless the context clearly indicates otherwise.

The Companies

The Peoples Holding Company

209 Troy Street

Tupelo, Mississippi 38802

(662) 680-1001

Peoples is a Mississippi corporation incorporated in 1982 that is the owner of the fourth largest bank headquartered in Mississippi, The Peoples Bank & Trust Company, a Mississippi-chartered bank incorporated in 1904, and, through its ownership of Peoples Merger Corporation, the owner of Renasant Bank, a Tennessee-chartered bank (acquired July 1, 2004). The Peoples Bank & Trust Company is headquartered in Tupelo, Mississippi and Renasant Bank is headquartered in Germantown, Tennessee. Through The Peoples Bank & Trust Company, Peoples is also the owner of The Peoples Insurance Agency. As of June 30, 2004, Peoples had total assets of approximately $1.42 billion, deposits of approximately $1.15 billion and total shareholders’ equity of approximately $138 million. The June 30, 2004 information excludes information for Renasant Bank, which was acquired July 1, 2004. As of June 30, 2004, Renasant Bank had total assets of approximately $220.7 million, deposits of approximately $185.3 million and total loans of approximately $179.6 million. Subsequent to its acquisition of Renasant Bank, Peoples operates 48 community bank, insurance and financial services offices in 30 cities throughout north and north central Mississippi and southwest Tennessee. The Peoples Bank & Trust Company’s and Renasant Bank’s deposits are insured by the Federal Deposit Insurance Corporation.

For financial statements and a discussion of Peoples’ recent results of operations, see Peoples’ Annual Report on Form 10-K for the year ended December 31, 2003 and Peoples’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, which are incorporated by reference in this proxy statement/prospectus.

Heritage Financial Holding Corporation

211 Lee Street NE

Decatur, Alabama 35601

(256) 355-9500

Heritage is a Delaware corporation incorporated in 2000 that is the sole stockholder of Heritage Bank, an Alabama banking corporation headquartered in Decatur, Alabama. Heritage Bank is, in turn, the owner of Heritage Insurance Agency, LLC. As of June 30, 2004, Heritage had total assets of approximately $546 million, deposits of approximately $399 million and total shareholders’ equity of approximately $31 million. Heritage operates eight banking offices in Decatur, Huntsville and Birmingham, Alabama. The deposits of Heritage Bank are insured by the Federal Deposit Insurance Corporation.

For financial statements and a discussion of Heritage’s recent results of operations, see Heritage’s Annual Report on Form 10-K for the year ended December 31, 2003 and Heritage’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, copies of which accompany this proxy statement/prospectus and which are incorporated by reference into this proxy statement/prospectus.

The Merger (pages 32 through 51)

Under the terms of the merger agreement, Heritage will be merged into Peoples. After the merger, Peoples will be the surviving corporation and will continue its corporate existence under Mississippi law. Immediately after the merger of Heritage into Peoples, Heritage Bank will be merged into The Peoples Bank & Trust Company, with The Peoples Bank & Trust Company surviving the merger and continuing its existence under Mississippi law. The merger agreement and the plan of merger of Heritage into Peoples are attached to this document as Annex A-1 and Annex A-2, respectively, and are incorporated in this proxy statement/prospectus by reference. We encourage you to read the merger agreement carefully, as it is the legal document that governs the merger.

What You Will Receive in the Merger (pages 51 and 52)

The merger agreement provides that each share of Heritage common stock (other than treasury shares, shares owned by Peoples or any of the subsidiaries of Peoples or Heritage (other than in a fiduciary capacity) or by any person who has perfected appraisal rights with respect to shares of Heritage common stock) will be converted on the closing date of the merger into the right to receive the merger consideration. The merger consideration is either:

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for each share of Heritage common stock, cash in an amount equal to $6.25, without interest;

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for each share of Heritage common stock, 0.20 shares of Peoples common stock; or

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cash consideration for 40% of such holder’s shares of Heritage common stock and stock consideration for 60% of such holder’s shares of Heritage common stock at the same price and exchange ratio set forth above.

Subject to the redesignation procedures described below, as a holder of record of shares of Heritage common stock, you may elect to receive all cash, all shares of Peoples common stock or the combination of cash and Peoples common stock described above as consideration in exchange for your shares of Heritage common stock. You will not receive any fractional shares of Peoples common stock if you elect to receive all or a portion of the merger consideration as shares of Peoples common stock. Instead, you will be paid cash in an amount equal to the fraction of a share of Peoples common stock otherwise issuable upon conversion multiplied by the average closing price of one share of Peoples common stock as reported by the American Stock Exchange for the ten trading days immediately preceding the last trading day prior to the closing date of the merger. Under certain limited circumstances, if the average closing price of Peoples common stock drops below a specified price over the measurement period and the decline in the Peoples common stock over the measurement period exceeds by 20% or more the decline in the NASDAQ Bank Index over the measurement period, the exchange ratio of 0.20 may be adjusted if Heritage elects to terminate the merger agreement, as described on page 61 under the heading “The Merger Agreement—Termination of the Merger Agreement.”

A form of election is being mailed to you concurrently with the mailing of this proxy statement/prospectus. If your shares of Heritage common stock are registered in your own name, you should complete and sign the form of election and send it to Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572, the exchange agent for the merger. If your shares of Heritage common stock are held in the name of your nominee or other representative, such as the trustee of a trust of which you are the beneficiary, you must have such nominee or other representative submit the form of election on your behalf. The form of election must be received by the exchange agent not later than 5:00 p.m. eastern time on December , 2004.

The merger agreement contains redesignation procedures which may affect your election. Under the merger agreement, the number of shares of Heritage common stock to be converted into the right to receive cash must not be less than 35% or more than 40% of the total number of shares of Heritage common stock outstanding immediately prior to the closing date of the merger. Also, the number of shares of Heritage common stock to be converted into the right to receive shares of Peoples common stock must not be less than 60% or more than 65% of the total number of shares of Heritage common stock outstanding immediately prior to the closing date of the merger.

If the number of shares to be converted into the right to receive cash exceeds 40% of the outstanding shares of Heritage common stock, then all shares of Heritage common stock for which a cash election was made will be redesignated on a pro rata basis into a combination of shares to be converted into cash and shares to be converted into shares of Peoples common stock. Shares will be redesignated such that the total number of Heritage shares converted into cash does not exceed 40% of the outstanding shares of Heritage common stock.

If the number of shares to be converted into shares of Peoples common stock exceeds 65% of the outstanding shares of Heritage common stock, then all shares of Heritage common stock for which a stock election was made will be redesignated on a pro rata basis into a combination of shares to be converted into cash and shares to be converted into shares of Peoples common stock. Shares will be redesignated such that the total number of Heritage shares exchanged for stock does not exceed 65% of the outstanding shares of Heritage common stock.

Holders who chose to receive a combination of cash for 40% of their Heritage common stock and shares of Peoples common stock for 60% of their Heritage common stock are not subject to the redesignation procedures. Also, any holder who elected to receive cash but after the redesignation procedures would receive less than ten shares of Peoples common stock for his or her shares of Heritage common stock is not subject to the redesignation procedures.

If the exchange agent does not receive from you a properly completed election form before the close of business on December , 2004, then it will be assumed that you have elected to receive a combination of cash for 40% of your shares of Heritage common stock and Peoples common stock for the remaining 60% of your shares of Heritage common stock.

Within ten business days after the closing date of the merger, the exchange agent will deliver to the former holders of Heritage common stock the necessary transmittal materials and instructions so that the certificates representing shares of Heritage common stock may be properly surrendered. After receipt of such materials, each former holder of Heritage common stock shall surrender for cancellation the certificate or certificates representing such stock, together with a properly executed and completed letter of transmittal (and any other documents required by the exchange agent or Peoples). Upon receipt of such certificate(s) and other materials, and subject to the payment of any transfer taxes that may arise if the merger consideration is to be paid to a person other than the person in whose name the surrendered Heritage stock certificate is registered, the exchange agent will deliver to the former holder of Heritage common stock the merger consideration such holder elected to receive.

The Special Meeting

The Heritage special meeting will be held at on , December , 2004 at Central time. At the meeting, the holders of Heritage common stock will be asked to vote upon a proposal to adopt and approve the merger agreement and the merger. The Heritage board of directors has fixed the close of business on , 2004 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting. At the record date, approximately [10,536,260] shares of Heritage common stock were issued and outstanding and entitled to vote. Each share of Heritage common stock is entitled to one vote on any matter that may properly come before the meeting. The affirmative vote of a majority of the outstanding shares of Heritage common stock is required to adopt and approve the merger agreement and the merger.

Vote of Management-Owned Shares

As of the record date, the directors and executive officers of Heritage and their respective affiliates collectively owned approximately [41.31%] of the outstanding shares of Heritage common stock. Approval of

the merger requires the affirmative vote of a majority of the outstanding shares of Heritage common stock. All of the directors of Heritage have entered into agreements with Peoples pursuant to which they have agreed to vote all of their shares in favor of the adoption and approval of the merger agreement and the merger. A form of the agreement for non-employee directors is attached as Annex B-1 to this proxy statement/prospectus and a form of the agreement for employee directors is attached as Annex B-2 to this proxy statement/prospectus. Assuming that no stock options are exercised, Heritage anticipates that the directors will collectively vote [34.41%] of the outstanding shares of Heritage common stock in favor of the merger in accordance with those agreements.

Heritage’s Reasons for the Merger; Recommendation of the Heritage Board (pages 35 and 36)

Heritage’s board of directors has unanimously approved the merger agreement and the merger. Heritage’s board of directors believes that the merger is in the best interests of Heritage and its stockholders and that the consideration is fair to Heritage stockholders and unanimously recommends that Heritage stockholders vote “FOR” the adoption and approval of the merger agreement. In reaching its decision, the Heritage board considered a number of factors, which are described in more detail in “The Merger—Heritage’s Reasons for the Merger; Recommendation of the Heritage Board” on the pages listed above. The Heritage board of directors did not assign relative weights to the factors described in that section or the other factors considered by it. In addition, the Heritage board did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Heritage board of directors may have given different weights to different factors.

Conditions to the Merger (pages 60 and 61)

The obligations of both Peoples and Heritage to complete the merger are subject to the following conditions being fulfilled:

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receipt of all necessary regulatory or governmental consents and approvals required to complete the merger of Heritage into Peoples and the merger of Heritage Bank into Peoples Bank, the satisfaction of all conditions required under those consents and approvals and the expiration of any waiting periods required by law;

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adoption and approval of the merger agreement and the merger by Heritage stockholders;

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the registration statement filed with the SEC, of which this document forms a part, having become effective and remaining effective through the completion of the merger;

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receipt of all consents and approvals required for the mergers from persons other than governmental entities, except those consents which would not reasonably be expected to have a material adverse effect on any of the parties;

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absence of any governmental or judicial order or otherwise prohibiting or restricting completion of the merger;

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receipt of an opinion of Phelps Dunbar LLP, Peoples’ outside counsel, that the merger will qualify as a tax-free reorganization under Section 368 of the Internal Revenue Code and that the exchange of shares in the merger will not give rise to gain or loss to the holders of Heritage common stock;

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approval of the shares of Peoples common stock issuable to the holders of shares of Heritage common stock for listing on the American Stock Exchange;

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the execution and delivery of the plan of merger and a certificate of merger with respect to the merger of Heritage with and into Peoples and the execution and delivery of a plan of merger and articles of merger with respect to the merger of Heritage Bank with and into Peoples Bank; and

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the execution and delivery of (i) a termination and release agreement by and among Heritage, Heritage Bank and Larry R. Mathews and (ii) an employment agreement by and among Peoples, Peoples Bank and Larry R. Mathews.

In addition, Peoples’ obligation to complete the merger is subject to, among other things:

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Heritage’s and Heritage Bank’s performance of and compliance with in all material respects all obligations required by the merger agreement;

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the representations and warranties of Heritage and Heritage Bank in the merger agreement being true and correct as of the date of the merger agreement and as of the closing date of the merger (except those that relate specifically to another date, which shall be true and correct as of that date), with some exceptions;

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the receipt of all permits, consents, authorizations and the like necessary in connection with the completion of the merger, none of which contain any terms or conditions which would materially impair the value of Heritage or Heritage Bank;

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either (i) satisfaction of any agreements, understandings or the like between Heritage and Heritage Bank and their banking regulatory authorities or the removal of any restrictions imposed by such agreements and understandings or (ii) the approvals and authorizations granted to Peoples by banking regulatory authorities not containing any conditions or restrictions on Peoples after the merger relating to such agreements or understandings; and

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Heritage stockholders who exercise their appraisal rights shall not hold more than 15% of the outstanding shares of Heritage common stock immediately prior to the merger.

In addition, Heritage’s obligation to complete the merger is subject to, among other things:

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Peoples’ and Peoples Bank’s performance of and compliance in all material respects with all obligations required by the merger agreement;

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the representations and warranties of Peoples and Peoples Bank being true and correct as of the date of the merger agreement and as of the closing date of the merger (except those that relate specifically to another date, which shall be true and correct as of that date), with some exceptions;

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the receipt of all permits, consents, waivers, clearances, approvals and authorizations necessary in connection with the completion of the merger, none of which adversely affect the merger consideration; and

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two qualified people selected by Heritage from its board of directors who are reasonably acceptable to Peoples having been appointed to the board of directors of Peoples and two qualified people selected from Heritage Bank’s board of directors who are reasonably acceptable to Peoples having been appointed to the board of directors of Peoples Bank.

The merger is expected to be completed promptly after Heritage stockholder approval is received at the special meeting, all necessary regulatory approvals are received and other conditions to the closing described above are fulfilled. This is expected to occur during the first quarter of 2005, although fulfilling some of the conditions to closing the merger, such as receiving regulatory approvals, is not within the control of Peoples or Heritage.

Covenants and Agreements (pages 56 through 60)

Heritage has agreed that neither it nor Heritage Bank, nor any person on either’s behalf, will solicit or hold discussions with any third party regarding a merger, tender offer, recapitalization, consolidation or any similar

transaction, sale or lease or other acquisition or assumption of all or a substantial portion of Heritage’s or Heritage Bank’s assets, purchase or acquisition of more than 20% of the voting power of Heritage or any similar transaction. Under specified circumstances, however, Heritage may take the following actions:

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provide information to a third party regarding a proposal to engage in any of the above-described transactions;

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negotiate and discuss such a transaction with a third party;

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recommend to the stockholders of Heritage the approval of such a transaction with a third party; or

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withdraw a recommendation regarding the merger with Peoples.

Heritage may take these actions only if (i) Heritage’s board of directors determines in good faith (after consultation with outside legal counsel) that any of the above-described actions are necessary in order for its directors to comply with their fiduciary duties under applicable law and (ii) the board of directors determines in good faith (after consultation with its financial advisor) that the transaction with the third party is likely to be consummated and to result in a transaction more favorable to Heritage stockholders from a financial point of view than the merger with Peoples.

Peoples has the right to match or better any acquisition proposal from a third party within ten days after receipt of notice from Heritage of the third party offer, and the merger agreement will be amended to reflect any new terms offered by Peoples. If Peoples does match or better such proposal, Heritage must cease, and cause Heritage Bank or its representative to cease, all discussions with the third party.

The merger agreement requires Peoples to provide specified indemnification for a period of six years following the closing date of the merger. Peoples must indemnify and hold harmless from liability for acts or omissions occurring at or prior to the closing date of the merger specified current or former directors and officers of Heritage or Heritage Bank to the same extent as such directors or officers would be indemnified under the articles of incorporation or bylaws of Peoples as if they were directors or officers of Peoples. The merger agreement also provides that Peoples shall use its reasonable best efforts to cause Peoples or Peoples Bank to obtain for a period of six years after the closing date of the merger policies of directors’ and officers’ liability insurance. This insurance must cover acts or omissions occurring prior to the closing date of the merger for such directors and officers of Heritage. The insurance must be on terms and in amounts substantially similar to the policies in effect on the date of the merger agreement. However, neither Peoples nor Peoples Bank are required to pay an aggregate premium for such insurance coverage in excess of 200% of the amount for such coverage as currently held by Heritage. In such case, Peoples or Peoples Bank shall purchase as much coverage as reasonably practicable for such amount.

Termination of the Merger Agreement (pages 61 through 63)

The merger agreement may be terminated and the merger may be abandoned at any time prior to the closing date of the merger:

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by the mutual written consent of Peoples and Heritage;

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by either Peoples or Heritage if:

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(i) the closing date of the merger shall not have occurred on or prior to March 31, 2005 (or on or prior to June 30, 2005 where a governmental approval is pending and has not been finally resolved) or (ii) the merger agreement and the merger are not approved by Heritage’s stockholders, unless either (i) or (ii) is caused by the failure of the party seeking to terminate to perform or observe its agreements at or before the closing date or the stockholders’ vote, as the case may be;

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there has been a breach by the other party of (i) any covenant or undertaking in the merger agreement or (ii) any representation or warranty of the other party contained in the merger agreement, where such breach prevents the breaching party from satisfying a condition to closing in the merger agreement and has not been cured within thirty days following delivery of written notice of the breach;

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30 days pass after any application for regulatory or governmental approval is denied or withdrawn at the request or recommendation of the governmental entity, unless within such 30-day period a petition for rehearing or an amended application is filed. A party may terminate 30 or more days after a petition for rehearing or an amended application is denied. No party may terminate when the denial or withdrawal is due to that party’s failure to observe or perform its covenants or agreements; or

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any governmental entity shall have issued a final, non-appealable order prohibiting the completion of the merger.

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by Peoples if:

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Heritage’s board of directors fails to make, or withdraws, qualifies or changes the recommendation in this proxy statement/prospectus that Heritage’s stockholders vote to adopt and approve the merger agreement and the merger, or proposes publicly to do any of the foregoing;

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the special meeting to approve the merger agreement and plan of merger is not called or convened by Heritage;

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Heritage approves or recommends, or publicly proposes to approve or recommend, an acquisition proposal by a third party;

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Heritage stockholders who own more than 15% of the outstanding shares of Heritage common stock exercise their right to appraisal; or

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The Federal Deposit Insurance Corporation or the Alabama State Banking Department closes or orders the closing of Heritage Bank.

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by Heritage if:

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the board of directors of Heritage determines in good faith, after consultation with outside counsel, that it would constitute a breach of the board’s fiduciary duties (i) to hold the special meeting, (ii) to recommend the merger agreement and the merger to Heritage stockholders, (iii) to fail to terminate the merger agreement and accept an acquisition proposal from a third party or (iv) to not withdraw or modify its previous recommendation to Heritage’s stockholders to adopt and approve the merger agreement and the merger; or

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the shares of Peoples’ common stock do not meet the trading price target described on page 62 of this proxy statement/prospectus.

Termination Fees (page 63)

Heritage must pay to Peoples a termination fee of $2,000,000 if:

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(i) prior to any event allowing either party to terminate the merger agreement, an acquisition proposal from a third party is publicly announced or otherwise made known to Heritage’s senior management, board of directors or stockholders generally and not irrevocably withdrawn more than five business days prior to the special meeting, (ii) the merger agreement is then terminated (y) by either Peoples or Heritage, because Heritage’s stockholders failed to approve the merger agreement and the plan of merger or (z) by Peoples, because of a willful breach by Heritage of any covenant, undertaking,

representation or warranty contained in the merger agreement, and (iii) the acquisition contained in the acquisition proposal is consummated within 12 months of the termination of the merger agreement;

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Peoples terminates the merger agreement because Heritage either (i) failed to recommend to its stockholders the approval of the merger agreement and the merger, (ii) effected a change in such recommendation, (iii) failed to call or convene the special meeting, or (iv) approved or recommended, or proposed publicly to approve or recommend, any acquisition transaction with a third party; or

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Heritage terminates the merger agreement because its board of directors determines that it would constitute a breach of the board’s fiduciary duties (i) to recommend the merger agreement and the merger to Heritage stockholders, (ii) to fail to terminate the merger agreement and accept an acquisition proposal from a third party, (iii) to hold the special meeting or (iv) to not withdraw or modify its previous recommendation to Heritage’s stockholders to adopt and approve the merger agreement and the merger.

Interests of Certain Persons in the Merger (page 50)

In addition to their interests as stockholders, the directors and executive officers of Heritage may have interests in the merger that are different from, or in addition to, your interests. These interests exist because of rights they may have under individual employment agreements, under compensation and benefit plans, including the Heritage stock option plans and under the merger agreement. These interests include, among other things:

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an employment agreement to be entered into by Peoples, The Peoples Bank & Trust Company and Larry R. Mathews on the closing date, pursuant to which Larry R. Mathews will serve as President of the Alabama Division of The Peoples Bank & Trust Company, for a period commencing on the closing date and ending five years after the closing date, subject to renewal;

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Peoples’ agreement to either repay in full the debt of Heritage to First Tennessee Bank, which is guaranteed by each current director of Heritage, or assume this debt and cause such personal guarantees to be released by First Tennessee Bank at or prior to the closing date of the merger; and

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Peoples’ agreement to indemnify and hold harmless duly elected present and former directors and officers of Heritage and Heritage Bank.

