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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



(MARK
ONE)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



OR



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



Commission File Number: O-13653



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THE PEOPLES BANCTRUST COMPANY, INC.

(Exact name of registrant as specified on its charter)



|Alabama                                                       |  | 63-0896239                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|310 Broad Street, Selma, Alabama                              |  | 36701                              
|(Address of principal executive offices)                      |  | (Zip Code)                         



(334) 875-1000

(Registrants telephone number, including area code)



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



Indicate by check mark, whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act)     Yes ̈No  x



As of the close of business on November 11, 2003, 5,562,802 shares of the registrants Common Stock, par value $.10 per share, were outstanding.



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PART IFINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



THE PEOPLES BANCTRUST CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                           |  | In Thousands      |        
|-------------------------------------------------------------------------- |  | ----------------- | -------
|                                                                           |  | September 30,2003 |        
|                                                                           |  | (Unaudited)       |        
|ASSETS:                                                                    |  |                   |        
|Cash and due from banks                                                    |  | $                 | 35,778 
|Federal funds sold and securities purchased under agreements to resell     |  |                   | 43,465 
|                                                                           |  |                   |        
|Total cash and cash equivalents                                            |  |                   | 79,243 
|Securities available-for-sale                                              |  |                   | 204,782
|Loans, net of unearned discount                                            |  |                   | 464,239
|Allowance for loan losses                                                  |  |                   | (11,961
|                                                                           |  |                   |        
|Net loans                                                                  |  |                   | 452,278
|                                                                           |  |                  
|Bank premises and equipment, net                                           |  |                   | 15,113 
|Goodwill                                                                   |  |                   | 6,203  
|Other intangible assets                                                    |  |                   | 943    
|Other real estate, net                                                     |  |                   | 8,232  
|Other assets                                                               |  |                   | 18,998 
|                                                                           |  |                   |        
|Total assets                                                               |  | $                 | 785,792
|                                                                           |  |                   |        
|LIABILITIES AND STOCKHOLDERS EQUITY:                                      |  |                   |        
|Noninterest-bearing deposits                                               |  | $                 | 72,287 
|Interest-bearing deposits                                                  |  |                   | 581,238
|                                                                           |  |                   |        
|Total deposits                                                             |  |                   | 653,525
|Federal funds purchased and securities sold under agreements to repurchase |  |                   | 2,275  
|FHLB borrowings                                                            |  |                   | 54,452 
|Other liabilites                                                           |  |                   | 4,391  
|                                                                           |  |                   |        
|Total liabilities                                                          |  |                   | 714,643
|                                                                           |  |                  
|Common stock                                                               |  |                   | 556    
|Additional paid-in-capital                                                 |  |                   | 11,145 
|Accumulated other comprehensive income, net of tax                         |  |                   | 505    
|Retained earnings                                                          |  |                   | 58,943 
|                                                                           |  |                   |        
|Total stockholders equity                                                 |  |                   | 71,149 
|                                                                           |  |                   |        
|Total liabilities and stockholders equity                                 |  | $                 | 785,792
|                                                                           |  |                   |        



See
notes to Unaudited Condensed Consolidated Financial Statements



2



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THE PEOPLES BANCTRUST CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



|                                                    |  | In Thousands, except share and per share data(Unaudited)
|--------------------------------------------------- |  | --------------------------------------------------------
|                                                    |  | Three Months EndedSeptember 30,                         
|                                                    |  | 2003                                                    
|Interest and fees on loans                          |  | $                                                       
|Interest and dividends on investment securities     |  |                                                         
|Other interest income                               |  |                                                         
|                                                    |  |                                                         
|Total interest income                               |  |                                                         
|                                                    |  |                                                         
|Interest on deposits                                |  |                                                         
|Interest on borrowed funds                          |  |                                                         
|                                                    |  |                                                         
|Total interest expense                              |  |                                                         
|                                                    |  |                                                         
|Net interest income                                 |  |                                                         
|                                                    |  |                                                         
|Provision for loan losses                           |  |                                                         
|                                                    |  |                                                         
|Net interest income after provision for loan losses |  |                                                         
|                                                    |  |                                                         
|Net securities gains                                |  |                                                         
|Other noninterest income                            |  |                                                         
|                                                    |  |                                                         
|Total noninterest income                            |  |                                                         
|                                                    |  |                                                         
|Salaries, benefits and other personnel expense      |  |                                                         
|Premises and fixed assets expense                   |  |                                                         
|Other noninterest expense                           |  |                                                         
|                                                    |  |                                                         
|Total noninterest expense                           |  |                                                         
|                                                    |  |                                                         
|Income / (loss) before income taxes                 |  |                                                         
|                                                    |  |                                                         
|Provision for / (benefit from) income taxes         |  |                                                         
|                                                    |  |                                                         
|Net income / (loss)                                 |  | $                                                       
|                                                    |  |                                                         
|Basic weighted average number of shares             |  |                                                         
|Diluted weighted average number of shares           |  |                                                         
|Basic net income / (loss) per share                 |  | $                                                       
|Diluted net income / (loss) per share               |  | $                                                       
|Dividends per share                                 |  | $                                                       



See
notes to Unaudited Condensed Consolidated Financial Statements



3



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THE PEOPLES BANCTRUST CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



|                                                                                     |  | In Thousands                   
|------------------------------------------------------------------------------------ |  | -------------------------------
|                                                                                     |  | (Unaudited)                    
|                                                                                     |  | Three Months EndedSeptember 30,
|                                                                                     |  | 2003                           
|Net income (loss)                                                                    |  | $                              
|Other comprehensive income:                                                          |  |                                
|Unrealized (losses) gains on securities available for sale during the period         |  |                                
|Less: reclassification adjustment for net gains included in net income               |  |                                
|                                                                                     |  |                                
|Other comprehensive (loss) income                                                    |  |                                
|Income tax (benefit) provision related to items of other comprehensive (loss) income |  |                                
|                                                                                     |  |                                
|Other comprehensive (loss) income, net of tax                                        |  |                                
|                                                                                     |  |                                
|Comprehensive (loss) income, net of tax                                              |  | $                              
|                                                                                     |  |                                