In addition, William M. Foshee, Robert F. Harwell, Jr., Michael Hockman, David F. Mays and Don Pruett have employment agreements with Heritage and Heritage Bank. Heritage has agreed that on or prior to the closing date it will cause the aforementioned individuals who are then employed by Heritage to execute and deliver to Peoples a letter agreement amending the existing employment agreements to provide, among other things, that each such person is waiving his right to receive change of control payments under their respective employment agreements that may have arisen in connection with the transactions contemplated in the merger agreement. This waiver, however, does not apply to any future transactions. It is anticipated that the term of each of these employment agreements will be extended for two additional years. Heritage, however, has advised Peoples that it may be necessary to make some form of payment to the aforementioned individuals in connection with and in consideration for the execution of such amendments to employment agreements. The amount of such payments, if any, has not yet been determined.

The members of the Heritage board of directors knew of these additional interests, and considered them when they approved the merger agreement.

Appraisal Rights (pages 46 through 49)

Under Delaware law, if a Heritage stockholder follows the appropriate procedures for demanding appraisal rights and does not vote in favor of the adoption and approval of the merger agreement and the merger, such individual will be entitled to receive a cash payment equal to the “fair value” of the shares of Heritage common stock owned by such stockholder, as determined by the Delaware Court of Chancery, in lieu of the right to receive either cash in the amount of $6.25, 0.20 shares of Peoples common stock, or the combination of cash and stock described above in exchange for each share of Heritage common stock.

If a Heritage stockholder desires to exercise appraisal rights under Delaware law, the stockholder is required to comply with Section 262 of the Delaware General Corporation Law, which is summarized under the heading “The Merger—Appraisal Rights.” A copy of Section 262 is attached to this proxy statement/prospectus as Annex D. Failure to take all of the steps required under Delaware law may result in the loss of appraisal rights by the Heritage stockholder. If a Heritage stockholder loses his or her appraisal rights, such stockholder will be deemed to have elected to receive cash for 40% of his or her shares of Heritage common stock and shares of Peoples common stock for 60% of his or her shares of Heritage common stock, at the same price and exchange ratio described above.

Tax Consequences of the Merger (pages 42 through 44)

Assuming that the merger is completed as currently contemplated, a holder of Heritage common stock will not recognize any gain or loss for United States federal income tax purposes on any of the Heritage shares exchanged for Peoples shares in the merger, except with respect to cash received in lieu of a fractional Peoples share. A holder of Heritage common stock may recognize gain or loss if Heritage shares are exchanged solely for cash in the merger. Further, a holder of Heritage common stock may recognize gain, but not loss, if the Heritage shares are exchanged for a combination of Peoples shares and cash, but not in excess of the cash received in the merger.

Regulatory and Third-Party Approvals (pages 44 through 46)

Under the merger agreement, Peoples and Heritage have agreed to use their best efforts to obtain all necessary actions, indications of no objection, waivers, consents and approvals from any governmental authority necessary to complete and make effective the merger and other transactions contemplated by the merger agreement. The required regulatory approvals include approval from the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Mississippi Department of Banking and Consumer Finance and the Alabama State Banking Department. All applications and notices have been filed, or are in the process of being filed. While Peoples and Heritage believe that they will receive the requisite approvals for the merger, there can be no assurance regarding the timing of the approvals, the ability of the companies to obtain the approvals on satisfactory terms, the absence of litigation challenging such approvals or otherwise.

RISK FACTORS

In addition to the other information included in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the heading “Forward Looking Statements” on page 1 of this proxy statement/prospectus, you should carefully consider the following risk factors in determining whether to adopt and approve the merger agreement, the plan of merger and the merger.

You May Receive a Form of Consideration Different from the Form of Consideration You Elect.

The consideration to be received by Heritage stockholders in the merger is subject to the requirement that not less than 60% or more than 65% of the shares of Heritage common stock be converted into the right to receive Peoples common stock and that not less than 35% or more than 40% of the shares of Heritage common stock be converted into the right to receive cash. The merger agreement contains redesignation procedures to achieve this desired result. If you elect to receive all cash and the available cash is oversubscribed, then a portion of your merger consideration will be paid in Peoples common stock. If you elect to receive all stock and the available stock is oversubscribed, then a portion of the merger consideration you receive will be paid in cash. Therefore, you may not receive exactly the form of consideration that you elect.

Changes in Peoples’ Stock Price May Affect the Total Value of the Consideration You Receive in the Merger.

Upon the closing of the merger, each share of Heritage common stock you own will automatically be converted into the right to receive either 0.20 shares of Peoples common stock, $6.25 in cash or a combination of both Peoples common stock and cash. Because the market price of Peoples common stock may fluctuate, you cannot be sure of the market value of the Peoples common stock that you elect to receive in the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Peoples’ businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond Peoples’ control. In addition, there will be a time period between the completion of the merger and the time when Heritage stockholders receiving stock consideration actually receive certificates evidencing Peoples common stock. Until stock certificates are received, Heritage stockholders will not be able to sell their Peoples shares in the open market and, thus, will not be able to avoid losses resulting from any decline in the trading price of Peoples common stock during this period.

The Low Trading Volume of Peoples Common Stock Could Lead to Volatility in the Price of Such Stock.

For the three months ended August 23, 2004, the average daily trading volume for Peoples common stock was 6,545 shares per day. Because Peoples common stock has a low daily trading volume, significant purchases or sales of Peoples common stock may cause volatility in the price of Peoples common stock.

The Interests of Certain Directors and Executive Officers of Heritage May Cause Them to View the Merger Differently than You Would.

You should be aware that the directors and some executive officers of Heritage have interests in the merger that are different from, or in addition to, the interests of stockholders generally. For example, on the closing date, the chief executive officer of Heritage will enter into an agreement that provides for his continued employment following the merger. Other interests of Heritage’s directors and executive officers may cause some of these persons to view the proposed transaction differently than you view it. For a discussion of these interests, see “The Merger—Interests of Certain Persons in the Merger.” Despite these additional or different interests, the directors of Heritage believe that the merger is in the best interests of Heritage and its stockholders.

Combining Our Two Companies May Be More Difficult, Costly or Time-Consuming than We Expect.

Peoples and Heritage have operated, and, until completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, a disruption of each company’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the merger. As with any merger of banking institutions, there also may be business disruptions that cause us to lose customers or cause customers to take their deposits out of our banks.

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PEOPLES

The following table sets forth certain consolidated financial information of Peoples. This information is based on, and should be read in conjunction with, the consolidated financial statements and related notes of Peoples contained in its annual report on Form 10-K for the year ended December 31, 2003 and in its quarterly report on Form 10-Q for the three-month period ended June 30, 2004. Information for the six-month periods ended June 30, 2004 and 2003 is unaudited. The results for the six-month period ended June 30, 2004 do not necessarily indicate the results you can expect for the entire year.

The information set forth below does not take into account Peoples’ acquisition of Renasant Bancshares, Inc. of Germantown, Tennessee (“Renasant”), which was completed on July 1, 2004. The financial information accounting for Peoples’ acquisition of Renasant is set forth under the heading “Unaudited Pro Forma Condensed Combined Financial Data of Peoples.”

PEOPLES SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

(Unaudited)

(In Thousands, except Share Data)


	Six Months Ended June 30,				Year Ended December 31,
	2004		2003		2003		2002			2001		2000		1999
Income Statement Data
Interest income	$	35,143	$	36,454	$	70,810	$	78,418		$	87,766	$	89,434	$	83,500
Interest expense		10,146		11,529		21,777		26,525			40,922		44,132		37,342
Provision for loan losses		993		1,370		2,713		4,350			4,790		6,373		3,192
Noninterest income		17,290		15,810		31,223		27,442			24,389		18,529		19,476
Noninterest expense		27,868		26,650		52,523		50,496			46,747		42,474		41,480

Income before income taxes		13,426		12,715		25,020		24,489			19,696		14,984		20,962
Income taxes		3,722		3,606		6,839		6,819			5,109		3,800		6,182

Income before cumulative effect of accounting change		9,704		9,109		18,181		17,670			14,587		11,184		14,780
Cumulative effect of accounting change		—		—		—		(1,300	)		—		—		—

Net income	$	9,704	$	9,109	$	18,181	$	16,370		$	14,587	$	11,184	$	14,780


Per Common Share Data
Net Income—Basic	$	1.18	$	1.09	$	2.20	$	1.95		$	1.66	$	1.22	$	1.59

Net Income—Diluted	$	1.18	$	1.09	$	2.19	$	1.94		$	1.66	$	1.22	$	1.59

Book value at period end	$	16.89	$	16.48	$	16.79	$	15.88		$	14.44	$	13.39	$	12.47
Closing Price on the AMEX at period end	$	34.34	$	28.53	$	33.00		27.17			24.67		12.00		19.25
Cash dividends declared and paid	$	0.40	$	0.37	$	0.75		0.69			0.64		0.59		0.56

Balance Sheet Data at Period End
Loans, net of unearned income	$	906,186	$	852,265	$	862,652	$	859,684		$	818,036	$	812,701	$	798,083
Securities		360,120		354,106		414,270		344,781			277,293		278,574		266,744
Assets		1,422,381		1,385,335		1,415,214		1,344,512			1,254,727		1,211,940		1,162,959
Deposits		1,151,081		1,149,497		1,133,931		1,099,048			1,063,055		1,046,605		978,958
Long term debt		91,851		58,093		95,918		64,696			32,254		15,087		17,424
Shareholders’ equity		138,276		136,700		137,625		132,778			123,582		121,661		116,089

PEOPLES SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (continued)


	Six months ended June 30,				Year ended December 31,
	2004		2003		2003		2002		2001		2000		1999
Selected Ratios
Return on average:
Total assets	1.35	%	1.30	%	1.33	%	1.25	%	1.18	%	.93	%	1.29	%
Shareholders’ equity	13.63	%	13.16	%	13.41	%	12.85	%	11.70	%	9.49	%	13.19	%
Before cumulative effect of accounting change, return on average:
Total assets	1.35	%	1.30	%	1.33	%	1.35	%	1.18	%	.93	%	1.29	%
Shareholders’ equity	13.63	%	13.16	%	13.41	%	13.87	%	11.70	%	9.49	%	13.19	%
Average shareholders’ equity to average assets	9.89	%	10.03	%	9.89	%	9.75	%	10.07	%	9.85	%	9.77	%
Shareholders’ equity to assets	9.72	%	9.87	%	9.72	%	9.88	%	9.85	%	10.04	%	9.98	%
Allowance for loan losses to total loans, net of unearned income	1.45	%	1.52	%	1.53	%	1.42	%	1.39	%	1.30	%	1.26	%
Allowance for loan losses to non-performing loans	177.39	%	295.61	%	181.09	%	338.22	%	178.63	%	147.89	%	126.47	%
Non-performing loans to total loans, net of unearned income	0.82	%	0.51	%	0.85	%	0.42	%	0.78	%	0.88	%	1.00	%
Dividend payout	33.75	%	33.60	%	34.25	%	35.59	%	38.52	%	47.76	%	35.24	%

All per share information listed above has been restated to reflect the three-for-two stock split effected in the form of a share dividend on December 1, 2003, and any other stock splits or stock dividends declared during the five-year period covered by the above table.

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF HERITAGE

The following table sets forth certain consolidated financial information of Heritage. This information is based on, and should be read in conjunction with, the consolidated financial statements and related notes of Heritage contained in its annual report on Form 10-K for the year ended December 31, 2003 and in its quarterly report on Form 10-Q for the three-month period ended June 30, 2004. Information for the six-month periods ended June 30, 2004 and 2003 is unaudited. The results for the six-month period ended June 30, 2004 do not necessarily indicate the results you can expect for the entire year.

HERITAGE SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

(Unaudited)

(In Thousands, Except Share Data)


	Six Months Ended June 30,						Year Ended December 31,
	2004			2003			2003			2002			2001		2000			1999
Income Statement Data:
Interest income	$	13,853		$	16,365		$	30,343		$	40,465		$	42,966	$	35,660		$	17,248
Interest expense		6,379			8,513			15,389			21,742			28,594		22,018			9,874
Provision for loan losses		(760	)		(516	)		(1,646	)		29,469			3,602		3,389			1,808
Noninterest income		3,111			2,237			4,987			3,825			2,844		1,039			642
Noninterest expense		8,973			8,951			19,795			15,380			10,023		8,113			4,952
Income before income taxes		2,372			1,654			1,793			(22,300	)		3,590		3,179			1,256
Income taxes (benefit)		794			619			664			(7,887	)		1,224		991			395
Net income (loss)		1,578			1,035			1,129			(14,413	)		2,366		2,188			861

Per Share Common Data:
Net income-basic	$	0.15		$	0.11		$	0.11		$	(1.65	)	$	0.28	$	0.26		$	0.12
Net income(loss)-diluted		0.14			0.11			0.11			(1.65	)		0.23		0.22			0.11
Book value at period end		2.89			2.84			2.86			2.69			4.24		3.95			2.89
Closing stock price at period end		5.65			3.80			4.75			9.50			8.00		11.50			10.00

Balance Sheet Data at Period End:
Loans, net of unearned income	$	394,538		$	450,417		$	385,887		$	523,850		$	505,381	$	422,135		$	244,620
Securities		99,320			41,019			101,935			36,762			25,894		26,846			19,969
Assets		545,747			535,695			522,736			593,252			568,601		471,458			297,952
Deposits		399,360			462,084			415,615			525,631			504,310		421,244			249,032
Long term debt		10,310			10,310			10,310			10,310			10,310		-0	-		-0	-
Shareholders’ equity		30,502			29,534			30,106			23,703			36,124		33,499			21,920

HERITAGE SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA (continued)


	Six months ended June 30,				Year ended December 31,
	2004		2003		2003		2002		2001		2000		1999
Selected Ratios
Return on average:
Total assets	0.60	%	0.38	%	0.21	%	(2.34	)%	0.42	%	0.54	%	0.40	%
Shareholders’ equity	6.76	%	4.97	%	4.00	%	(4.08	)%	6.92	%	7.32	%	4.52	%
Average shareholders’ equity to average assets	8.86	%	7.56	%	5.25	%	5.72	%	6.10	%	7.45	%	8.95	%
Shareholders’ equity to assets	5.59	%	5.52	%	5.76	%	4.00	%	6.36	%	7.11	%	7.36	%
Allowance for loan losses to total loans, net of unearned income	2.90	%	4.93	%	3.77	%	5.15	%	1.20	%	1.20	%	1.24	%
Allowance for loan losses to non-performing loans	98.30	%	99.71	%	111.61	%	110.83	%	74.19	%	84.77	%	317.24	%
Non-performing loans to total loans, net of unearned income	2.95	%	4.94	%	3.38	%	4.65	%	1.62	%	1.42	%	0.39	%
Dividend payout	0.00	%	0.00	%	0.00	%	0.00	%	0.00	%	0.00	%	0.00	%

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA OF PEOPLES

The following unaudited pro forma condensed combined financial information and explanatory notes present how the combined financial statements of Peoples and Heritage may have appeared had the businesses actually been combined at the beginning of the period presented. The unaudited pro forma condensed combined financial information shows the impact of the merger of Peoples and Heritage on the companies’ respective historical financial positions and results of operations under the purchase method of accounting with Peoples treated as the acquirer. Under this method of accounting, the assets and liabilities of Heritage will be recorded by Peoples at their estimated fair values as of the date the merger is completed. The unaudited pro forma condensed combined financial information combines the historical financial information of Peoples and Heritage as of and for the six months ended June 30, 2004 and for the year ended December 31, 2003. The unaudited pro forma condensed combined balance sheet as of June 30, 2004 assumes the merger was completed on that date. The unaudited pro forma condensed combined statements of income give effect to the merger as if the merger had been completed on January 1, 2003. The unaudited pro forma combined selected financial data is derived from such balance sheet and statements of income.

On July 1, 2004, Peoples, through its wholly owned subsidiary, Peoples Merger Corporation, merged with Renasant Bancshares, Inc. and thereby indirectly acquired 100% of Renasant Bank, of Germantown, Tennessee. The unaudited pro forma condensed combined financial information also sets forth this transaction as if Peoples’ merger with Renasant had become effective on June 30, 2004, with respect to financial condition, and January 1, 2003, with respect to operations data.

According to the terms of the Peoples/Heritage merger agreement which was announced on July 15, 2004, each Heritage stockholder can elect to receive one of the three following options: (i) $6.25 in cash for each share of Heritage common stock, (ii) 0.20 shares of Peoples common stock for each share of Heritage common stock or (iii) a combination of 40% cash at the same price listed above and 60% stock at the same exchange ratio listed above, subject to the overall limitation that the aggregate stock consideration will equal approximately 60% of the total consideration received by Heritage stockholders.

The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of both Peoples and Heritage which are incorporated in this document by reference. See “Where You Can Find More Information” on page 76.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined at the beginning of each period presented and had the impact of possible revenue enhancements and expense efficiencies, among other factors, been considered and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during this period. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the allocation of the purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded upon completion of the merger.

PRO FORMA COMBINED SELECTED FINANCIAL DATA

(Unaudited)

(In Thousands, Except Share Data)


	Year ended December 31, 2003		Six months ended June 30, 2004
Income Statement Data
Interest income	$	112,967	$	54,780
Interest expense		41,420		18,536
Provision for loan losses		1,573		642
Noninterest income		37,202		20,734
Noninterest expense		80,417		41,716

Income before income taxes		26,759		14,619
Income taxes		7,449		4,091

Net income	$	19,310	$	10,529


Per Common Share Data
Net Income—Basic	$	1.87	$	1.03
Net Income—Diluted	$	1.78	$	0.98
Book value at period end	$	17.09	$	20.15
Cash dividends declared and paid	$	0.75	$	0.40

Balance Sheet Data at Period End
Loans, net of unearned income	$	1,424,832	$	1,460,143
Securities	$	535,873	$	496,629
Assets	$	2,180,577	$	2,256,773
Deposits	$	1,735,546	$	1,736,352
Long term debt	$	114,096	$	68,093
Shareholders’ equity	$	216,999	$	216,810

Peoples/Heritage

Pro Forma Condensed Combined Balance Sheet

June 30, 2004

(unaudited)

The following preliminary unaudited pro forma condensed combined balance sheet combines the historical balance sheets of Peoples and Heritage assuming the companies had been combined on June 30, 2004, on a purchase accounting basis. It also includes the financial information associated with the Peoples / Renasant merger of July 1, 2004 as if the companies had also been combined on June 30, 2004.


	Peoples		Renasant		(1)	Renasant Adjustments*		Consolidated PHC / Renasant		Heritage		(1)	Pro Forma Adjustments*		PHC / HFHC Combined
Assets
Cash and Cash Equivalents	66,268,000		3,743,000		A	(26,127,404	)	43,883,596		13,396,163		A	(26,340,650	)	30,939,109
												B	27,000,000		27,000,000
Securities available-for-sale	360,120,000		29,062,000		C	(576,000	)	388,606,000		95,332,898		C	(632,000	)	483,306,898
												D	13,322,107		13,322,107
Other investments			1,410,000					1,410,000		3,987,061					5,397,061
Mortgage Loans held for sale	1,708,000		748,000					2,456,000		19,293,341					21,749,341
Loans, net of unearned income	906,186,000		179,550,000		E	493,572		1,086,229,572		394,538,127		E	(2,702,000	)	1,478,065,699
												D	(17,922,277	)	(17,922,277	)
Allowance for loan losses	(13,152,000	)	(2,845,000	)				(15,997,000	)	(11,441,341	)	D	3,318,742		(24,119,599	)

Loans, net of allowance	893,034,000		176,705,000					1,070,232,572		383,096,786					1,436,023,823
Premises and equipment, net	30,860,000		1,976,000		F	(96,559	)	32,739,441		7,064,416					39,803,857
Goodwill	5,048,000				G	38,171,893		43,219,893				G	48,027,559		91,247,452
Core deposit intangibles and other intangibles	894,000				H	5,021,000		5,915,000				H	6,233,000		12,148,000
OREO	1,851,000							1,851,000		1,146,281					2,997,281
Investment in Unconsolidated Sub	619,000							619,000							619,000
Other assets	61,979,000		7,030,000		I	780,000		69,789,000		22,430,270					92,219,270

Total Assets	1,422,381,000		220,674,000					1,660,721,502		545,747,216					2,256,773,199
Liabilities
Noninterest-bearing deposits	160,771,000		21,785,000					182,556,000		30,328,038					212,884,038
Interest-bearing deposits	990,310,000		163,534,000		J	(305,290	)	1,154,149,290		369,031,982		J	(287,000	)	1,523,468,272

Total deposits	1,151,081,000		185,319,000					1,336,705,290		399,360,020					1,736,352,310
Federal funds purchased and repos			3,992,000					3,992,000		17,336,761					21,328,761
Advances from the Federal Home Loan Bank	86,832,000							86,832,000		78,222,156					165,054,156
Junior subordinated debentures	20,619,000							20,619,000		10,310,000		B	(27,000,000	)	57,929,000
Other borrowed funds	8,228,000		11,835,000		K	67,697		19,995,303		7,480,000		K	(645,000	)	28,120,303
Other liabilities	17,345,000		2,440,000		L	(1,964,759	)	21,749,759		2,536,339		L	(747,460	)	25,033,558
					L	(632,069	)	632,069				L	(6,000,000	)	6,632,069
												D	486,943		(486,943	)

Total Liabilities	1,284,105,000		203,586,000					1,490,525,421		515,245,276					2,039,963,214
Shareholders’ equity
Common Stock	46,589,000		1,440,000		M	1,440,000		50,599,470		105,363		M	105,363		50,599,470
					M	(4,010,470	)					M	(6,321,755	)	6,321,755
Treasury Stock	(22,815,000	)						(22,815,000	)						(22,815,000	)
Additional paid-in-capital	40,512,000		13,658,000		M	13,658,000		64,221,899		37,413,445		M	37,413,445		64,221,899
					M	(23,709,899	)					M	(35,148,964	)	35,148,964
					M	(4,245,712	)	4,245,712				M	(5,937,670	)	10,183,382
Retained earnings (Accumulated deficit)	76,771,000		2,198,000		M	2,198,000		76,771,000		(5,970,083	)	M	(5,970,083	)	76,771,000
												D	794,485		(794,485	)
Other Equity components			(46,000	)				(46,000	)						(46,000	)
Accumulated other comprehensive income	(2,781,000	)	(162,000	)	M	(162,000	)	(2,781,000	)	(1,046,785	)	M	(1,046,785	)	(2,781,000	)

Total shareholders’ equity	138,276,000		17,088,000					170,196,081		30,501,940					216,809,985

Total liabilities and shareholders’ equity	1,422,381,000		220,674,000					1,660,721,502		545,747,216					2,256,773,199

(1)	See Notes to Unaudited Pro Forma Condensed Combined Financial Information

*	Parenthetical items represent credits; non-parenthetical items represent debits.

Peoples/Heritage

Pro Forma Condensed Combined Statement of Income

June 30, 2004

(unaudited)

The following preliminary unaudited pro forma condensed combined statement of income combines the historical statements of income of Peoples and Heritage assuming the companies had been combined on January 1, 2003, on a purchase accounting basis. It also includes the financial information associated with the Peoples / Renasant merger of July 1, 2004 as if the companies had also been combined on January 1, 2003.


	Peoples		Renasant			(1)	Renasant Adjustments			Consolidated Peoples / Renasant		Heritage			(1)	Pro Forma Adjustments			Peoples / Heritage Combined
Interest Income
Loans	$	26,656,000	$	4,992,000		E	$	(109,683	)	$	31,538,317	$	11,907,643		E	$	515,649		$	43,961,609
															D		(554,695	)		(554,695	)
Securities		8,399,000		450,000		C		91,139			8,940,139		1,943,582		C		56,429			10,940,150
															D		319,731			319,731
Other		88,000		23,000							111,000		1,958							112,958

Total Interest Income		35,143,000		5,465,000							40,589,456		13,853,183							54,779,753

Interest Expense
Deposits		8,214,000		1,454,000							9,668,000		4,706,774							14,374,774
Borrowings		1,932,000		161,000		K		23,523			2,116,523		1,672,215		K		(169,737	)		3,619,001
															B		542,700			542,700

Total Interest Expense		10,146,000		1,615,000							11,784,523		6,378,989							18,536,475

Net interest income		24,997,000		3,850,000							28,804,933		7,474,194							36,243,278

Provision for loan losses		993,000		409,000							1,402,000		(760,412	)						641,588

Net interest income after provision for loan losses		24,004,000		3,441,000							27,402,933		8,234,606							35,601,690

Noninterest income
Service charges		7,432,000		165,000							7,597,000		625,804							8,222,804
Fees and commissions		3,629,000		174,000							3,803,000		1,079,657							4,882,657
Insurance commissions		1,710,000									1,710,000									1,710,000
Trust revenue		1,070,000									1,070,000									1,070,000
Securities gains		58,000		(6,000	)						52,000		593,813							645,813
Bank owned life insurance revenue		568,000									568,000									568,000
Merchant discounts		626,000									626,000									626,000
Gain on Sale of Merchant Business		1,000,000									1,000,000									1,000,000
Other		1,197,000									1,197,000		811,885							2,008,885

Total noninterest income		17,290,000		333,000							17,623,000		3,111,159							20,734,159

Noninterest expense
Salaries and employee benefits		15,545,000		1,565,000							17,110,000		4,615,804							21,725,804
Data processing		2,304,000		254,000							2,558,000									2,558,000
Net occupancy		1,721,000		215,000		F		(4,584	)		1,931,416		1,234,886							3,166,302
Equipment		1,572,000		96,000							1,668,000									1,668,000
Other		6,726,000		1,725,000		H		422,686			8,873,686		3,121,892		H		524,717			12,520,295
						I		78,000			78,000									78,000

Total noninterest Expense		27,868,000		3,855,000							32,219,102		8,972,582							41,716,401

Income before income taxes		13,426,000		(81,000	)			(538,169	)		12,806,831		2,373,183				(560,566	)		14,619,448
Income taxes		3,722,000		(9,000	)			(204,504	)		3,508,496		795,122				(213,015	)		4,090,603

Net income	$	9,704,000	$	(72,000	)		$	(333,665	)	$	9,298,335	$	1,578,061			$	(347,551	)	$	10,528,845

																				—
Per common share information
Basic earnings per share	$	1.18										$	0.15						$	1.03

Diluted earnings per share	$	1.18										$	0.14						$	0.98

Cash dividends declared per share	$	0.40

Average common shares issued and outstanding		8,189,178				N		802,266			8,991,444				N		1,264,351			10,255,795

Average diluted common shares issued and outstanding		8,210,237				O		951,995			9,162,232				O		1,596,519			10,758,751

(1)	See Notes to Unaudited Pro Forma Condensed Combined Financial Information

Peoples/Heritage

Pro Forma Condensed Combined Statement of Income

December 31, 2003

(unaudited)


	Peoples		Renasant		(1)	Renasant Adjustments			Consolidated Peoples / Renasant		Heritage			(1)	Pro Forma Adjustments			Peoples / Heritage Combined
Interest Income
Loans	$	56,366,000	$	10,180,000	E	$	(219,365	)	$	66,326,635	$	28,377,963		E		1,031,298		$	95,735,896
														D		(1,109,389	)	$	(1,109,389	)
Securities		14,211,000		930,000	C		182,278			15,323,278		1,719,866		C		112,857			17,156,001
														D		639,461			639,461
Other		233,000		67,000						300,000		245,342							545,342

Total Interest Income		70,810,000		11,177,000						81,949,913		30,343,171							112,967,311

Interest Expense
Deposits		18,818,000		3,763,000	J		(305,290	)		22,275,710		12,993,846		J		(287,000	)		34,982,556
Borrowings		2,959,000		294,000	K		44,174			3,297,174		2,394,941		K		(339,474	)		5,352,641
														B		1,085,400			1,085,400

Total Interest Expense		21,777,000		4,057,000						25,572,884		15,388,787							41,420,597

Net interest income		49,033,000		7,120,000						56,377,029		14,954,384							71,546,714
Provision for loan losses		2,713,000		506,000						3,219,000		(1,645,878	)						1,573,122

Net interest income after provision for loan losses		46,320,000		6,614,000						53,158,029		16,600,262							69,973,592

Noninterest income
Service charges		14,417,000		261,000						14,678,000		1,137,434							15,815,434
Fees and commissions		6,874,000								6,874,000									6,874,000
Insurance commissions		3,602,000								3,602,000									3,602,000
Trust revenue		1,078,000								1,078,000									1,078,000
Securities gains		191,000		243,000						434,000		205,801							639,801
Bank owned life insurance revenue		1,169,000								1,169,000									1,169,000
Merchant discounts		1,287,000								1,287,000									1,287,000
Gain on Sale of Merchant Business
Other		2,605,000		488,000						3,093,000		3,644,215							6,737,215

Total noninterest income		31,223,000		992,000						32,215,000		4,987,450							37,202,450

Noninterest expense
Salaries and employee benefits		29,486,000		3,213,000						32,699,000		9,056,110							41,755,110
Data processing		4,094,000								4,094,000									4,094,000
Net occupancy		3,382,000		566,000	F		(9,168	)		3,938,832		2,501,840							6,440,672
Equipment		3,092,000								3,092,000									3,092,000
Other		12,469,000		1,762,000	H		1,075,929			15,306,929		8,237,152		H		1,335,643			24,879,724
					I		156,000			156,000									156,000

Total noninterest Expense		52,523,000		5,541,000						59,286,761		19,795,102							80,417,506

Income before income taxes		25,020,000		2,065,000			(998,732	)		26,086,268		1,792,610				(1,120,342	)		26,758,536
Income taxes		6,839,000		751,000			(379,518	)		7,210,482		664,230				(425,730	)		7,448,982

Net income	$	18,181,000	$	1,314,000		$	(619,214	)	$	18,875,786	$	1,128,380			$	(694,612	)	$	19,309,554

Per common share information
Basic earnings per share	$	2.20							$	2.08	$	0.11						$	1.87

Diluted earnings per share	$	2.19							$	2.04	$	0.11						$	1.78

Cash dividends declared per share	$	0.75

Average common shares issued and outstanding		8,264,091			N		802,266			9,066,357				N		1,264,351			10,330,708

Average diluted common shares issued and outstanding		8,301,826			O		951,995			9,253,821				O		1,596,519			10,850,340

(1)	See Notes to Unaudited Pro Forma Condensed Combined Financial Information

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1—Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information related to the merger of Renasant with and into Peoples and the merger of Heritage with and into Peoples is included for the year ended December 31, 2003 and as of and for the six months ended June 30, 2004.

The pro forma adjustments included herein reflect the impact of an assumed 60-40 ratio of stock and cash to effect the merger and using an exchange ratio of 0.20 of a share of Peoples common stock for each share of Heritage common stock. The estimated purchase price of $73.75 million, which includes the value of stock options, is based on a per share price for Peoples common stock of $32.80 as of July 14, 2004.

The merger will be accounted for using the purchase method of accounting and, accordingly, the unaudited pro forma condensed combined financial information includes estimated adjustments to record the assets and liabilities of Heritage at their respective fair values and represents management’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after the merger is completed and after completion of a final analysis to determine the fair values of Heritage’s tangible, and identifiable intangible, assets and liabilities as of the completion date. Therefore, the final purchase accounting adjustments and integration charges may be materially different from the pro forma adjustments presented in this document. Increases or decreases in the fair value of the net assets of Heritage as compared to the information shown in this document may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact the statement of income due to adjustments in yield and/or amortization or accretion of the adjusted assets or liabilities.

The pro forma adjustments included herein also reflect Peoples’ merger with Renasant and the impact of the 50-50 ratio of stock and cash chosen by the Renasant stockholders and using an exchange ration of 1.117015 of a share of Peoples common stock for each Renasant common share. The purchase price of $58.05 million, which includes the value of stock options and warrants, is based on a per share price for Peoples common stock of $34.56 as of June 30, 2004.

The unaudited pro forma condensed combined financial information presented in this document does not necessarily indicate the results of operations or the combined financial position that would have resulted had the merger been completed at the beginning of the applicable period presented, nor is it indicative of the results of operations in future periods or the future financial position of the combined company.

Note 2—Pro Forma Adjustments

The unaudited pro forma condensed combined financial information for the merger includes the pro forma balance sheet as of June 30, 2004 assuming the merger was completed on June 30, 2004. The pro forma income statements for the six months ended June 30, 2004 and the year ended December 31, 2003 were prepared assuming the merger was completed on January 1, 2003.

The unaudited pro forma condensed combined financial information reflects the issuance in the merger with Heritage of 1,264,351 shares of Peoples common stock with an aggregate value of $41.47 million and the conversion of approximately 1,852,500 Heritage stock options with a value of approximately $5.9 million at June 30, 2004.

The unaudited pro forma condensed combined financial information also sets forth this transaction as if Peoples’ merger of July 1, 2004 with Renasant had become effective on June 30, 2004, with respect to financial condition, and January 1, 2003, with respect to operations data.

The unaudited pro forma condensed combined financial information reflects the issuance in the merger with Renasant of 802,266 shares of Peoples common stock with an aggregate value of $27.73 million and the conversion of approximately 219,980 Renasant stock options and warrants with a value of approximately $4.2 million at June 30, 2004.

Allocation of Purchase Price


	June 30, 2004
Purchase Price
Heritage common stock outstanding		10,536,260
Ratio of exchange for stock		60	%

Heritage shares to be paid in PHC stock		6,321,756
Exchange Factor		0.20

Total PHC shares to be issued		1,264,351
Purchase price per PHC common share as of July 14, 2004	$	32.80

Value of Peoples stock paid				$	41,470,719
Ratio of exchange for cash		40	%

Heritage shares to be paid in cash		4,214,504
Cash price for Heritage shares	$	6.25

Cash paid				$	26,340,650
Fair value of outstanding Heritage options				$	5,937,670

Total Purchase Price				$	73,749,039
Net assets acquired
Heritage stockholders’ equity	$	30,501,940
Estimated deal charges		(6,000,000	)
Estimated adjustments to reflect assets acquired at fair value:
Securities		(632,000	)
Loans		(2,702,000	)
Core deposit intangible		6,233,000
Estimated adjustments to reflect liabilities assumed at fair value:
Deposits		(287,000	)
FHLB Advances		(645,000	)
Deferred income taxes		(747,460	)
				$	25,721,480

Goodwill resulting from merger				$	48,027,559

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet and statements of income are as follows:

(A) Heritage—Adjustment to record the cash portion of the purchase price under the assumed 60-40 ratio of stock and cash chosen by Heritage stockholders.

Renasant—Adjustment to record the cash portion of the purchase price under a 50-50 ratio of stock and cash chosen by Renasant stockholders.

(B) Heritage—Adjustment to record the issuance of $27 million of Trust Preferred Securities to fund the cash portion of the purchase price. The impact of the adjustment was to increase interest expense by $542,700 and $1.1 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(C) Heritage—Adjustment to fair-value the securities portfolio. The adjustment will be recognized over the remaining life of the securities portfolio. The impact of the adjustment was to increase interest income by $56,429 and $112,857 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

Renasant—Adjustment to fair-value the securities portfolio. The adjustment will be recognized over the remaining life of the securities portfolio. The impact of the adjustment was to increase interest income by $91,139 and $182,278 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(D) Heritage—Adjustment to reflect the expected sale of $17.9 million of loans, the purchase of securities with the proceeds, the reduction of the allowance for loan losses associated with these loans, and the reduction of income tax liability due to the anticipated loss of approximately $1.3 million on the sale of these loans. The impact of the adjustment was to decrease loan interest income by $554,695 and $1.1 million and to increase securities interest income by $319,731 and $639,461 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(E) Heritage—Adjustment to fair-value of the loan and lease portfolio. The adjustment will be recognized over the estimated remaining life of the loan and lease portfolio. The impact of the adjustment was to increase interest income by approximately $515,649 and $1,031,298 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

Renasant—Adjustment to fair-value of the loan and lease portfolio. The adjustment will be recognized over the estimated remaining life of the loan and lease portfolio. The impact of the adjustment was to decrease interest income by approximately $109,683 and $219,365 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(F) Renasant—Adjustment to fair-value premises and equipment. The impact of the adjustment was to decrease noninterest expense by approximately $4,584 and $9,168 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(G) Heritage and Renasant—Adjustments to record goodwill created as a result of the merger. These adjustments will not have an impact on the pro forma condensed combined statements of income.

(H) Heritage—Adjustment to record intangible assets (other than goodwill) resulting from the merger based on estimated fair values. The adjustments reflected herein are based on current assumptions and valuations, which are subject to change. For purposes of the pro forma adjustments shown here, $6.2 million in core deposit intangibles are estimated. This intangible will be amortized over a seven year period on a 150% declining balance basis. The impact of the adjustment was to increase noninterest expense by $524,717 and $1,335,643 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

Renasant—Adjustment to record intangible assets (other than goodwill) resulting from the merger based on estimated fair values. For purposes of the pro forma adjustments shown here, $5.0 million in core deposit intangibles are estimated. This intangible will be amortized over a seven year period on a 150% declining balance basis. The impact of the adjustment was to increase noninterest expense by $422,686 and $1.1 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(I) Renasant—Adjustment to fair-value employment agreement. The impact of the adjustment was to increase noninterest expense by $78,000 and $156,000 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(J) Heritage—Adjustment to fair-value fixed rate deposit liabilities based on current interest rates for similar instruments. The adjustment will be recognized over the estimated remaining term of the related deposit liability. The total impact of the adjustment was to decrease interest expense by approximately $287,000 for the twelve months ended December 31, 2003.

Renasant—Adjustment to fair-value fixed rate deposit liabilities based on current interest rates for similar instruments. The adjustment will be recognized over the estimated remaining term of the related deposit liability. The total impact of the adjustment was to decrease interest expense by approximately $305,290 for the twelve months ended December 31, 2003.

(K) Heritage—Adjustment to fair-value outstanding long-term debt instruments. The adjustment will be recognized over the remaining life of the long-term-debt instruments. The impact of the adjustment was to decrease interest expense by approximately $169,737 and $339,474 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

Renasant—Adjustment to fair-value outstanding long-term debt instruments. The adjustment will be recognized over the remaining life of the long-term-debt instruments. The impact of the adjustment was to increase interest expense by approximately $23,523 and $44,174 for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.

(L) Heritage—Adjustment to accrued expenses and other liabilities consists of an estimated $6 million of merger related expenses and $747,460 for deferred tax liabilities resulting from the pro forma adjustments. Deferred taxes were recorded using Peoples statutory rate of 38%. Estimated merger related expenses consist of investment banking fees, legal fees, accounting fees, employment contracts, registration fees, printing costs, etc.

Renasant—Adjustment to accrued expenses and other liabilities consists of an estimated $632,069 of merger related expenses and $1.96 million for deferred tax liabilities resulting from the pro forma adjustments. Deferred taxes were recorded using Peoples statutory rate of 38%.

(M) Heritage and Renasant—Adjustment to eliminate historical shareholders’ equity and additionally to reflect the issuance of Peoples common stock and the conversion of stock options and warrants into Peoples stock options and warrants.

(N) Heritage—Adjustment to reflect the number of Peoples common shares issued under the assumed 60-40 ratio of stock and cash chosen by Heritage stockholders and using the exchange ratio of 0.20 shares of Peoples common stock for each share of Heritage common stock.

Renasant—Adjustment to reflect the number of Peoples common shares issued under the 50-50 ratio of stock and cash chosen by Renasant stockholders and using the exchange ratio of 1.117015 shares of Peoples common stock for each share of Renasant common stock.

(O) Heritage—Adjustment to reflect the number of Peoples common shares issued, including the incremental number of shares issued for Heritage’s options using the Treasury Stock Method, under the assumed 60-40 ratio of stock and cash chosen by Heritage stockholders and using the exchange ratio of 0.20 shares of Peoples common stock for each share of Heritage common stock.

Renasant—Adjustment to reflect the number of Peoples common shares issued, including the incremental number of shares issued for Renasant’s options and warrants using the Treasury Stock Method, under the 50-50 ratio of stock and cash chosen by Renasant stockholders and using the exchange ratio of 1.117015 shares of Peoples common stock for each share of Renasant common stock.

COMPARATIVE PER SHARE DATA

The following table sets forth for Peoples common stock, Renasant common stock and Heritage common stock historical, pro forma and pro forma-equivalent per share financial information. The pro forma and pro forma-equivalent per share information gives effect to both the merger of Renasant with and into Peoples and the merger of Heritage with and into Peoples as if both mergers had been effective as of June 30, 2004, with respect to book value information, and January 1, 2003, with respect to net income per share data. The pro forma data in the tables assume that the mergers are accounted for using the purchase method of accounting and represent a

current estimate based on available information of the combined company’s results of operations. See “The Merger—Accounting Treatment” on page 44 of this proxy statement/prospectus. The pro forma financial adjustments record the assets and liabilities of each of Renasant and Heritage at their estimated fair values and are subject to adjustment as additional information becomes available and as additional analyses are performed. This table should be read in conjunction with, and is qualified in its entirety by, the historical financial statements, including the notes thereto, of Peoples. See “Where You Can Find More Information” on page 76 of this proxy statement/prospectus in order to obtain copies of such historical financial statements.

Neither Renasant nor Heritage have historically paid cash dividends on their common stock.


	December 31, 2003 *(12 months)*						June 30, 2004 *(6 months)*
	Income*		Book Value**		Dividends		Income*			Book Value**		Dividends
Peoples Historical	$	2.19	$	16.79	$	0.75	$	1.18		$	16.89	$	0.40

Renasant Historical	$	0.81	$	12.07	$	—	$	(0.05	)	$	11.90	$	—

Heritage Historical	$	0.11	$	2.86	$	—	$	0.14		$	2.89	$	—

Pro Forma Combined	$	1.78	$	17.09	$	0.75	$	0.98		$	20.15	$	0.40

Per Equivalent Peoples Share	$	0.36	$	3.42	$	0.15	$	0.20		$	4.03	$	0.08

*	Income per share calculated on a fully-diluted share basis.

**	Book value per share is calculated on the number of shares outstanding as of the end of the period.

***	Per Equivalent Peoples Share is pro forma combined multiplied by 0.20, the Heritage exchange ratio, except for Dividends per share which is based on Peoples’ prior year dividend payout.

COMPARATIVE STOCK PRICES AND DIVIDENDS

Shares of Heritage common stock are not listed on any exchange and there is no organized trading market for these shares. Thus, there is no public forum from which the market value for Heritage shares on the last day prior to the public announcement of the merger can be ascertained. Transactions in shares of Heritage common stock are infrequent and are generally negotiated privately between persons involved in those transactions. Heritage management is aware of certain sales of Heritage common stock which occurred during 2004 prior to execution of the merger agreement, and, although Heritage management is unaware of the specific price of all of these transactions, Heritage management believes that the prices ranged from $3.65 to $5.75 per share. No assurance can be given that these transactions were negotiated on an arm’s-length basis. On July 14, 2004, the last trading day prior to the public announcement of the execution of the merger agreement, the last sales price of Heritage common stock known to Heritage was $5.60 per share.

On July 14, 2004, the last trading day prior to the public announcement of the execution of the merger agreement, the last sales price of Peoples common stock was $32.80 per share. On , 2004, the most

recent practicable trading day prior to the printing of this proxy statement/ prospectus, the last sales price of Peoples common stock was $ per share. The market price of shares of Peoples common stock is subject to fluctuation. As a result, Heritage stockholders are urged to obtain current market quotations. On , 2004, there were approximately shares of Peoples common stock outstanding held by approximately holders of record.

THE SPECIAL MEETING

Purpose, Time and Place

This proxy statement/prospectus is being furnished to you in connection with the solicitation of proxies by the Heritage board of directors from holders of Heritage common stock, the only class of Heritage capital stock outstanding, for use at the special meeting to be held at on , December , 2004, at Central time and at any adjournments or postponements of the special meeting. This proxy statement/prospectus and the form of election are first being distributed to Heritage stockholders on or about , 2004.

At the special meeting, holders of Heritage common stock will be asked to consider and vote upon:

•

a proposal to adopt and approve the merger agreement and the merger;

•

such other matters as may properly come before the meeting.

Record Date; Voting Power

The Heritage board of directors has fixed the close of business on , 2004 as the record date for determining the holders of Heritage common stock entitled to notice of, and to vote at, the special meeting. Only holders of record of Heritage common stock at the close of business on the record date will be entitled to notice of, and to vote at, the special meeting.

On the record date, [10,536,260] shares of Heritage common stock were issued and outstanding and entitled to vote at the special meeting. Each share of Heritage common stock is entitled to one vote on any matter which may properly come before the special meeting. Votes may be cast at the special meeting in person or by proxy.

Quorum

The presence at the special meeting, either in person or by proxy, of the holders of a majority of the outstanding Heritage common stock entitled to vote is necessary to constitute a quorum in order to transact business at the special meeting. However, if a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed in order to solicit additional proxies.

Votes Required

Approval of the proposal to adopt and approve the merger agreement and the merger will require the affirmative vote of a majority of the outstanding shares of Heritage common stock. Under applicable Delaware law, in determining whether the proposal to adopt and approve the merger agreement and the merger has received the requisite number of affirmative votes, abstentions and failures to vote will have the same effect as a vote against the proposal.

Heritage stockholders may not cumulate votes on the proposal to adopt and approve the merger agreement and the merger.

Share Ownership of Management and Certain Stockholders

As of the date hereof, Heritage’s directors and executive officers and their affiliates may be deemed to be the beneficial owners of approximately [4,653,889] outstanding shares of Heritage common stock (collectively representing approximately [41.31%] of the voting power of the common stock). The directors of Heritage are parties to agreements with Peoples whereby they agreed to vote their shares for adoption and approval of the merger agreement and the merger. Peoples and Heritage have been informed that approximately [34.41%] of the outstanding shares of Heritage common stock owned by the directors of Heritage and their respective affiliates will be voted in favor of the approval and adoption of the merger agreement and the merger.

Voting of Proxies

Shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by such proxies. If your proxy is properly executed but does not contain voting instructions, your proxy will be voted FOR adoption and approval of the merger agreement and the merger. If other matters are properly presented before the special meeting, the persons named in such proxy will have authority to vote in accordance with their judgment on any other such matter, including without limitation, any proposal to adjourn or postpone the meeting or otherwise concerning the conduct of the special meeting. Please note, however, that a proxy that has been designated to vote against the adoption and approval of the merger agreement and the merger will not be voted, either directly or through a separate proposal, to adjourn the meeting to solicit additional votes. It is not expected that any matter other than as described in this proxy statement/prospectus will be brought before the special meeting.

If a stockholder holds shares of Heritage in a broker’s name (sometimes called “street name” or “nominee name”), then the stockholder must provide voting instructions to the broker. If the stockholder does not provide instructions to the broker, the shares will not be voted on any matter on which the broker does not have discretionary authority to vote, which includes the vote on the merger. A vote that is not cast for this reason is called a “broker non-vote.” Broker non-votes will be treated as shares present for the purpose of determining whether a quorum is present at the meeting. For purposes of the vote on the merger agreement, a broker non-vote is the same as a vote AGAINST the merger agreement. For purposes of the vote on other matters properly brought at the special meeting, broker non-votes will not be counted as a vote FOR or AGAINST such matter or as an abstention on such matter.

Revocability of Proxies

The grant of a proxy on the enclosed proxy card does not preclude a stockholder from voting in person at the special meeting. You may revoke a proxy at any time prior to your proxy being voted at the special meeting by:

•

delivering, prior to the special meeting, a written notice of revocation bearing a later date or time than the proxy to the Secretary of Heritage at 211 Lee Street NE, Decatur, Alabama 35601;

•

submitting another proxy by mail that is later dated and properly signed; or

•

if you are the record owner of shares of Heritage common stock, attending the special meeting and voting such shares in person.

If your shares are held in the name of a broker, bank, trustee or other nominee, you should contact such person to change your vote. Attendance at the special meeting will not by itself constitute revocation of a proxy. If an adjournment or postponement occurs, it will have no effect on the ability of stockholders of record as of the record date to exercise their voting rights or to revoke any previously delivered proxies.

Solicitation of Proxies

Heritage generally will bear the cost of solicitation of proxies. In addition to solicitation by mail, the directors, officers and employees of Heritage and its subsidiaries may solicit proxies from stockholders by telephone, facsimile or in person. These individuals will receive no additional compensation for any solicitation undertaken with respect to proxies for the special meeting.

Directors and Officers of Surviving Corporation

If you approve the merger, which is described below, Heritage will merge into Peoples, which will be the surviving corporation. The directors and officers of Peoples in office immediately prior to the closing date of the merger will remain in office after the closing date of the merger, until their respective successors are duly elected, appointed or qualified or until their earlier death, resignation or removal in accordance with the Articles of Incorporation and Bylaws of Peoples. In addition, Peoples has agreed to appoint to its board of directors two current members of the board of directors of Heritage reasonably acceptable to Peoples immediately after the closing date of the merger, and Larry R. Mathews will serve as President of the Alabama Division of Peoples Bank.

Information with respect to the directors and officers of Peoples, and their duties, compensation and transactions, if any, with Peoples can be found under the headings “Directors and Executive Officers of the Registrant,” “Executive Compensation” and “Certain Relationships and Related Transactions” in the Company’s most recent annual report on Form 10-K, dated March 11, 2004 and filed with the Securities and Exchange Commission. Such annual report is incorporated by reference into this proxy statement/prospectus.

Information with respect to Larry R. Mathews and the other current directors and executive officers of Heritage, their respective ownership of Heritage common stock, and their duties, compensation and transactions, if any, with Heritage can be found under the heading “Directors and Executive Officers of the Registrant; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions; and Principal Accountant Fees and Services” in Heritage’s most recent annual report on Form 10-K, dated March 30, 2004 and filed with the Securities and Exchange Commission. A copy of such annual report accompanies this proxy statement/prospectus and is incorporated by reference into this proxy statement/prospectus.

THE MERGER

The discussion in this proxy statement/prospectus of the merger and the principal terms of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement and the related plan of merger, copies of which accompany this proxy statement/prospectus as Annex A-1 and A-2, respectively, and are incorporated into this proxy statement/prospectus by reference. References in this discussion and elsewhere in this proxy statement/prospectus to the “merger” are to the merger of Heritage with and into Peoples, unless the context clearly indicates otherwise.

General

On July 13, 2004, the Heritage board of directors unanimously approved the merger agreement and the merger, subject to the resolution of outstanding issues to be resolved, which issues have since been resolved. If all of the conditions set forth in the merger agreement are satisfied or waived (to the extent permitted by law) and if the merger is otherwise completed, Heritage will merge with and into Peoples, and Peoples will be the surviving corporation and will continue its corporate existence under Mississippi law. Immediately after the merger of Heritage with and into Peoples, Heritage Bank will merge with and into The Peoples Bank & Trust Company (“Peoples Bank”), and Peoples Bank will be the surviving corporation and will continue its existence under Mississippi law.

On the closing date of the merger all shares of Heritage common stock outstanding immediately before the closing date of the merger (except as provided below) will, by virtue of the merger and without any action on the part of any stockholder, be converted into the right to receive (1) $6.25 in cash, without interest, for each share of Heritage common stock, (2) 0.20 shares of Peoples common stock, plus cash in lieu of any fractional share interest, for each share of Heritage common stock or (3) a combination of Peoples common stock and cash at the same price and exchange ratio set forth above.

Heritage stockholders will have the opportunity to elect the form of consideration to be received for all shares of Heritage common stock held by them, subject to redesignation procedures set forth in the merger agreement. The redesignation procedures are intended to ensure that not less than 60% or more than 65% of the outstanding shares of Heritage common stock in the aggregate will be converted into the right to receive Peoples common stock and that not less than 35% or more than 40% of the outstanding shares of Heritage common stock in the aggregate will be converted into the right to receive cash. The redesignation procedures are described in more detail below. Shares of Heritage common stock held by Peoples or Heritage or their subsidiaries, other than in a fiduciary capacity, or by Heritage stockholders who have elected to exercise appraisal rights will not be converted into the right to receive the merger consideration upon completion of the merger.

Background of the Merger

The board of directors and senior management of Heritage regularly review and assess the competitive and strategic positions of Heritage as part of their continuing efforts to enhance Heritage’s community banking franchise and to increase stockholder value. During the past 18 to 24 months, management and the board of directors have focused considerable effort addressing asset quality and capital levels at both Heritage and Heritage Bank. In the view of the board of directors and management, asset quality and capital requirements of Heritage have had a negative impact on ongoing operating prospects and the implementation of possible strategic alternatives available to Heritage. These strategic alternatives include continuing to operate as an independent financial institution, acquiring deposits and branch offices of other institutions, acquiring other community banks and entering into a strategic business combination with a similarly-sized or larger institution.

From time to time in recent years, representatives of Heritage have had informal, preliminary discussions with representatives of other institutions regarding possible business combinations. During the late fall of 2003, E. Robinson McGraw, Peoples’ President and Chief Executive Officer, and Larry R. Mathews, Heritage’s President and Chief Executive Officer, began informal preliminary discussions regarding the merits of a possible business combination between Heritage and Peoples. Mr. Mathews communicated these discussions to the Executive Committee of the board consisting of Timothy A. Smalley, Neal A. Holland, Jr., Harold B. Jeffreys, Vernon A. Lane, Larry E. Landman and R. Jeron Witt, who in turn notified the other members of the board. Mr. Mathews was instructed to continue these preliminary discussions with Mr. McGraw. Accordingly, during December 2003 Mr. Mathews met with Mr. McGraw in Birmingham, Alabama regarding the preliminary discussions. In late December 2003, Mr. McGraw and Stuart R. Johnson, Chief Financial Officer of Peoples, traveled to Huntsville and Decatur, Alabama to meet with additional members of senior management of Heritage and to commence certain initial due diligence activities.

Following the notification in late fall of 2003 regarding the preliminary discussions with Peoples, the Heritage board met and determined to conduct a further detailed review of various strategic alternatives that might be available to Heritage, including a possible business combination with Peoples. In December 2003, the Heritage board directed Mr. Mathews and senior management of Heritage to gather and develop information, in consultation with one or more independent advisors, to provide the board with additional information to assist the board in its assessments of Heritage’s strategic alternatives and its short- and long-term prospects, including a possible business combination with Peoples or a possible business combination with other financial institutions. During February 2004, Mr. Mathews consulted generally with representatives of Sterne, Agee & Leach, Inc. (“Sterne Agee”) regarding this assessment, including the specific interest expressed by Peoples.

During January 2004, Mr. Mathews met with Mr. McGraw in Tupelo, Mississippi to continue discussing a possible transaction. Mr. Mathews and senior management of Heritage discussed with Mr. McGraw and senior management of Peoples certain operational and financial due diligence matters of Peoples and Heritage during this period. Continuing in January 2004 and February 2004, representatives of Peoples conducted further due diligence reviews of Heritage and its operations. In February 2004, Mr. McGraw indicated to Mr. Mathews a possible exchange ratio that Peoples might be willing to offer to stockholders of Heritage. Mr. Mathews communicated this information and the status of the discussion to the Executive Committee of Heritage.

Heritage invited Sterne Agee to meet with Heritage’s board on March 3, 2004, to assist the board in its review and assessment of the proposal from Peoples, and to make a presentation to Heritage’s board on various strategic alternatives available to Heritage, including the specific proposal from Peoples, and to provide an analysis of each strategic alternative. The presentation included a discussion of Heritage’s operations, the current banking environment, Heritage’s anticipated future financial performance as an independent company, financial institutions which might be interested in pursuing an acquisition of Heritage, how Heritage would be viewed by parties interested in such an acquisition, and the pricing multiples in the mergers and acquisitions market for financial institutions that might be considered comparable to Heritage. Members of the board raised various questions during the presentation by Sterne Agee, including questions about the prospects of remaining independent and the prospects of effecting a business combination with Peoples or another institution. Based in part on Sterne Agee’s discussions, presentation and analysis, the Heritage board concluded that a business combination transaction appeared to be the course most likely to achieve the strategic objectives of Heritage and to enhance stockholder value. After considering the various strategic alternatives available, the Heritage board engaged Sterne Agee on March 3, 2004, to assist the board in its evaluations and reviews and to seek interest from other institutions regarding a possible business combination.

During March and April 2004, Sterne Agee contacted 17 separate institutions regarding interest in a possible business combination with Heritage. A total of four of these institutions, including Peoples, indicated a possible interest, and Sterne Agee provided each of these parties with a confidential information memorandum regarding Heritage. In April 2004, these four parties, including Peoples, responded with an indication of interest in a potential transaction with Heritage.

On April 13, 2004, Sterne Agee presented to the Heritage board the status of the expressions of interest received as of that date, including indications of interest from four parties, one of which was Peoples. Sterne Agee also reviewed with the board alternative strategies available for Heritage to remain an independent entity, related business plan strategies to enhance stockholder value and various risks and investments relating thereto. Sterne Agee then presented a detailed analysis of the financial terms of each of the indications of interest received and the status of discussions with the other parties that received the confidential offering memorandum. At such time, the Peoples proposal provided for merger consideration of $6.25 per share.

The Heritage board then reviewed with Sterne Agee the prospects for enhancing the value offered by Peoples or for attracting another interested party willing to pay a higher per share value for the Heritage shares. Sterne Agee indicated that Peoples had made clear that its proposals represented its best and final offer and that no other party contacted by Sterne Agee had expressed an interest at this price level. Following further discussion, the Heritage board concluded that the Peoples proposal represented the most attractive proposal for Heritage stockholders from a financial point of view and represented the most attractive option among the various alternative strategies available.

Peoples conducted detailed on-site due diligence with respect to Heritage from April 14 to April 30, 2004, and continued due diligence off-site in the following weeks. Heritage management and Sterne Agee conducted additional due diligence regarding Peoples, including a visit by Heritage’s management to the operations and corporate offices of Peoples in Tupelo, Mississippi on June 2, 2004. On June 17, 2004, Sterne Agee met with the Heritage board and rendered an oral opinion to the board that, as of such date, the merger consideration was fair, from a financial point of view, to the stockholders of Heritage. Peoples presented the initial draft of the definitive merger agreement to Heritage on July 2, 2004. Such draft merger agreement was reviewed by Heritage’s management and directors, its legal counsel and its financial advisor, Sterne Agee. The agreement was revised and negotiated until July 15, 2004.

On July 13, 2004, the Heritage board met to discuss the status of the negotiations with Peoples, including a detailed review of the latest draft of the merger agreement that had been furnished to each director on July 12, 2004, and, with the assistance of legal counsel Bradley Arant Rose & White LLP, a discussion of matters for which negotiations were still pending and a further review of the proposed transaction and related aspects of the

transaction as presented by its financial advisor, Sterne Agee. With the assistance of legal counsel, the Heritage board conducted a detailed review of the definitive merger agreement. Sterne Agee then presented to the Heritage board its opinion that the merger consideration being offered to the stockholders of Heritage by Peoples was fair to the stockholders of Heritage from a financial point of view. Heritage’s legal counsel, Bradley Arant Rose & White LLP, then discussed with the Heritage board the legal standards applicable to the board’s decisions and actions with respect to the proposed transaction. At this meeting, the Heritage board, by a unanimous vote of all members of the board, determined that the merger is fair to, and in the best interests of, Heritage and its stockholders, approved the merger agreement, and, subject to the exercise of its fiduciary duty, recommended that Heritage stockholders vote their shares in favor of approving the merger agreement. Heritage and Peoples executed the definitive merger agreement and issued a joint press release publicly announcing the transaction on July 15, 2004.

Heritage’s Reasons for the Merger; Recommendation of the Heritage Board

The Heritage board has unanimously approved the merger agreement and the merger and unanimously recommends that Heritage stockholders vote “FOR” approval and adoption of the merger agreement and the merger.

The Heritage board has unanimously determined that the merger is fair to, and in the best interests of, Heritage and its stockholders. In arriving at this determination and approving and recommending the merger agreement and the merger, the Heritage board, among other things, consulted with Sterne Agee with respect to the financial aspects and fairness of the merger consideration to the Heritage stockholders from a financial point of view and with its legal counsel as to its legal duties and the other terms of the merger agreement. The Heritage board considered a number of factors in arriving at its determination and recommendation, including the following:

•

The financial presentation of Sterne Agee and the opinion of Sterne Agee that, as of the date of and based upon the considerations in rendering such opinion, the merger consideration of $6.25 was fair, from a financial point of view, to the holders of Heritage common stock (See “The Merger—Opinion of Sterne, Agee & Leach, Inc.” on page 37);

•

The fact that Heritage stockholders who desired to receive cash in lieu of Peoples common stock as the merger consideration could elect to do so under the Peoples proposal, subject to the cash consideration being limited to not more than 40% of the aggregate merger consideration;

•

Heritage board’s belief that the terms of the merger agreement are attractive in that the merger agreement allows Heritage stockholders to become stockholders of a combined institution that is stronger than Heritage is on its own, and the fact that Peoples’ common stock is more widely held than Heritage’s and will therefore provide Heritage stockholders with a more actively traded and liquid investment;

•

The Heritage board’s understanding of and review of information concerning the business, results of operations, financial condition, competitive position and future prospects of Heritage and its review of information concerning the business, results of operations, financial condition, competitive position and future prospects of Peoples (including the results of Heritage’s due diligence review of Peoples);

•

The current and prospective environment in which Heritage operates, (including national, regional and local economic conditions), the competitive environment for banks and other financial institutions, the increased regulatory burdens on financial institutions generally and the trend toward consolidation in the banking and financial services industries, together with the likely effect of all of these factors on Heritage in light of, and in the absence of, the proposed merger with Peoples;

•

The Heritage board’s understanding of the results that could be expected to be obtained by Heritage if it continued to operate independently, and the likely benefits and risks to stockholders of such course, as compared with the value of the merger consideration being offered by Peoples;

•

The ability of Peoples to pay the cash component of the aggregate merger consideration and to receive the requisite regulatory approvals in a timely manner;

•

The terms and conditions of the merger agreement, including the parties’ respective representations, warranties, covenants and other agreements, the conditions to closing and the termination provisions;

•

The fact that, although the merger agreement limits Heritage’s ability to solicit or discuss alternative transactions with third parties during the pendency of the merger, the merger agreement does permit Heritage’s board of directors, in the exercise of its fiduciary duties, under certain conditions, to furnish information to, or engage in negotiations with, a third party which has submitted an unsolicited proposal to acquire Heritage;

•

The fact that the merger agreement provides for Heritage’s payment of a termination fee of $2 million to Peoples if the merger agreement is terminated under certain limited circumstances and Heritage enters into or consummates an alternative transaction with a third party within 12 months of such termination, and the effect such termination fee could have on a third party’s decision to propose a merger or similar transaction to Heritage at a higher price than that contemplated by the merger with Peoples;

•

The determination of Heritage’s board that the merger would have a favorable effect on Heritage’s depositors and customers and the communities served by Heritage, given that they would be served by a geographically diversified organization which would have greater resources than Heritage;

•

The expectation that the merger will generally be a tax-free transaction to Heritage and its stockholders, to the extent the Heritage stockholders elect to receive shares of Peoples common stock in exchange for their shares of Heritage common stock (See “The Merger—Material Federal Income Tax Consequences of the Merger” on page 42);

•

The effects of the merger on Heritage’s employees, including the prospects for employment with a large, growing organization such as Peoples with an expanding business presence in the market areas served by Heritage;

•

The interests of Heritage executive officers and directors with respect to the merger apart from their interests as holders of Heritage common stock, and the risk that these interests might influence their decision with respect to the merger (See “The Merger—Interests of Certain Persons in the Merger” on page 50); and

•

That the transaction would be subject to a vote of the Heritage stockholders.

The discussion of the factors considered by the Heritage board is not intended to be exhaustive, but includes all material factors considered. In view of the wide variety of factors considered in connection with its evaluation of the merger agreement and the merger and the complexity of these matters, the Heritage board did not assign any specific or relative weights to any of the foregoing factors, and individual directors may have weighted factors differently. The Heritage board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Heritage management and Heritage’s legal and financial advisors, and considered the factors overall to be favorable to, and to support, its determination.

FOR THE REASONS SET FORTH ABOVE, THE HERITAGE BOARD OF DIRECTORS

UNANIMOUSLY RECOMMENDS THAT HERITAGE STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE PLAN OF MERGER AND THE MERGER.

Peoples’ Reasons for the Merger

On July 15, 2004, the Peoples’ board of directors approved the merger agreement, the merger and the other transactions contemplated by those agreements. In connection with its approval of the merger, the board of directors recognized that:

•

the merger will expand Peoples’ business into the demographically attractive markets of Decatur, Huntsville and Birmingham, Alabama;

•

the merger will increase Peoples’ core deposit base by $408 million, an important funding source; and

•

the merger is expected to be accretive to Peoples’ earnings per share within the next twelve months, based on a generally accepted accounting principles basis.

The Peoples board of directors also considered the following risks associated with the merger in connection with its deliberations of the proposed transaction:

•

the challenges of integrating Heritage’s businesses, operations and workforce with those of Peoples;

•

the increased exposure to the Decatur, Huntsville and Birmingham, Alabama markets; and

•

whether or not Peoples would be able to retain key management of Heritage.

The foregoing discussion of the factors considered by the board of directors is not intended to be exhaustive, but, rather, includes all principal factors considered by the board of directors. In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The board of directors considered all these factors as a whole, and overall considered them to be favorable to, and to support, its determination.

Opinion of Sterne, Agee & Leach, Inc.

Heritage retained Sterne, Agee & Leach, Inc. to provide its opinion as to the fairness from a financial viewpoint of the merger consideration to the stockholders of Heritage. As part of its investment banking business, Sterne Agee is regularly involved in the valuation of financial institutions and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, securities trading, private placements and valuations for estate, corporate and other purposes. In the ordinary course of its business as a broker-dealer, Sterne Agee may, from time to time, purchase securities from, and sell securities to, Heritage and Peoples. Sterne Agee may trade the equity securities of Heritage and Peoples for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. Sterne Agee, and its officers, employees, consultants and agents may have long or short positions in the securities of Heritage and Peoples. The Heritage Board of Directors retained Sterne Agee based upon its experience as a financial advisor in mergers and acquisitions of financial institutions and its knowledge of financial institutions.

On June 17, 2004, Sterne Agee rendered its oral opinion to Heritage’s Board of Directors that, as of such date, the merger consideration was fair, from a financial point of view, to the stockholders of Heritage. Sterne Agee rendered its written fairness opinion as of July 13, 2004. The type and amount of consideration and the terms and conditions of the merger were negotiated directly by and between Peoples and Heritage.

The full text of the fairness opinion which sets forth, among other things, assumptions made, procedures followed, matters considered, and limitations on the review undertaken, is attached as Annex C to this proxy statement/prospectus. The following summary of Sterne Agee’s analysis is qualified in all respects by reference to the full text of the fairness opinion. You are urged to read Sterne Agee’s fairness opinion carefully and in its entirety. The fairness opinion is addressed to the Board of Directors of Heritage and does not constitute a recommendation to any Heritage stockholder as to how such stockholder should vote at the special meeting of Heritage’s stockholders.

In connection with the fairness opinion, Sterne Agee:

1. Reviewed the merger agreement;

2. Reviewed certain publicly available financial statements and other information about Peoples;

3. Reviewed publicly available and internal financial statements, operating data, and financial forecasts for Heritage;

4. Conducted conversations with executive management of Heritage and Peoples regarding recent and projected financial performance;

5. Analyzed the present value of the after-tax cash flows Heritage could produce through the year 2008 under various scenarios, based on assumptions provided by management;

6. Compared the proposed financial terms of the merger with the financial terms of certain other transactions that Sterne Agee deemed to be relevant;

7. Compared the historical stock price data and trading volume of Peoples’ common stock with that of certain other comparable publicly traded companies;

8. Compared certain financial characteristics and performance measures of Peoples with that of certain other comparable publicly traded companies;

9. Compared the historical stock price performance of Peoples’ common stock with that of selected indices Sterne Agee deemed relevant; and

10. Performed such other analyses as Sterne Agee deemed appropriate.

In connection with its review, Sterne Agee relied upon and assumed the accuracy and completeness of all of the foregoing information provided to it or made publicly available, and Sterne Agee did not assume any responsibility for independent verification of such information. Sterne Agee assumed that internal confidential financial projections provided by Heritage were reasonably prepared reflecting the best currently available estimates and judgments of the future financial performance of Heritage, and did not independently verify the validity of such assumptions.

Sterne Agee did not make any independent evaluation or appraisal of the assets or liabilities of Heritage or Peoples nor was Sterne Agee furnished with any such appraisals. Sterne Agee did not examine any individual loan files of Heritage or Peoples. Sterne Agee is not an expert in the evaluation of loan portfolios for the purposes of assessing the adequacy of the allowance for losses with respect thereto and has assumed that such allowances as determined by management and the Board of Directors of Heritage were, in the aggregate, adequate to cover such losses.

The fairness opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to Sterne Agee as of June 17, 2004.

In rendering the fairness opinion, Sterne Agee performed a variety of financial analyses. The preparation of an opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Consequently, the fairness opinion is not readily susceptible to partial analysis or summary description. Moreover, the evaluation of fairness, from a financial point of view, of the merger consideration is to some extent subjective, based on the experience and judgment of Sterne Agee, and not merely the result of mathematical analysis of financial data. Sterne Agee did not attribute particular weight to any analysis or factor considered by it. Accordingly, notwithstanding the separate factors summarized below, Sterne Agee believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. The ranges of valuations resulting from any particular analysis described below should not be taken to be Sterne Agee’s view of the actual value of Heritage, Peoples, or the combined entity.

In performing its analyses, Sterne Agee made numerous assumptions with respect to industry performance, business, and economic conditions and other matters, many of which are beyond the control of Heritage or Peoples. The analyses performed by Sterne Agee are not necessarily indicative of actual values or future results,

which may be significantly more or less favorable than suggested by such analyses, nor are they appraisals. In addition, Sterne Agee’s analyses should not be viewed as determinative of the opinion of the Board of Directors or the management of Heritage with respect to the value of Heritage or Peoples or to the fairness of the merger consideration.

The following is a summary of the analyses performed by Sterne Agee in connection with its opinion. The following discussion contains financial information concerning Heritage and Peoples as of March 31, 2004 and market information as of June 17, 2004.

For the purposes of the following analyses, Sterne Agee utilized a value of the merger consideration of $6.25 per outstanding share.

Heritage Discounted Cash Flow (“DCF”) Analysis: Using discounted cash flow analysis, Sterne Agee estimated the present value of the future after-tax cash flow streams that Heritage could produce through the year 2008, under various circumstances, assuming that it performed in accordance with the projections provided by Heritage’s management. Sterne Agee analyzed three DCF scenarios for Heritage; remaining independent (“Stand-Alone”), remaining independent and selling at the end of 2008 (“Future Acquisition”), and selling in the current environment (“Strategic Control”).

DCF—Stand-Alone: Sterne Agee estimated the terminal value for Heritage at the end of 2008 by capitalizing the final period projected earnings using a range of terminal value multiples based on observed public trading multiples, which ranged from 12 to 16 times earnings. Sterne Agee discounted the annual cash flow streams (defined as all earnings in excess of that required to maintain a tangible equity to asset ratio of 6.0% in 2005, and 6.25% in 2006 to 2008) and the terminal values using discount rates ranging from 10% to 14%. The discount range was chosen to reflect different assumptions regarding the required rates of return of Heritage and the inherent risk surrounding the underlying projections. This discounted cash flow analysis indicated a range of values per outstanding share of $3.99 to $5.86 as shown in the table below compared to the merger consideration of $6.25.


DCF Value Per Outstanding Share	*Terminal Value Multiples*
*Discount Rates*	12 x	14 x		16 x
10%	$4.58	$	5.22	$	5.86
12%	$4.27	$	4.87	$	5.46
14%	$3.99	$	4.54	$	5.10

DCF—Future Acquisition: Sterne Agee estimated the terminal value for Heritage at the end of 2008 by capitalizing the final period projected earnings using a range of terminal value multiples based on observed acquisition multiples, which ranged from 16 to 20 times earnings. Sterne Agee discounted the annual cash flow streams (defined as all earnings in excess of that required to maintain a tangible equity to asset ratio of 6.0% in 2005, and 6.25% in 2006 to 2008) and the terminal values using discount rates ranging from 10% to 14%. The discount range was chosen to reflect different assumptions regarding the required rates of return of Heritage and the inherent risk surrounding the underlying projections. This discounted cash flow analysis indicated a range of values per outstanding share of $5.10 to $7.14 as shown in the table below compared to the merger consideration of $6.25.


DCF Value Per Outstanding Share	*Terminal Value Multiples*
*Discount Rates*	16 x		18 x		20 x
10%	$	5.86	$	6.50	$	7.14
12%	$	5.46	$	6.06	$	6.65
14%	$	5.10	$	5.65	$	6.21

DCF—Strategic Control: Sterne Agee estimated the terminal value for Heritage at the end of 2008 by capitalizing the final period projected earnings using a range of terminal value multiples based on observed

public trading multiples, which ranged from 12 to 16 times earnings. Sterne Agee discounted the annual cash flow streams (defined as all earnings (which include annual after-tax merger savings of approximately $1.3 million) in excess of that required to maintain a tangible equity to asset ratio of 6.0% in 2005, and 6.25% in 2006 to 2008) and the terminal values using discount rates ranging from 10% to 14%. The discount range was chosen to reflect different assumptions regarding the required rates of return of Heritage and the inherent risk surrounding the underlying projections. This discounted cash flow analysis indicated a range of values per outstanding share of $5.31 to $7.70 as shown in the table below compared to the merger consideration of $6.25.


DCF Value Per Outstanding Share	*Terminal Value Multiples*
*Discount Rates*	12 x	14 x	16 x
10%	$6.08	$6.89	$7.70
12%	$5.68	$6.43	$7.18
14%	$5.31	$6.02	$6.72

Analysis of Selected Transactions: Sterne Agee performed an analysis of premiums paid in selected recently completed acquisitions of banking organizations with comparable characteristics to Heritage, as well as recently completed acquisitions of higher performing institutions. These two sets of comparable transactions were selected to ensure a thorough analysis.

The first comparable transactions consisted of a group of transactions for commercial banks in the United States for which pricing data were available. These comparable transactions consisted of seven mergers and acquisitions of banks with assets between $250 million and $1 billion and a latest twelve-month return on assets of less than 0.5% that were announced between January 1, 2002 and June 17, 2004. The analysis yielded multiples of the purchase prices in these transactions relative to: (multiples for the merger as reported by SNL Financial)

1. Tangible book value ranging from 1.0 times to 2.8 times with an average of 2.0 times and a median of 1.8 times compared with the multiples implied in the merger of 2.2 times March 31, 2004 tangible book value for Heritage;

2. Last 12 months earnings ranging from 27.0 times to 167.8 times with an average of 64.2 times and a median of 41.7 times compared with the multiples implied in the merger of 58.5 times last 12 months earnings as of March 31, 2004 for Heritage;

3. Total assets ranging between 3.8% and 20.0% with an average of 12.8% and a median of 14.8% compared with the multiples implied in the merger of 13.6% of March 31, 2004 total assets for Heritage; and

4. Total deposits ranging from 4.2% to 24.2% with an average of 17.0% and a median of 17.9% compared with the multiples implied in the merger of 18.0% of deposits as of March 31, 2004 for Heritage.

The second comparable transactions consisted of a group of transactions for commercial banks in the United States, excluding Florida, for which pricing data were available. These comparable transactions consisted of 54 mergers and acquisitions of banks with assets between $250 million and $1 billion and a latest twelve-month return on assets of greater than 0.75% that were announced between January 1, 2002 and June 17, 2004. The analysis yielded multiples of the purchase prices in these transactions relative to: (multiples for the merger as reported by SNL Financial)

1. Tangible book value ranging from 1.4 times to 5.1 times with an average of 2.7 times and a median of 2.6 times compared with the multiples implied in the merger of 2.2 times March 31, 2004 tangible book value for Heritage;

2. Last 12 months earnings ranging from 7.0 times to 44.7 times with an average of 21.1 times and a median of 20.6 times compared with the multiples implied in the merger of 58.5 times last 12 months earnings as of March 31, 2004 for Heritage;

3. Total assets ranging between 11.1% and 33.9% with an average of 22.2% and a median of 22.6% compared with the multiples implied in the merger of 13.6% of March 31, 2004 total assets for Heritage; and

4. Total deposits ranging from 14.7% to 41.8% with an average of 27.7% and a median of 27.1% compared with the multiples implied in the merger of 18.0% of deposits as of March 31, 2004 for Heritage.

Comparable Company Analysis: Sterne Agee compared the operating and market results of Peoples to the results of other publicly traded companies. The comparable publicly traded companies were selected primarily on the basis of two criteria: geographic location and total asset size. The geographic location of the banks and, therefore, of the comparables was the Southeastern Region of the United States (as defined by SNL Financial). Peoples was compared to companies with total assets between $1 billion and $3 billion, excluding those institutions meeting the asset size criteria but located in major metropolitan markets or Florida (“Peoples Peer Group”). The data for the following tables is based on information provided by SNL Financial. Some of the ratios presented are proprietary to SNL Financial and may not strictly conform to the common industry determinations or the computations by Peoples in its financial statements. The data presented below is as of March 31, 2004.


	Peoples		Peoples Peer Group Median
Net Interest Margin	3.81	%	4.06	%
Efficiency Ratio	66.1	%	62.3	%
Return on Average Assets	1.30	%	1.14	%
Return on Average Equity	13.2	%	11.7	%
Equity to Assets Ratio	9.6	%	9.6	%
Loans to Deposits	73.7	%	88.8	%
Tier 1 Capital Ratio	16.2	%	12.6	%
Ratio of Loan Loss Reserves to Loans	1.50	%	1.39	%
Ratio of Net Charge Offs to Average Loans	0.21	%	0.10	%

Peoples’ performance as measured by its return on average assets and average equity was higher than the Peoples Peer Group Median and lower than the Peoples Peer Group Median based on its net interest margin and efficiency ratio. Its capital levels were in-line with the Peoples Peer Group Median as shown in the equity to asset ratio and higher than the Peoples Peer Group Median based on the tier 1 capital ratio. Peoples’ asset quality as measured by its ratio of loan loss reserves to loans and net charge-offs to average loans was generally comparable to the Peoples Peer Group Median.

The companies’ market results based on market data as of June 17, 2004 are contained in the following tables.


	Peoples		Peoples Peer Group Median
Market Price as a Multiple of Stated Book Value	179	%	166	%
Market Price as a Multiple of Tangible Book Value	186	%	208	%
Price as a Multiple of Trailing 12 Month Earnings	13.9	x	14.7	x
Dividend Yield per Share	2.6	%	2.5	%
Dividend Payout Ratio per Share	36.0	%	36.7	%

Peoples’ price to book multiple as measured by its market price as a multiple of stated book value was higher than the Peoples Peer Group Median, and its market price as a multiple of stated tangible book value was lower than the Peoples Peer Group Median. Its price to trailing twelve month earnings multiple (earnings through March 31, 2004) was lower than the comparable ratio for the Peoples Peer Group Median. Peoples’ dividend yield was slightly above and the dividend payout slightly below the respective measures for the Peoples Peer Group Median.

Sterne Agee compared selected stock market results of Peoples to the publicly available corresponding data of other composites that Sterne Agee deemed to be relevant, including (i) the S&P Bank Index, and (ii) the SNL Index of Banks in the U.S. Peoples’ common stock price has outperformed both selected indices for the three-year period ending June 17, 2004.

No company or transaction used in the comparable company and comparable transaction analyses is identical to Heritage, Peoples, or Peoples as the surviving corporation in the merger. Accordingly, an analysis of the results of the foregoing necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics of Heritage and Peoples and other factors that could affect the public trading value of the companies to which they are being compared. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable transaction data or comparable company data.

Pursuant to an engagement letter dated March 3, 2004 between Heritage and Sterne Agee, Heritage agreed to pay Sterne Agee a professional fee of $147,400. In addition, Heritage agreed to reimburse Sterne Agee for its reasonable out-of-pocket expenses. Heritage also agreed to indemnify and hold harmless Sterne Agee and its officers, employees, directors, agents, stockholdesr, representatives, affiliates and controlling persons against certain liabilities in connection with its services under the engagement letter.

The fairness opinion is directed only to the question of whether the merger consideration is fair from a financial perspective and does not constitute a recommendation to any Heritage stockholder to vote in favor of the merger. No limitations were imposed on Sterne Agee regarding the scope of its investigation or otherwise by Heritage.

Based on the results of the various analyses described above, Sterne Agee concluded that the merger consideration to be paid by Peoples pursuant to the merger is fair to Heritage stockholders, from a financial point of view.

Material United States Federal Income Tax Consequences

The following discussion is a summary of specified United States federal income tax consequences of the merger to a holder of shares of Heritage common stock who holds the shares as capital assets (referred to in this discussion as a “Holder”). The discussion is based on laws, regulations, rulings and decisions in effect on the date hereof, all of which are subject to change, possibly with retroactive effect. This discussion is for general information only and may not be applicable with respect to Holders subject to special treatment under the Internal Revenue Code (including, but not limited to, financial institutions, tax-exempt organizations, mutual funds, insurance companies, S corporations or other pass-through entities, dealers in securities or foreign currency, Holders who exercise appraisal rights, foreign Holders, Holders who acquired shares of Heritage common stock pursuant to the exercise of employee stock options or otherwise as compensation or through tax-qualified retirement plans, traders in securities who elect the mark-to-market method of accounting for their securities holdings, Holders subject to the alternative minimum tax, Holders who have a functional currency other than the U.S. dollar, or Holders who hold Heritage common stock as part of a hedge against currency risk, straddle or a constructive sale or conversion transaction). Neither Heritage nor Peoples intends to request any ruling from the Internal Revenue Service as to the United States federal income tax consequences of the merger. In addition, the discussion does not address the state, local or foreign tax consequences of the merger.

Based on factual representations provided by Heritage and Peoples and on customary factual assumptions, all of which must continue to be accurate in all material respects as of the closing date of the merger, it is the opinion of Phelps Dunbar LLP, counsel to Peoples, that the material United States federal income tax consequences of the merger are as follows:

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the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, and each of Peoples and Heritage will be a party to the reorganization within the meaning of Section 368(b) of the Code;

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a Holder will not recognize gain or loss if the Holder exchanges Heritage common stock solely for Peoples common stock, except to the extent of any cash received in lieu of a fractional share of Peoples common stock;

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where a Holder exchanges Heritage common stock solely for cash in the merger, such cash will be treated as having been received as a distribution in redemption of such Holder’s Heritage common stock, subject to the provisions and limitations of Section 302 of the Internal Revenue Code;

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a Holder will recognize gain (but not loss) if the Holder exchanges Heritage common stock for a combination of Peoples common stock and cash, and the Holder’s gain will be equal to the lesser of:

(1) the excess, if any, of:

(a) the sum of the cash (excluding any cash received in lieu of a fractional share of Peoples common stock) and the fair market value of the Peoples common stock received (including any fractional share of Peoples common stock which is deemed to be distributed in the merger and then redeemed by Peoples), over

(b) the Holder’s tax basis in the Heritage common stock surrendered in the exchange, or

(2) the amount of cash received;

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a Holder’s tax basis in the Peoples common stock received in the merger will equal the Holder’s tax basis in the Heritage common stock surrendered (less the tax basis allocable to any fractional share which is deemed to be distributed in the merger and then redeemed by Peoples), increased by (i) the amount, if any, treated as a dividend and (ii) the amount of gain which was recognized by the Holder on such exchange (not including any portion of such gain which was treated as a dividend), and decreased by the amount of cash received in the merger (excluding any cash received in lieu of a fractional share interest);

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a Holder’s holding period for the Peoples common stock received in the merger will include the holding period for the shares of Heritage common stock surrendered in exchange therefor, provided that the Heritage common stock was held as a capital asset at the time of the merger; and

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the receipt of cash in lieu of fractional shares of Peoples common stock will be treated as if the fractional shares were distributed in the merger and then redeemed by Peoples. Generally, these cash payments will be treated as having been received as distributions in full payment in exchange for the shares considered redeemed.

If a Holder acquired different blocks of Heritage common stock at different times and at different prices, any gain or loss will be determined separately with respect to each block of Heritage common stock, and the cash and Peoples common stock received will be allocated proportionately to each block of stock. In addition, a Holder’s basis and holding period in the Peoples common stock received in the merger will be determined separately with reference to each block of Heritage common stock surrendered in the exchange.

Taxation of Capital Gain. Subject to the discussion under “Possible Treatment of Gain as a Dividend” set forth below, gain or loss recognized in connection with the merger will constitute long-term capital gain or loss if a Holder’s holding period in the Heritage common stock is greater than one year as of the date of the merger. If a Holder is not a corporation, this long-term capital gain generally will be taxed at a maximum United States federal income tax rate of 15%. The deductibility of capital losses is subject to limitations.

Possible Treatment of Gain as a Dividend. In general, in determining whether the gain recognized in the merger will be treated as capital gain or dividend income, a Holder (other than a Holder who exchanges Heritage common stock solely for cash) will be treated as if it first exchanged all of the Holder’s shares of Heritage common stock solely for Peoples common stock and then Peoples immediately redeemed a portion of that Peoples common stock in exchange for the cash that the Holder actually received. Gain recognized in this

deemed-redemption of Peoples common stock will result in capital gain if there is a “meaningful reduction” in the Holder’s deemed percentage stock ownership in Peoples. The Internal Revenue Service has ruled that a relatively minor reduction in the percentage stock ownership of a minority stockholder in a publicly held corporation whose relative stock interest is minimal and who exercises no control with respect to corporate affairs is a “meaningful reduction.” Accordingly, in most circumstances, gain recognized by a Holder that exchanges its shares of Heritage common stock for a combination of Peoples common stock and cash will be capital gain. Each Holder that may be subject to these rules should consult its tax advisor.

Cash Received in Lieu of a Fractional Share. Cash received in lieu of a fractional share of Peoples common stock will be treated as received in redemption of the fractional share of Peoples common stock. Generally, a Holder of a fractional share will recognize gain or loss equal to the difference between the amount of cash received and the portion of the basis of the Holder’s shares of Heritage common stock allocable to the fractional share. Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the holding period for the Holder’s shares of Heritage common stock was greater than one year as of the date of the exchange.

Backup Withholding. Unless a Holder complies with specified reporting or certification procedures or is an “exempt recipient” (i.e., in general, corporations and some other entities), the Holder may be subject to a backup withholding tax of 28% with respect to any cash payments received pursuant to the merger. A foreign stockholder should consult its tax advisor with respect to the application of withholding rules to any cash payments received by it pursuant to the merger.

Reporting Requirements. If a Holder receives Peoples common stock as a result of the merger, such Holder will be required to retain records pertaining to the merger and will be required to file with such Holder’s United States federal income tax return for the year in which the merger takes place a statement setting forth specified facts relating to the merger.

Each Heritage stockholder is urged to consult his or her own tax advisor with respect to the federal, state, local and foreign tax consequences of the merger.

Accounting Treatment

Peoples will account for the merger as a purchase transaction under generally accepted accounting principles. Under the purchase method of accounting, the assets and liabilities of Heritage will be recorded, as of completion of the merger, at their respective fair values and added to those of Peoples. Financial statements and reported results of operations of Peoples issued after completion of the merger will reflect these values, but will not be restated retroactively to reflect the historical financial position or results of operations of Heritage.

Regulatory and Third-Party Approvals

Federal Bank Regulatory Approvals. The merger is subject to the prior approval of the Federal Reserve Board (the “Federal Reserve”) under Section 3(a)(5) of the Bank Holding Company Act (the “BHC Act”), and related federal regulations. In reviewing an application for such approvals under the BHC Act, the Federal Reserve is required to consider the following:

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competitive factors, such as whether the merger will result in a monopoly or whether the benefits of the merger to the public in meeting the needs and convenience of the community clearly outweigh the merger’s anticompetitive effects or restraints on trade; and

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banking and community factors, which includes an evaluation of:

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the financial and managerial resources of Peoples, including its subsidiaries, and of Heritage, and the effect of the proposed transaction on those resources;

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management expertise;

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internal-control and risk-management systems;

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the capital of Peoples; and

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the convenience and needs of the communities to be served; and

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the effectiveness of Peoples and Heritage in combating money laundering activities.

The application process includes publication and opportunity for comment by the public. The Federal Reserve may receive, and must consider, properly filed comments and protests from community groups and others regarding (among other issues) each institution’s performance under the Community Reinvestment Act of 1977, as amended. The Federal Reserve is also required to ensure that the proposed transaction would not violate Alabama law regarding the number of years a bank must be in operation before it can be acquired, deposit concentration limits, Alabama community reinvestment laws and any Alabama antitrust statutes.

The merger of Heritage Bank with and into Peoples Bank is subject to the prior approval of the Federal Deposit Insurance Corporation (“FDIC”) pursuant to Section 18(c) of the Federal Deposit Insurance Act, as amended, and related federal regulations. The FDIC considers factors generally similar to those considered by the Federal Reserve. The FDIC application process also includes publication and an opportunity for comment by the public.

State Bank Regulatory Approvals. Peoples has filed or will file applications or notices with the Mississippi Department of Banking and Consumer Finance and the Alabama State Banking Department for approval of the merger. The standards that are required to be considered by these state bank regulatory authorities are similar to those described above with regard to the Federal Reserve.

State Insurance Regulatory Approvals. Based on their determination that no approval was required, neither Peoples nor Heritage has filed or intends to file any application for approval of the merger with the Alabama Department of Insurance.

Other Regulatory Approvals. In connection with or as a result of the merger, Peoples or Heritage may be required, pursuant to other laws and regulations, either to notify or obtain the consent of other regulatory authorities and organizations to which such companies or subsidiaries of either or both companies may be subject.

If the approval of the merger by any of the authorities mentioned above is subject to compliance with any conditions, there can be no assurance that the parties or their subsidiaries will be able to comply with such conditions or that compliance or non-compliance will not have adverse consequences for the combined company after consummation of the merger. The parties believe that the proposed merger is compatible with such regulatory requirements.

While Peoples and Heritage believe that they will receive the requisite regulatory approvals for the merger, there can be no assurance regarding the timing of the approvals or the ability of the companies to obtain the approvals on satisfactory terms, the absence of litigation challenging such approvals or otherwise. There can likewise be no assurance that any state attorney general or other domestic regulatory authority will not attempt to challenge the merger on antitrust grounds or for other reasons, or, if such a challenge is made, as to the result thereof. The merger is conditioned upon the receipt of all consents, approvals and actions of governmental authorities and the filing of all other notices with such authorities in respect of the merger. See “The Merger Agreement—Conditions to the Completion of the Merger” on pages 60 and 61 of this proxy statement/prospectus.

Peoples is not aware of any regulatory approvals that would be required for completion of the transactions contemplated by the merger agreement other than as described above. Should any other approvals be required, it is presently contemplated that such approvals would be sought. There can be no assurance that any other approvals, if required, will be obtained.

Third-Party Approvals. The merger is conditioned upon the receipt of all consents and approvals of third parties with respect to specified agreements, such as real property leases, unless the failure to obtain any such consent or approval would not reasonably be expected to have a material adverse effect on Peoples or Heritage. Pursuant to the merger agreement, Heritage and Peoples have agreed to use their best efforts to obtain all consents, approvals and waivers from third parties necessary in connection with the completion of the merger.

Appraisal Rights

This discussion is not a complete statement of the law pertaining to appraisal rights under the Delaware General Corporation Law and is qualified in full by the full text of Section 262 thereof, which is reprinted in its entirety as Annex D to this proxy statement/prospectus. All references in Section 262 and in this summary to a “stockholder” or “holder” are to the record holder of the shares of Heritage common stock as to which appraisal rights are asserted.

If the merger is consummated, holders of Heritage common stock who follow the procedures set forth below will be entitled to appraisal rights under Section 262 of the Delaware General Corporation Law (the “DGCL”), a copy of which is attached to this proxy statement/prospectus as Annex D. Stockholders who perfect their appraisal rights and follow certain procedures in the manner prescribed by the DGCL will be entitled to receive a cash payment equal to the “fair value” of their shares of Heritage common stock, as determined by the Delaware Court of Chancery, in lieu of the right to receive either (i) cash in the amount of $6.25 for each share of Heritage common stock, (ii) 0.20 shares of Peoples common stock for each share of Heritage common stock or (iii) a combination of cash for 40% of such holder’s Heritage common stock and Peoples common stock for 60% of such holder’s Heritage common stock at the price and exchange ratio set forth above.

If the merger is consummated, stockholders who do not vote “FOR” approval and adoption of the merger agreement and the merger, who hold shares of Heritage common stock of record on the date of making a written demand for appraisal as described below, who continuously hold shares of Heritage common stock through the closing of the merger and who otherwise comply fully with Section 262 of the DGCL will be entitled to a judicial determination of the fair value of their shares of common stock exclusive of any element of value arising from the accomplishment of the merger and to receive from Peoples payment of such fair value in cash together with a fair rate of interest, if any, as determined by the court.

A person having a beneficial interest in shares of Heritage common stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to timely follow the steps required by the DGCL to perfect appraisal rights.

Under Section 262 of the DGCL, where a proposed merger is to be submitted for approval at a meeting of stockholders, as in the case of the special meeting, the corporation, not less than 20 days before the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available. The corporation must also include in that notice a copy of Section 262 of the DGCL. This proxy statement/prospectus constitutes the required notice to the holders of Heritage common stock. Section 262 of the DGCL is attached to this proxy statement/prospectus as Annex D. Any stockholder who wishes to exercise appraisal rights or who wishes to preserve that right should review carefully the following discussion and Annex D to this proxy statement/prospectus. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of the common stock, stockholders who consider exercising such appraisal rights should seek the advice of counsel, which counsel or other appraisal services will not be paid for by Peoples or Heritage. Failure to comply with the procedures specified in Section 262 of the DGCL timely and properly will result in the loss of appraisal rights. A

stockholder who fails to comply with the procedures specified in Section 262 of the DGCL and thus loses appraisal rights will be deemed to have elected to receive a combination of cash for 40% of such stockholder’s shares of Heritage common stock and shares of Peoples common stock for 60% of such stockholder’s shares of Heritage common stock.

Filing written objection. Any holder of Heritage common stock wishing to exercise the right to demand appraisal under Section 262 of the DGCL must satisfy each of the following conditions:

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As more fully described below, the holder must deliver to Heritage a written demand for appraisal of the holder’s shares before the vote on the merger agreement and the merger at the special meeting. This demand must reasonably inform Heritage of the identity of the holder and that the holder intends to demand the appraisal of the holder’s shares.

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The holder must not vote the holder’s shares of common stock in favor of the merger agreement and the merger at the special meeting nor consent thereto in writing pursuant to Section 228 of the DGCL. A stockholder who submits a proxy and wishes to exercise appraisal rights must vote against the merger agreement and the merger or abstain from voting on the merger agreement and the merger, because a proxy which does not contain voting instructions will, unless revoked, be voted in favor of the merger agreement and the merger.

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The holder must continuously hold the shares from the date of making the demand through the effective time of the merger. A stockholder who is the record holder of shares of common stock on the date the written demand for appraisal is made, but who thereafter transfers those shares before the effective time of the merger, will lose any right to appraisal in respect of those shares.

The written demand for appraisal must be in addition to and separate from any proxy or vote. Voting (in person or by proxy) against, abstaining from voting or failing to vote on the proposed merger agreement and the merger will not constitute a written demand for appraisal within the meaning of Section 262 of the DGCL.

Only a holder of record of shares of Heritage common stock issued and outstanding through the effective time of the merger is entitled to assert appraisal rights for the shares of common stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the stockholder of record, fully and correctly, as the stockholder’s name appears on the applicable stock certificates. The demand should specify the stockholder’s name and mailing address, the number of shares of common stock owned and that the stockholder intends to demand appraisal of the stockholder’s common stock. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in that capacity. If the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all owners. An authorized agent, including one or more joint owners, may execute a demand for appraisal on behalf of a stockholder. The agent, however, must identify the record owner or owners and expressly disclose the fact that, in executing the demand, the agent is acting as agent for such owner or owners. A record holder such as a broker who holds shares as nominee for several beneficial owners may exercise appraisal rights with respect to the shares held for one or more beneficial owners while not exercising appraisal rights with respect to shares held for other beneficial owners. In such case, the written demand should set forth the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. If a stockholder holds shares of common stock through a broker which in turn holds the shares through a central securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record holder.

Beneficial owners who are not record owners and who intend to exercise appraisal rights should instruct the record owner to comply strictly with the statutory requirements with respect to the delivery of written demand for appraisal. A demand for appraisal submitted by a beneficial owner who is not the record owner will not be honored.

Any stockholder who has duly demanded an appraisal in compliance with Section 262 of the DGCL will not, from and after the effective time of the merger, be entitled to vote or consent by written action the shares subject to that demand for any purpose. Any such stockholder also will not be entitled to the payment of dividends or other distributions on those shares (except dividends or other distributions payable to stockholders of record of shares as of a record date before the effective time of the merger).

A stockholder may withdraw a demand for appraisal and instead receive cash in the amount of $6.25 for 40% of such stockholder’s shares of Heritage common stock and 0.20 shares of Peoples common stock for 60% of such stockholder’s shares of Heritage common stock. A stockholder may withdraw by delivering to Heritage (or Peoples, if after the effective date of the merger) a written withdrawal of the stockholder’s demand for appraisal. However, any such attempt to withdraw made more than 60 days after the effective date of the merger will require written approval from Peoples. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Court of Chancery, and such approval may be conditioned upon such terms as the Court of Chancery deems just. If Peoples does not approve a stockholder’s request to withdraw a demand for appraisal when that approval is required, or if the Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value determined in any such appraisal proceeding. This value could be more than, the same as or less than $6.25 per share of Heritage common stock.

A stockholder who elects to exercise appraisal rights under Section 262 of the DGCL should mail or deliver a written demand to Heritage Financial Holding Corporation, 211 Lee Street NE, Decatur, Alabama 35602, Attn: William M. Foshee, Chief Financial Officer.

Notice by the Company. If the merger agreement and the merger are approved and adopted at the special meeting, then within 10 days after the effective time of the merger, Peoples must send a notice as to the effectiveness of the merger to each of Heritage’s former stockholders who (i) have made a written demand for appraisal in accordance with Section 262 of the DGCL and (ii) have not voted to approve and adopt, nor consented to, the merger agreement and the merger.

Under the merger agreement, Heritage has agreed to give Peoples prompt notice of any demands for appraisal received by Heritage. Peoples has the right to direct all negotiations and proceedings with respect to demands for appraisal. Heritage will not, except with the prior written consent of Peoples, make any payment with respect to any demands for appraisal, or offer to settle or otherwise negotiate, or settle, any such demands.

Within 120 days after the effective time of the merger, any of the former stockholders of Heritage who have demanded an appraisal and who have not withdrawn such demand in accordance with Section 262 of the DGCL will be entitled to receive from Peoples, upon written request, a statement setting forth the aggregate number of shares not voted in favor of the merger agreement and the merger and, with respect to such shares voting against the merger agreement and the merger, that demands for appraisal have been received and the aggregate number of holders of such shares. Peoples must mail that statement to the stockholder within 10 days of receipt of the request or within 10 days after expiration of the period for delivery of demands for appraisals under Section 262 of the DGCL, whichever is later.

Filing a petition for appraisal. Within 120 days after the effective date of the merger, either Peoples or any stockholder who has demanded an appraisal and who has not withdrawn such demand in accordance with the requirements of Section 262 of the DGCL may file a petition with the Court of Chancery demanding a determination of the value of the shares of common stock held by all such stockholders. Peoples (as the surviving corporation) is under no obligation, and has no present intent, to file a petition for appraisal. Stockholders seeking to exercise appraisal rights should not assume that Peoples (as the surviving corporation) will file such a petition or that it will initiate any negotiations with respect to the fair value of the shares. Accordingly, stockholders who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time and the manner prescribed in Section 262 of the DGCL. Since Peoples has

no obligation to file such a petition, the failure of a stockholder to do so within the time specified could nullify the stockholder’s previous written demand for appraisal. If, within the 120-day period following the effective time of the merger, no petition shall have been filed as provided above, all rights to appraisal will cease. Stockholders who sought appraisal will become entitled to receive a combination of cash for 40% of such stockholder’s Heritage common stock at a value of $6.25 per share and shares of Peoples common stock for 60% of such stockholder’s Heritage common stock at an exchange ratio of 0.20 shares of Peoples common stock for each share of Heritage common stock.

A stockholder timely filing a petition for appraisal with the Delaware Court of Chancery must deliver a copy to Peoples. Peoples will then be obligated within 20 days to provide the Register in Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by Peoples. After notice to those stockholders, the Court of Chancery may conduct a hearing on the petition to determine which stockholders have become entitled to appraisal rights. The Court of Chancery may require stockholders who have demanded an appraisal of their shares and who hold stock represented by certificates to submit their certificates to the Register in Chancery for notation on such certificates of the pendency of the appraisal proceedings. If any stockholder fails to comply with the requirement, the Court of Chancery may dismiss the proceedings as to that stockholder.

Determination of fair value. After determining the stockholders entitled to an appraisal, the Delaware Court of Chancery will appraise the shares of common stock owned by such stockholders, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger. The Court of Chancery will also set a fair rate of interest, if any, to be paid upon the amount determined to be the fair value.

Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined under Section 262 of the DGCL could be more than, the same as or less than the $6.25 per share of Heritage common stock they could elect to receive under the merger agreement if they did not seek appraisal of their shares. Stockholders should also be aware that the opinion of Sterne Agee discussed in this proxy statement/prospectus is not an opinion as to fair value under Section 262 of the DGCL. Peoples reserves the right to assert in any appraisal proceedings, that, for purposes of Section 262 of the DGCL, the “fair value” of a share of common stock is less than the consideration payable pursuant to the merger agreement.

In determining fair value and, if applicable, a fair rate of interest, the Delaware Court of Chancery is to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding. The court stated that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “fair price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court stated that, in making this determination of fair value, the court must consider “market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of the merger and which throw any light on future prospects of the merged corporation.” Furthermore, the court may consider “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation.” The Delaware Supreme Court noted that Section 262 of the DGCL provides that fair value is to be determined “exclusive of any element of value arising from the accomplishment or expectation of the merger.”

The costs of the action may be determined by the Delaware Court of Chancery and taxed upon the parties as the Court of Chancery deems equitable. Upon application of a stockholder who exercised appraisal rights, the Court of Chancery may also order that all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all of the shares entitled to appraisal.

Any stockholder wishing to exercise appraisal rights is urged to consult legal counsel before attempting to exercise appraisal rights. Failure to comply strictly with all of the procedures set forth in Section 262 of the DGCL may result in the loss of a stockholder’s statutory appraisal rights.

Interests of Certain Persons in the Merger

Some members of Heritage’s management and board of directors may be deemed to have interests in the merger that are in addition to their interests as stockholders of Heritage. The Heritage board was aware of these interests and considered them, among other matters, in approving the merger agreement.

Effective as of the effective time of the merger, Peoples and Peoples Bank will enter into an employment agreement with Larry R. Mathews, the Chief Executive Officer of Heritage and Heritage Bank, pursuant to which Larry R. Mathews will serve as President of the Alabama Division of Peoples Bank for a period of five years following the closing date, subject to renewal. Larry R. Mathews will receive an annual salary of $232,000, plus a bonus potential in accordance with Peoples’ policies and employee benefits.

In addition, William M. Foshee, Robert F. Harwell, Jr., Michael Hockman, David F. Mays and Don Pruett have employment agreements with Heritage and Heritage Bank. Heritage has agreed that on or prior to the closing date it will cause the aforementioned individuals who are then employed by Heritage to execute and deliver to Peoples a letter agreement amending their existing employment agreements to provide, among other things, that each such person is waiving his right to receive change of control payments under their respective employment agreements that might have arisen in connection with the transactions contemplated by the merger agreement. This waiver, however, does not apply to any future transactions. It is anticipated that the term of these employment agreements will be extended two additional years. Heritage, however, has advised Peoples that it may be necessary to make some form of payment to the aforementioned individuals in connection with and in consideration for the execution of such amendments to employment agreements. The amount of such payments, if any, has not yet been determined.

Heritage is currently indebted to First Tennessee Bank and the repayment of this debt has been guaranteed by all of the current directors of Heritage. Peoples has agreed to either repay in full the debt of Heritage to First Tennessee Bank or assume this debt and cause the personal guarantees of Heritage’s directors to be released by First Tennessee Bank on or prior to the closing date of the merger.

The merger agreement provides that for a period of six years following the closing date of the merger Peoples will indemnify and hold harmless from liability duly elected current or former directors and officers of Heritage or Heritage Bank. Current Heritage directors and senior executive officers are entitled to indemnity if such persons sign an agreement with Peoples allowing Peoples to participate in or completely assume the defense of any claim for which indemnification may be sought. The indemnification applies to acts or omissions occurring at or prior to the closing date of the merger. Subject to the cap discussed below, Peoples will provide indemnification to the same extent as such Heritage directors or officers would be indemnified under the articles of incorporation or bylaws of Peoples as if they were directors or officers of Peoples.

Peoples has also agreed to use reasonable efforts to obtain for a period of six years after the closing date of the merger policies of directors’ and officers’ liability insurance for directors and officers of Heritage specified in the merger agreement. The insurance policies must cover acts or omissions occurring prior to the closing date of the merger. The policies must be on terms and in amounts substantially similar to those in effect on the date of the merger agreement. However, neither Peoples nor Peoples Bank are required to pay an aggregate premium for such insurance coverage in excess of 200% of the amount for such coverage as currently held by Heritage but in such case shall purchase as much coverage as reasonably practicable for such amount.

Peoples’ liability for indemnification payments under the merger agreement is capped at an amount equal to the sum of (i) $5,000,000 and (ii) the policy limits of any directors’ and officers’ liability insurance obtained by Peoples.

Restrictions on Resales by Affiliates

The shares of Peoples common stock to be issued to Heritage stockholders in the merger have been registered under the Securities Act. These shares may be traded freely and without restriction by those

stockholders not deemed to be “affiliates” of Heritage as that term is defined under the Securities Act. An affiliate of a corporation, as defined by the rules promulgated under the Securities Act, is a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, that corporation. Affiliates generally include directors, executive officers and beneficial owners of 10% or more of a company’s capital stock. Any stockholder deemed to be an affiliate of Heritage may resell shares of Peoples common stock issued in the merger only in transactions permitted by Rule 145 promulgated under the Securities Act or as otherwise permitted under the Securities Act. These restrictions are expected to apply to the Heritage directors and specified executive officers of Heritage as well as to other related individuals or entities.

THE MERGER AGREEMENT

General

The Peoples board of directors and the Heritage board of directors have each unanimously approved the merger agreement, the plan of merger, the merger and the other transactions contemplated by the merger agreement. This section of the proxy statement/prospectus describes material provisions of the merger agreement. This description does not purport to be complete and is qualified in its entirety by reference to the merger agreement and the related plan of merger, copies of which are attached as Annex A-1 and Annex A-2, respectively, to this proxy statement/prospectus and incorporated by reference herein. We urge you to read the merger agreement and the related plan of merger carefully and in their entirety.

Form of the Merger

If the holders of Heritage common stock adopt and approve the merger agreement and the merger and if all other conditions to the merger are satisfied or waived, Heritage will be merged with and into Peoples, and Peoples will be the surviving corporation and will continue its corporate existence under Mississippi law.

Effective Time of the Merger

The closing of the merger will take place on the fifth business day, or such later date as the parties mutually agree, following the receipt of all necessary approvals and consents of all governmental entities, the expiration of all statutory waiting periods and the satisfaction or waiver of the conditions to the merger set forth in the merger agreement. The merger agreement provides that in no event shall the closing of the merger take place before January 3, 2005. Subject to any delays necessitated by required regulatory approvals and waiting periods, the parties have scheduled the closing date of the merger for January , 2005. A Certificate of Merger will be filed with the office of the Delaware Secretary of State, as required under the corporation laws of Delaware, and the Plan of Merger will be filed in the office of the Mississippi Secretary of State, as required under the corporation laws of Mississippi. The Certificate of Merger and the Plan of Merger each will establish the effective time of the merger.

Merger Consideration

At the effective time of the merger, shares of Heritage common stock, except for treasury shares, shares held by Peoples or any of the subsidiaries of Peoples or Heritage (other than in a fiduciary capacity) and any shares as to which a Heritage stockholder exercised his appraisal rights, shall be converted into the right to receive either:

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cash in an amount equal to $6.25, without interest, for each share of Heritage common stock;

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0.20 shares of Peoples common stock for each share of Heritage common stock; or

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the cash consideration described above for 40% of the holder’s shares of Heritage common stock and the stock consideration described above for 60% of the holder’s shares of Heritage common stock.

Subject to the redesignation procedures set forth in the merger agreement and described below, each holder of record of shares of Heritage common stock, except for treasury shares, shares held by Peoples or any of the

subsidiaries of Peoples or Heritage (other than those held in a fiduciary capacity) and any Heritage stockholders who exercised their appraisal rights, will be entitled to elect to receive either the cash consideration described above, the stock consideration described above, or the combination of cash and stock described above.

No fractional shares of Peoples common stock will be issued in connection with the merger. Instead, Peoples will make a cash payment without interest to each Heritage stockholder who would otherwise receive a fractional share of Peoples common stock. The amount of such cash payment will be determined by multiplying the fraction of a share of Peoples common stock otherwise issuable to such stockholder by the average closing price of one share of Peoples common stock for the ten trading days immediately preceding the last trading day prior to the closing date of the merger as reported by the American Stock Exchange. Under limited circumstances, if the average closing price of Peoples common stock drops below a specified price over the measurement period and the decline in the Peoples common stock over the measurement period exceeds by 20% or more the decline in the NASDAQ Bank Index over the measurement period, the exchange ratio of 0.20 may be adjusted if Heritage elects to terminate the merger agreement, as described under the heading “The Merger Agreement—Termination of the Merger Agreement.”

Election and Election Procedures

A form of election on which Heritage stockholders will elect to receive cash, Peoples common stock or a combination of cash and Peoples common stock accompanies this proxy statement/prospectus. After the date of the mailing of this proxy statement/prospectus, Peoples and Heritage will each use their reasonable efforts to mail the form of election to all persons who become holders of record of Heritage common stock during the period between the record date of the special meeting and the date that is seven business days prior to the closing date of the merger and to otherwise make the form of election available to all persons who become holders of record of Heritage common stock between seven business days and five business days before the closing date of the merger.

To be effective, a form of election must be properly completed, signed and submitted (by mail, fax or other delivery) to Registrar and Transfer Company, the exchange agent, by the close of business on December , 2004. All elections will be irrevocable. Holders of record of shares of Heritage common stock who hold such shares in a representative capacity (for example, as a nominee or a trustee) may submit multiple forms of election, provided that such nominee or representative certifies that each form of election covers all of the shares of Heritage common stock held for a particular beneficial owner by the nominee or representative.

Peoples will have the discretion, which it may delegate in whole or in part to the exchange agent, to determine whether forms of election have been properly completed, signed and submitted and to disregard immaterial defects in forms of election. The good faith decision of Peoples or the exchange agent in such matters will be conclusive and binding. Neither Peoples nor the exchange agent will be under any obligation to notify any person of any defect in a form of election.

If a Heritage stockholder does not submit a form of election to the exchange agent by 5:00 p.m., eastern time, on December , 2004 or if Peoples or the exchange agent determines that an election by a holder of Heritage common stock was not properly made, then such holder will be deemed to have elected to receive cash consideration for 40% of such holder’s shares of Heritage common stock at a price of $6.25 per share and stock consideration for the remaining 60% of such holder’s shares at an exchange ratio of 0.20 shares of Peoples common stock for each share of Heritage common stock.

Neither the Heritage board of directors nor its financial advisor makes any recommendation as to whether stockholders should elect to receive the cash consideration or the stock consideration in the merger, or a combination of the two. You must make your own decision with respect to such election, bearing in mind the tax consequences of the election you choose. See “The Merger—Material United States Federal Income Tax Consequences.”

Redesignation Procedures

Under the merger agreement, the number of shares of Heritage common stock to be converted into the right to receive cash must not be less than 35% or more than 40% of the total number of shares of Heritage common stock outstanding immediately prior to the closing date of the merger, excluding treasury shares and shares held by Peoples or any of the subsidiaries of Peoples or Heritage (other than in a fiduciary capacity). If, after the results of the forms of election are calculated, the number of shares of Heritage common stock for which a cash election was made exceeds this 40% threshold, the exchange agent will determine the number of shares convertible into cash that must be redesignated as shares convertible into Peoples common stock in order not to exceed the 40% threshold. After such determination, all holders who have elected to receive solely cash in exchange for their Heritage common stock shall, on a pro rata basis, have such number of their shares redesignated as shares convertible into Peoples common stock so that the total number of shares of Heritage common stock to be converted into the right to receive cash will not be greater than 40% of the outstanding shares of Heritage common stock immediately prior to the closing date of the merger.

Notwithstanding the foregoing, no redesignation will be effected for a holder who has made a cash election but, as a result of such redesignation, would receive fewer than 10 shares of Peoples common stock in exchange for all of such holder’s shares of Heritage common stock.

The number of shares of Heritage common stock to be converted into the right to receive shares of Peoples common stock may be not less than 60% or more than 65% of the number of shares of Heritage common stock outstanding immediately prior to the closing date of the merger, excluding treasury shares and shares held by Peoples or any of the subsidiaries of Peoples or Heritage (other than in a fiduciary capacity). If, after the results of the forms of election are calculated, the number of shares of Heritage common stock for which a stock election was made exceeds this 65% threshold, the exchange agent will determine the number of shares convertible into shares of Peoples common stock that must be redesignated as shares convertible into cash in order not to exceed the 65% threshold. After such determination, all holders who have elected to receive solely Peoples common stock in exchange for their Heritage common stock will, on a pro rata basis, have a portion of their shares redesignated as shares convertible into cash so that the total number of shares of Heritage common stock to be converted into the right to receive shares of Peoples common stock will not be greater than 65% of the outstanding shares of Heritage common stock immediately prior to the closing date of the merger.

Holders who have elected to receive a combination of cash consideration with respect to 40% of their shares of Heritage common stock and stock consideration with respect to the remaining 60% of their shares of Heritage common stock will not be subject to the redesignation procedures described above.

After the redesignation procedures (if any) are completed, all cash election shares and 40% of the shares of Heritage common stock which are subject to combination elections will be converted into the right to receive the cash consideration, and all stock election shares and 60% of the shares of Heritage common stock that are subject to combination elections will be converted into the right to receive the stock consideration. Certificates previously evidencing shares of Heritage common stock will, upon surrender, be exchanged, as applicable, for the cash consideration of $6.25 per share or for certificates evidencing the stock consideration of 0.20 shares of Peoples common stock per share in such proportion as has been established by the redesignation procedure (if any). Cash will be paid for any fractional shares as described above. See “The Merger Agreement—Procedures for Exchanging Heritage Common Stock Certificates.”

Each share of Heritage common stock held in the treasury of Heritage and each share of Heritage common stock owned by Peoples or any subsidiary of Peoples or Heritage, other than in a fiduciary capacity, immediately prior to the closing date of the merger will be canceled and extinguished without any conversion thereof. No payment will be made with respect to such shares.

Holders of shares of Heritage common stock who elect to exercise the appraisal rights provided for in Section 262 of the DGCL will not have their shares converted into the right to receive merger consideration. In the event that a holder’s appraisal rights are lost or withdrawn, such holder will be deemed to have elected to

receive a combination of cash consideration at a price of $6.25 per share with respect to 40% of his or her shares of Heritage common stock and stock consideration at an exchange ratio of 0.20 per share with respect to the remaining 60% of his or her shares of Heritage common stock.

Procedures for Exchanging Heritage Common Stock Certificates

Within ten business days after the effective time of the merger, the exchange agent will provide appropriate stock certificate transmittal materials to the holders of Heritage common stock. The transmittal materials will contain instructions for use in effecting the surrender to the exchange agent of Heritage common stock certificates in exchange for the merger consideration. After the effective time of the merger, each holder of shares of Heritage common stock issued and outstanding immediately prior to the closing date (other than shares as to which the holder exercised appraisal rights) shall surrender for cancellation the certificate or certificates representing such shares to the exchange agent, together with a letter of transmittal duly executed and completed, in accordance with the instructions contained in the transmittal materials, and any other documents reasonably required by the exchange agent or Peoples. Each surrendered certificate for Heritage common stock shall be duly endorsed as the exchange agent may require. Until you surrender your certificate or certificates representing your shares of Heritage common stock, Peoples will not be obligated to deliver the merger consideration to you.

If you surrender your stock certificates after the effective time of the merger, the exchange agent, within ten business days of receipt of your Heritage stock certificates and any other documents reasonably required by the exchange agent or Peoples, will deliver to you the merger consideration, consisting, as applicable, of Peoples common stock certificates, together with all dividends or other distributions payable on Peoples common stock after the effective time of the merger, but without interest thereon, and any cash payments due, including any cash payment for a fractional share, without interest. After the effective time of the merger, each certificate representing your outstanding shares of Heritage common stock immediately prior to the effective time of the merger will be deemed for all corporate purposes, other than the payment of dividends and other distributions to which you may be entitled as a former Heritage stockholder, to evidence only your right to receive the merger consideration in exchange for each such share.

Twelve months after the effective time of the merger, any merger consideration held by the exchange agent that remains undistributed to the former stockholders of Heritage will be delivered to Peoples upon demand. Any former Heritage stockholder who has not already complied with the surrender and exchange procedures at such time may look only to Peoples for payment of his or her claims for cash, Peoples common stock or any dividends or distributions with respect to Peoples common stock, all without any interest thereon.

From and after the closing date, the holders of certificates of Heritage common stock shall not have any rights with respect to such shares represented by such certificates (other than the right to receive the payment of dividends or other distributions to which the holder was entitled before the closing date of the merger). All rights to receive the merger consideration shall be deemed to have been paid or issued in full satisfaction of all rights pertaining to such shares of Heritage common stock. After the effective time, there shall be no further registration or transfers of shares of Heritage common stock.

In the event of any lost, stolen or destroyed certificates of Heritage common stock, you must make an affidavit of that fact and, if required by Peoples or the exchange agent, post a bond in such amount as either Peoples or the exchange agent reasonably direct as indemnity against any claim that may be made with respect to such certificates claimed to be lost, stolen or destroyed. Upon receipt of such affidavit and the posting of any bond required, the exchange agent will issue the merger consideration with respect to such lost, stolen or destroyed certificates.

If any merger consideration is to be issued or paid in the name of a person other than the person in whose name the Heritage common stock certificate being surrendered is registered, one condition to the payment and issuance of such merger consideration is that the certificate so surrendered be properly endorsed or otherwise be in proper form for transfer. Another condition will be that the person requesting the exchange pay or establish the prior payment or inapplicability of any transfer and other taxes required by reason of the payment of the merger

consideration in the name of a person other than the registered holder of the Heritage common stock certificate. Peoples or the exchange agent shall have the right to deduct and withhold from the merger consideration such amounts as Peoples or the exchange agent are required to deduct and withhold under any federal, state, local or foreign tax law with respect to the making of such payment. Any amounts withheld shall be treated as having been paid to the holder of shares of Heritage common stock in respect of whom such deduction and withholding was made.

If you receive shares of Peoples common stock as a result of the merger, you will have the right to vote after the effective time at any meeting of Peoples stockholders, according to the number of shares of Peoples common stock you received, regardless of whether you have exchanged your certificates for shares of Heritage common stock. You will also have the right to receive any dividends declared on Peoples’ common stock, but such dividends will not be paid until stock certificates are physically exchanged.

Shares as to which Appraisal Rights Have Been Exercised

No share of Heritage common stock as to which the holder exercised his appraisal rights as provided in Section 262 of the DGCL and did not vote in favor of the merger at the special meeting of stockholders shall be converted into the right to receive the merger consideration. Peoples will direct all negotiations and proceedings with respect to any demands for payment of fair value according to the provisions of Section 262 of the DGCL. Heritage will not, without the prior written consent of Peoples, make any payments or settle or otherwise negotiate with a holder who has exercised his appraisal rights. If any holder withdraws or loses (through failure to perfect or otherwise) his or her right to appraisal, such holder will be deemed to have made a combination election and will receive the merger consideration according to such election. See “The Merger—Appraisal Rights.”

Assumption of Heritage Stock Option Plans

As of the closing date of the merger, Peoples will assume each of the following Heritage stock option plans: (i) all rights to purchase Heritage common stock upon exercise of stock options granted under the Heritage Financial Holding Corporation Incentive Stock Compensation Plan and (ii) any shares that are in the process of being purchased under the Heritage Financial Holding Corporation Employee Stock Purchase Plan but have not yet been delivered. Peoples shall assume the above Heritage stock option plans in accordance with their terms, except that:

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Peoples’ compensation committee of its board of directors shall administer such plans;

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each stock option granting such holder the right to purchase shares of Heritage common stock shall entitle the holder to purchase shares of Peoples common stock;

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the number of shares of Peoples common stock which such person is entitled to purchase shall be equal to the number of shares of Heritage common stock specified in such stock option, multiplied by 0.20; and

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the exercise price will be equal to the quotient of the exercise price specified in the option to purchase Heritage common stock divided by 0.20.

Any restriction on the exercise of any such Heritage stock option will continue in full force and effect, and the term and other provisions of such Heritage stock option will otherwise remain unchanged. Heritage may modify its Incentive Stock Compensation Plan to provide that service on the Advisory Board of the Alabama Division of Peoples Bank will constitute continued employment with Peoples and Peoples Bank. Peoples has also agreed to file an appropriate registration statement with the Securities and Exchange Commission with respect to the shares of Peoples common stock subject to the stock option plans assumed in the merger and will use its reasonable efforts to maintain the effectiveness of such registration statement. In addition, each Heritage stock option assumed by Peoples will, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, recapitalization or other similar transaction subsequent to the closing date of the merger.

Representations and Warranties

Heritage and Heritage Bank have made a number of representations and warranties in the merger agreement, the material aspects of which are described below. These descriptions are qualified in their entirety by reference to the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A-1:

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their organization and authority to enter into the merger agreement;

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their capitalization, subsidiaries, properties, employees, financial statements and financial condition;

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pending and threatened litigation;

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compliance with applicable law;

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their loans, investment portfolios, reserves and taxes;

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insurance, employee benefits and legal and environmental matters;

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loans to executives and internal controls;

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their contractual obligations and contingent liabilities; and

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their public reports filed with the Securities and Exchange Commission, the Federal Reserve Board, the Alabama State Banking Department and the Federal Deposit Insurance Corporation.

Heritage and Heritage Bank’s representations and warranties are generally contained in Article 3 of the merger agreement.

Peoples and Peoples Bank have made a number of representations and warranties in the merger agreement, the material aspects of which are described below. These descriptions are qualified in their entirety by reference to the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A-1:

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their organization and authority to enter into the merger agreement;

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their capitalization and financial statements;

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pending and threatened litigation;

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compliance with applicable law;

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the shares of Peoples common stock to be issued in the merger;

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material contracts and deposit insurance; and

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their public reports filed with the Securities and Exchange Commission, the Federal Reserve Board and the Federal Deposit Insurance Corporation.

Peoples’ and Peoples Bank’s representations and warranties are generally contained in Article 4 of the merger agreement. Peoples’ and Peoples Bank’s representations and warranties are for the benefit of Heritage and Heritage Bank; they are not for the benefit of and may not be relied upon by Heritage’s stockholders. The representations and warranties of the parties will not survive the effective date of the merger.

Covenants and Agreements

Heritage and Peoples have each entered into a number of covenants and agreements relating to their respective actions prior to the consummation of the merger. Some of these covenants and agreements are described below.

No Solicitation. Heritage has agreed that, until the earlier of the closing date of the merger or the date of termination of the merger agreement, neither Heritage nor Heritage Bank, nor any of their respective officers, directors, agents, representatives or affiliates, including any investment banker, attorney, financial advisor,

accountant or other representative retained by Heritage or Heritage Bank, will solicit or hold discussions or negotiations with, or provide any information to, any person, entity or group concerning any “acquisition transaction.” An “acquisition transaction” is defined in the merger agreement to mean an offer or proposal by a person or entity other than Peoples or Peoples Bank for (i) a merger, tender offer, recapitalization or consolidation, or similar transaction, involving Heritage or Heritage Bank, (ii) a purchase, lease or other acquisition or assumption of all or a substantial portion of the assets of Heritage or Heritage Bank, (iii) a purchase or other acquisition of beneficial ownership of securities representing 20% or more of the voting power of Heritage, or (iv) any substantially similar transaction.

The merger agreement does not prevent Heritage, or its board of directors, from, prior to the approval of the merger by the stockholders of Heritage:

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providing information in response to a request by a person who has made an unsolicited bona fide written proposal to engage in any acquisition transaction (an “acquisition proposal”) after receipt from such person of an executed confidentiality agreement;

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engaging in any negotiations or discussions with a person who has made an acquisition proposal;

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failing to recommend, or withdrawing its recommendation of, the merger agreement and the merger and/or failing to hold the special meeting to consider this agreement; or

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recommending an acquisition proposal to the stockholders of Heritage.

The board of directors of Heritage, however, may only undertake any of the foregoing actions after the board of directors has determined in good faith, after consultation with outside legal counsel or its financial advisers, as appropriate, that (i) such action would be required in order for the directors to fulfill their fiduciary duties under applicable law and (ii) such acquisition proposal both is likely to be consummated, taking into account all aspects of the proposal and the person making the proposal, and, if consummated, would result in a transaction more favorable to Heritage’s stockholders from a financial point of view than the merger with Peoples. Any proposal satisfying (i) and (ii) is a “superior proposal” under the merger agreement.

Heritage must communicate in writing to Peoples the terms of any proposal it receives to engage in an acquisition transaction no more than 48 hours after receipt. Within 10 days of receipt of such communication, Peoples has the right to match or better any superior proposal of which it has been notified. If Peoples notifies Heritage that it will match or better the superior proposal, the merger agreement and the plan of merger must be amended to reflect the matched or bettered terms within two days of Peoples’ decision to so match or better the superior proposal. Upon such amendment, Heritage may not terminate the merger agreement and must notify the party making the superior proposal that such proposal has been matched or bettered and that the merger agreement has been amended to reflect this fact. After such amendment to the merger agreement, Heritage must, and must cause Heritage Bank and its representatives to, cease and terminate all discussions and negotiations regarding the superior proposal. New proposals from the third party may be made, and Peoples retains the same rights set forth above regarding such new proposals. If by the eleventh day after Heritage’s notification that the acquisition proposal is a superior proposal Peoples has not notified Heritage of its decision to match or better the superior proposal, Heritage may terminate the merger agreement and proceed with the superior proposal.

Board Recommendation. Except to the extent as it would cause the directors on Heritage’s board of directors to breach their fiduciary duties under applicable law, the board of directors of Heritage, and any committee of the board, shall not

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withdraw, modify or qualify in any manner adverse to Peoples, the approval of the merger agreement and the plan of merger or its recommendation to stockholders of the approval of the merger agreement and plan of merger, or publicly propose to do any of the foregoing, or take any action or make any statement in connection with the special meeting inconsistent with such approval or its recommendation to the stockholders of Heritage (collectively, a “change in recommendation”);

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approve or recommend, or publicly propose to approve or recommend, any acquisition proposal; or

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cause Heritage to enter into any letter of intent, agreement in principal or similar agreement related to an acquisition transaction.

A change in recommendation shall also include the failure by Heritage’s board of directors to recommend against an unsolicited bona fide written proposal to engage in an acquisition transaction.

Employee Matters. Each employee of Heritage or its subsidiaries who becomes an employee of Peoples or a Peoples subsidiary immediately following the closing date of the merger will be covered by the employee benefits plan of such employee’s employer on substantially the same basis as other employees of the employer performing services in a comparable position. Further, Peoples will provide continuation coverage to all qualified beneficiaries entitled to coverage under Heritage’s medical plan prior to the merger. Notwithstanding the foregoing, such employer may

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continue any of the Heritage benefit plans for transferred employees in lieu of offering participation in its benefit plans providing similar benefits (e.g., medical and hospitalization benefits);

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terminate or amend any of Heritage’s benefit plans; or

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merge any of Heritage’s benefit plans with its own employer benefit plans.

Under any such action, the transferred employees must receive benefits substantially similar to the benefits provided to employees of Peoples generally.

Transferred employees’ service with Heritage or Heritage Bank shall be recognized as service with Peoples or a Peoples subsidiary, as the case may be, for purposes of eligibility to participate and vesting under the benefit plans, policies or arrangements. Peoples has agreed that any preexisting condition, limitation or exclusion in its medical, long-term disability and life insurance plans shall not apply to transferred employees or their covered dependents who are covered under similar plans maintained by Heritage or Heritage Bank to the extent waived or inapplicable to such employee under the Heritage or Heritage Bank plan on the closing date of the merger and who then change coverage to the Peoples medical or hospitalization indemnity health plan. The merger agreement does not restrict the ability of Peoples, Peoples Bank or any other Peoples employer to amend or terminate Heritage’s employee benefit plans in accordance with their terms. Such amendment or termination must affect all covered employees equally.

As of the closing date of the merger, Peoples shall assume and honor in accordance with their terms all employment agreements existing immediately prior to the closing date between Heritage or Heritage Bank and any officer which have been disclosed to Peoples in the merger agreement except that Larry R. Mathews’ employment agreement with Heritage and Heritage Bank will be terminated on the closing date. His new employment agreement with Peoples and Peoples Bank will take effect on the closing date of the merger. Peoples expects that prior to or on the closing date it will enter into amendments to these agreements with William M. Foshee, Robert E. Harwell, Jr., Michael Hockman, David F. Mays and Don H. Pruett.

Following the closing date of the merger, Peoples and Peoples Bank shall maintain any deferred compensation plan, policy, program or arrangement disclosed to Peoples in the merger agreement, provided that Peoples or Peoples Bank may determine to continue, amend, or merge or consolidate any such plan, policy, program or arrangement with any similar arrangement sponsored by Peoples or Peoples Bank. Heritage has agreed to terminate its 401(k) plan immediately prior to the closing date and to distribute amounts under the plan in accordance with and at the times permitted under such benefits plans and under applicable law. Heritage has also agreed to terminate its Employee Stock Purchase Plan on the closing date of the merger. After the closing date of the merger, the right to acquire shares of Heritage common stock under Heritage’s Employee Stock Purchase Plan shall be converted to the right to receive Peoples common stock. The number of shares of Heritage common stock subject to acquisition will be multiplied by 0.20 to determine the amount of shares of Peoples common stock subject to acquisition. The acquisition price for such shares of Peoples common stock will equal the quotient of the acquisition price for the shares determined in accordance with the Employee Stock Purchase Plan, divided by .20

Directors’ and Officers’ Insurance and Indemnification. The merger agreement provides that for a period of six years following the closing date of the merger Peoples will indemnify and hold harmless the duly elected current and former directors and officers of Heritage and Heritage Bank, and their heirs, personal representatives and estates. Peoples will indemnify such individuals against, and shall advance or reimburse any and all costs and expenses of, any judgments, interest, fines, damages or other liabilities, or amounts paid in settlement, as such are incurred in connection with any claim, action, suit or proceeding based upon or arising from the indemnified party’s capacity as an officer or director of Heritage or Heritage Bank. The indemnification will be provided to the same extent as such Heritage directors or officers would be indemnified under the articles of incorporation or bylaws of Peoples if they were directors or officers of Peoples at all relevant times.

The amount of indemnification to be provided by Peoples to all indemnified parties as a group is capped at an amount equal to the sum of $5,000,000 and the policy limits of the directors’ and officers’ liability insurance obtained by Peoples. See “The Merger—Interests of Certain Persons in the Merger.” Peoples has no responsibility as to how such total sum is allocated among that group. Peoples has required that current directors and senior executive officers of Heritage execute a joinder agreement with Peoples. The joinder agreement grants Peoples the right to participate in or completely assume the defense of such officer or director. The agreement also requires such officer or director to cooperate in the defense of any action for which indemnification is sought. Any amounts otherwise owed by Peoples pursuant to its indemnification obligations will be reduced by any amounts that an indemnified party receives from any third party.

Peoples has also agreed to indemnify and hold harmless Heritage, Heritage Bank and each of the directors, officers and controlling persons of either against any losses, claims, damages or liabilities arising under the Securities Act. Peoples will indemnify such individuals only insofar as such losses, claims, damages or liabilities (or actions in respect of any of the foregoing) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in this proxy statement/prospectus, or in any amendment or supplement, or arising out of or based upon the omission or alleged omission to state in any such document a material fact required to be stated or necessary to make the statements in such document not misleading. Peoples will pay or promptly reimburse such person for any legal or other expenses reasonably incurred in connection with investigating or defending any such action or claim. Peoples, however, is not obligated to indemnify such persons with respect to any such loss, claim, damage or liability (or actions in respect of any of the foregoing) which arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in this proxy statement/prospectus, or in any amendment or supplement, in reliance upon information furnished to Peoples by Heritage or Heritage Bank for use in this proxy statement/prospectus. Peoples is entitled to participate in the defense of any such action. If Peoples assumes the defense with counsel satisfactory to the indemnified party, after notice to the indemnified party of its election to assume the defense, Peoples will not be liable for any legal or other expenses of defense incurred by the indemnified party. The indemnification provided in connection with actions arising under the Securities Act is not subject to the aggregate limit of the sum of $5,000,000 and the policy limits of the directors’ and officers’ liability insurance obtained by Peoples described above.

The merger agreement also provides that Peoples shall use reasonable efforts to cause Peoples Bank or Peoples to obtain for a period of six years after the closing date of the merger policies of directors’ and officers’ liability insurance. The policy must cover acts or omissions occurring prior to the closing date of the merger for specified directors and officers of Heritage on terms and in amounts substantially similar to the policies in effect on the date of the merger agreement. However, neither Peoples nor Peoples Bank is required to pay an aggregate premium for such insurance coverage in excess of 200% of the amount for such coverage as currently held by Heritage (which is $5,000,000), but in such case shall purchase as much coverage as reasonably practicable for such amount.

Other Agreements. Heritage has agreed to use its best efforts to cause each “affiliate” of Heritage to agree not to dispose of any shares of Peoples common stock received in the merger except in compliance with the Securities Act and the rules and regulations under such statute. An “affiliate” of Heritage is any person controlling, controlled by or under common control with Heritage.

Each director of Heritage signed an agreement with Peoples on or prior to the closing date of the merger agreement obligating such person to vote his or her shares of Heritage common stock in favor of the merger agreement and the merger. The agreement signed by the non-employee directors contains one other feature: the non-employee director is obligated not to compete with Peoples as provided in the agreement. Copies of the form of these agreements are annexed to this proxy statement/prospectus as Annex B-1 and Annex B-2.

Conditions to the Completion of the Merger

The respective obligations of the parties under the merger agreement to complete the merger shall be subject to the fulfillment on or prior to the closing date of the merger of the following conditions:

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All necessary regulatory or governmental approvals and consents required to complete the merger of Heritage into Peoples and the merger of Heritage Bank into Peoples Bank shall have been obtained, all conditions required to be satisfied prior to the closing date of the mergers by the terms of such approvals and consents shall have been satisfied, and all waiting periods required by law shall have expired.

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All notices, reports and other filings required to be made with any governmental entity prior to the closing date by Peoples or Heritage or any of their respective subsidiaries shall have been made and become final.

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Stockholders of Heritage shall have approved the merger agreement and the merger.

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None of Peoples, Peoples Bank, Heritage or Heritage Bank shall be subject to any governmental or judicial enactment or order which prohibits, restricts or makes illegal completion of the merger.

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All consents or approvals of all persons other than governmental entities required for consummation of the merger shall have been obtained (unless the failure to obtain any such consent or approval would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Heritage, Heritage Bank, Peoples or Peoples Bank).

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The SEC registration statement of which this proxy statement/prospectus forms a part shall have become effective, no stop order suspending its effectiveness shall have been issued, and no proceedings for that purpose shall have been initiated or threatened by the SEC.

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Peoples and the stockholders of Heritage shall have received an opinion of Phelps Dunbar LLP, satisfactory in form and substance to Peoples and Heritage, stating that if the merger is consummated in accordance with the terms described in this proxy statement/prospectus, (i) it will constitute a tax-free reorganization within the meaning of Section 368 of the Internal Revenue Code and (ii) the exchange of Heritage common stock to the extent exchanged for Peoples common stock will not give rise to gain or loss to the stockholders of Heritage with respect to such exchange.

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The shares of Peoples common stock issuable in the merger shall have been approved for listing on the American Stock Exchange on or before the closing date, subject to official notice of issuance.

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Heritage, Heritage Bank and Larry R. Mathews shall have executed a termination and release agreement with respect to Larry R. Matthew’s existing employment agreement and his employment at Heritage and Heritage Bank, and Peoples and Peoples Bank and Larry R. Mathews shall have executed an employment agreement with respect to Larry R. Mathews’ employment as the President of the Alabama Division of Peoples Bank.

The obligations of Peoples and Peoples Bank under the merger agreement to complete the merger are also subject to the fulfillment, on or prior to the closing date of the merger, of the following conditions (any one or more of which may be waived by Peoples to the extent permitted by law):

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Peoples shall have received a certificate from the presidents and chief executive officers of Heritage and Heritage Bank that (i) all obligations of Heritage and Heritage Bank to be performed prior to the closing date of the merger have been performed and complied with in all material respects, and (ii) the representations and warranties of Heritage and Heritage Bank are true and correct in all respects as of

the closing date of the merger as though made at that time (except that those which specifically relate to an earlier date shall be true and correct as of such date), except for any violations or breaches which would not have a material adverse effect on Heritage.

•

All permits, consents, waivers, clearances, approvals and authorizations of all governmental entities (other than banking regulatory authorities) or third parties necessary to consummate the merger shall have been obtained, none of which shall contain any terms or conditions which would materially impair the value of Heritage or Heritage Bank.

•

All permits, consents, waivers, clearances, approvals and authorizations of all banking regulatory authorities necessary to consummate the merger shall have been obtained, none of which shall contain any terms or conditions which would materially impair the value of Heritage or Heritage Bank, and either (i) the terms and conditions of all agreements, memoranda, understandings and arrangements between Heritage, Heritage Bank and their respective banking regulatory authorities shall have been satisfied or the restrictions and limitations thereunder shall have been lifted or (ii) such approvals and authorizations shall not contain any conditions or restrictions with respect to Peoples or Peoples Bank in any way resulting from any such agreement, memoranda, understanding or arrangement.

•

Appraisal rights shall not have been exercised with respect to more than 15% of the outstanding shares of Heritage common stock immediately prior to the merger.

The obligations of Heritage under the merger agreement to complete the merger are also subject to the fulfillment, on or prior to the closing date of the merger, of the following conditions (any one or more of which may be waived by Heritage to the extent permitted by law):

•

Heritage shall have received a certificate from the presidents and chief executive officers of Peoples and Peoples Bank that (i) all obligations of Peoples and Peoples Bank required to be performed prior to the closing date of the merger have been performed and complied with in all material respects, and (ii) the representations and warranties of Peoples and Peoples Bank are true and correct in all respects as of the closing date as though made at that time (except that those which specifically relate to an earlier date shall be true and correct as of such date), except for any violations or breaches which would not have a material adverse effect on Peoples or Peoples Bank.

•

All permits, consents, waivers, clearances, approvals and authorizations of all governmental entities or third parties necessary to consummate the merger shall have been obtained, none of which shall adversely affect the merger consideration to be paid to holders of Heritage common stock.

•

Two qualified directors of Heritage reasonably acceptable to Peoples shall be appointed by Peoples to Peoples’ board of directors and two qualified directors of Heritage Bank reasonably acceptable to Peoples shall be appointed by Peoples to Peoples Bank’s board of directors on the closing date.

•

The shares of Peoples common stock issuable in the merger shall have been approved for listing on the American Stock Exchange (or another exchange or on NASDAQ) and shall not have been delisted, nor shall proceedings to delist such shares have begun.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the closing date of the merger, whether before or after approval of the merger agreement and the merger by Heritage’s stockholders:

•

by mutual written consent of Peoples and Heritage;

•

by Peoples or Heritage if:

•

(i) the closing date of the merger shall not have occurred on or prior to March 31, 2005, unless delayed because approval by a governmental entity is pending and has not been finally resolved, in which event such date shall be automatically extended to June 30, 2005; or (ii) Heritage’s stockholders do not approve the merger agreement and merger at the special meeting. A party may

not terminate the merger agreement if either of the above two events occurs because of that party’s failure to perform or observe its agreements on or before the closing date or such vote, as the case may be;

•

30 days pass after any application for regulatory or governmental approval is denied or withdrawn at the request or recommendation of the governmental entity, unless within such thirty-day period a petition for rehearing or an amended application is filed. A party may terminate thirty or more days after a petition for rehearing or an amended application is denied. No party may terminate when the denial or withdrawal is due to that party’s failure to observe or perform its covenants or agreements;

•

any governmental entity shall have issued a final, non-appealable order prohibiting the completion of the merger; or

•

by Peoples if:

•

Heritage’s board of directors fails to make, withdraws or qualifies the recommendation in this proxy statement/prospectus that Heritage’s stockholders vote to adopt and approve the merger agreement and the merger, or proposes publicly to do any of the foregoing;

•

the special meeting to approve the merger agreement and plan of merger is not called or convened by Heritage;

•

Heritage approves or recommends, or publicly proposes to approve or recommend, an acquisition proposal by a third party;

•

Appraisal rights are exercised with respect to more than 15% of the outstanding shares of Heritage common stock immediately prior to the merger; or

•

the Federal Deposit Insurance Corporation or the Alabama State Banking Department close or order the closing of Heritage Bank.

•

by Heritage if:

•

both (i) the average closing price for a share of Peoples common stock on the “determination date” (defined below) is less than $25.00 and (ii)(a) the quotient obtained by dividing the closing price of a share of Peoples common stock on the determination date by $31.25 is less than (b) the quotient obtained by dividing the index value for the NASDAQ Bank Index on the determination date by such index value on July 12, 2004, less 0.20.

“Determination date” means the five consecutive trading days following the receipt of the last regulatory approval of the merger of Heritage with and into Peoples and Heritage Bank with and into Peoples Bank. If Heritage terminates the merger agreement because the share price targets described above are not met, Peoples may, upon written notice to Heritage within fifteen days of receipt of Heritage’s notice of termination, adjust the number of shares of Peoples common stock into which each share of Heritage common stock will be converted in order to reflect the proportional decrease in the price per share of Peoples common stock and the index value for the NASDAQ Bank Index. In the event that Peoples takes such action, Heritage’s termination of the merger agreement shall be deemed withdrawn.

For example, assume that on the determination date, the average closing price for a share of Peoples common stock is $21.00, the index value for the NASDAQ Bank Index is 2,740.21, and such index value on July 12, 2004 was 2,884.43. Using the formula described in the last bullet-point above, Heritage may terminate the merger agreement, since (i) $21.00 is less than $25.00, and (ii) 0.672 (21.00/31.25) is less than 0.75 ((2,740.21/2,884.43)—0.20). Peoples, however, may elect to increase the exchange ratio from 0.20 to .2381 (based on the calculations set forth below) by delivering written notice to Heritage within the time period specified above.


A	B		C
Average Closing Price for a Share of Peoples Common Stock on the Determination Date	Value of Stock Consideration		Adjusted Exchange Ratio
$25.00	$	5.00	0.2000
24.00		5.00	0.2083
23.00		5.00	0.2174
22.00		5.00	0.2273
21.00		5.00	0.2381
20.00		5.00	0.2500

A		B	C = B/A

Termination Fee

There are three sets of circumstances under which Heritage may owe Peoples a termination fee. In all cases, the termination fee is $2,000,000.

Under the first set of circumstances, prior to any event allowing either party to terminate the merger agreement, an acquisition proposal must have been publicly announced or otherwise made known to Heritage’s senior management, board of directors or stockholders generally and not have been irrevocably withdrawn more than five business days prior to the special meeting. Next, the merger agreement must have been terminated either (i) by Peoples or Heritage, because Heritage’s stockholders failed to approve the merger agreement and the plan of merger or (ii) by Peoples, because of a willful breach by Heritage of any covenant, undertaking, representation or warranty contained in the merger agreement. In such event, if the acquisition transaction is consummated within 12 months of the termination of the merger agreement, then on the date of such consummation Heritage must pay Peoples a fee equal to $2,000,000 by wire transfer of same-day funds.

Alternatively, if Peoples terminates the merger agreement because Heritage either (i) failed to recommend to its stockholders the approval of the merger agreement and the merger, (ii) effected a change in such recommendation, (iii) failed to call or convene the special meeting, or (iv) approved or recommended, or proposed publicly to approve or recommend, any acquisition transaction, then Heritage is required to pay Peoples $2,000,000 by wire transfer of same-day funds. A termination under these circumstances is not effective until Peoples receives such funds.

The final set of circumstances where a termination fee must be paid to Peoples is if Heritage’s board of directors determines in good faith that it would constitute a breach of the board’s fiduciary duties (i) to hold the special meeting, (ii) to fail to terminate the merger agreement and accept an acquisition proposal from a third party or (iii) to not withdraw or modify its recommendation to Heritage’s stockholders to adopt and approve the merger agreement and the merger, then Heritage must pay Peoples $2,000,000 by wire transfer of same-day funds. As above, a termination under these circumstances is not effective until Peoples receives such funds. In no event shall Heritage be required to pay the $2,000,000 fee to Peoples more than once.

If Heritage fails promptly to pay the termination fee and Peoples sues for such fee and wins a judgment against Heritage, Heritage must also pay to Peoples its costs and expenses (including reasonable attorneys’ fees and expenses) in connection with such suit.

COMPARISON OF RIGHTS OF STOCKHOLDERS

OF HERITAGE AND PEOPLES

This section of the proxy statement/prospectus describes material differences between the current rights of the holders of Heritage common stock and rights those stockholders will have as Peoples stockholders following the merger. The following discussion is intended only to highlight material differences between the rights of corporate stockholders under Mississippi law and Delaware law generally and specifically with respect to Heritage stockholders and the holders of Peoples common stock pursuant to the respective certificate/articles of incorporation and bylaws of Heritage and Peoples. The discussion does not constitute a complete comparison of the differences between the rights of such holders or the provisions of the DGCL, the Mississippi Business Corporation Act (the “MBCA”), Peoples’ articles of incorporation, Peoples’ bylaws, Heritage’s certi