See
notes to Unaudited Condensed Consolidated Financial Statements



4



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THE PEOPLES BANCTRUST COMPANY., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW



|                                                            |  | In Thousands                   |         
|----------------------------------------------------------- |  | ------------------------------ | --------
|                                                            |  | (Unaudited)                    |         
|                                                            |  | Nine Months EndedSeptember 30, |         
|                                                            |  | 2003                           |         
|Cash provided by operating activities                       |  | $                              | 4,425   
|                                                            |  |                                |         
|Cash flow from investing activities                         |  |                                |         
|Proceeds from sales of investment securities                |  |                                | 70,352  
|Proceeds from maturities and calls of investment securities |  |                                | 64,424  
|Purchases of investment securities                          |  |                                | (178,032
|Net decrease (increase) in loans                            |  |                                | 35,221  
|Purchases of bank premises and equipment                    |  |                                | (1,604  
|Proceeds from sale of bank premises and equipment           |  |                                | 9       
|Proceeds from sale of other real estate                     |  |                                | 869     
|                                                            |  |                                |         
|Net cash used in investing activities                       |  |                                | (8,761  
|                                                            |  |                               
|Cash flow from financing activities                         |  |                                |         
|Net increase in deposits                                    |  |                                | 56,553  
|Net (decrease) increase in borrowed funds                   |  |                                | (8,696  
|Dividends paid                                              |  |                                | (1,861  
|                                                            |  |                                |         
|Net cash provided by financing activities                   |  |                                | 45,996  
|                                                            |  |                               
|Net increase in cash and cash equivalents                   |  |                                | 41,660  
|Cash and cash equivalents at beginning of period            |  |                                | 37,583  
|                                                            |  |                                |         
|Cash and cash equivalents at end of period                  |  | $                              | 79,243  
|                                                            |  |                                |         
|Cash paid for interest                                      |  | $                              | 9,125   
|                                                            |  |                                |         
|Cash paid for income taxes                                  |  | $                              | 1,855   
|                                                            |  |                                |         



See
notes to Unaudited Condensed Consolidated Financial Statements



5



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THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY



Notes to the Unaudited Condensed Consolidated Financial
Statements



Accounting Policies:



The accompanying unaudited condensed consolidated financial statements of
The Peoples BancTrust Company, Inc, (BancTrust) and its subsidiary, The Peoples Bank and Trust Company (Peoples Bank), along with its subsidiaries Loan Express, Inc. and The Peoples Insurance Agency, Inc. have been prepared
in accordance with generally accepted accounting principles for interim information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations
are not necessarily indicative of the results of operations for the full year or any other interim periods. For further information refer to the consolidated financial statements and footnotes thereto included in BancTrusts Annual Report on
Form 10-K for the fiscal year ended December 31, 2002.



Commitments and Contingencies:



BancTrust and its
subsidiaries are from time to time defendants in legal actions arising from normal business activities. Management does not anticipate that the ultimate liability arising from litigation outstanding at September 30, 2003, will have a materially
adverse effect on BancTrusts financial statements.



Earnings Per Share (EPS):



The following table reflects the reconciliation of the numerator and denominator of the basic EPS computation to the diluted EPS computation for the three and nine months ended September 30, 2003 and 2002 (in thousands, except per share
data):



|                                               |  | Three months endedSeptember 30, 2003  |      |   | Nine months endedSeptember 30, 2003
|---------------------------------------------- |  | ------------------------------------- | ---- | - | -----------------------------------
|                                               |  | Income                                |      |   | Shares                             
|Basic EPS                                      |  |                                       |      |   |                                    
|Income available to common stockholders        |  | $                                     | 235  |   |                                    
|Effect of dilutive securities                  |  |                                       |      |   |                                    
|Stock options                                  |  |                                       |      |   |                                    
|                                               |  |                                       |      |   |                                    
|Diluted EPS                                    |  | $                                     | 235  |   |                                    
|                                               |  |                                      
|                                               |  | Three months ended September 30, 2002 |      |   | Nine months endedSeptember 30, 2002
|                                               |  | Income                                |      |   | Shares                             
|Basic EPS                                      |  |                                       |      |   |                                    
|(Loss) income available to common stockholders |  | $                                     | (401 | ) |                                    
|Effect of dilutive securities                  |  |                                       |      |   |                                    
|Stock options                                  |  |                                       |      |   |                                    
|                                               |  |                                       |      |   |                                    
|Diluted EPS                                    |  | $                                     | (401 | ) |                                    



6



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Stock-Based Compensation



SFAS No. 123, Accounting for Stock-Based Compensation, defines a fair value based method of accounting for an
employee stock option or similar equity instrument. However, SFAS No. 123 allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees. Entities electing to remain with the accounting in Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had
been applied. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. BancTrust has elected to continue to measure compensation cost
for its stock option plans under the provisions in APB Opinion 25 and has calculated the fair value of outstanding options for purposes of pro forma disclosure utilizing the Black-Scholes method.



The majority of BancTrusts options granted in 2003 and 2002 vest
ratably over a period of three years; therefore, for purposes of pro forma disclosures, the compensation expense related to these options has been allocated over the vesting period.



BancTrusts actual and pro forma information follows (in thousands, except per share data):



|                                                                                                                     |  | Three Months Ended |      |                   | Nine Months Ended |      
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---- | ----------------- | ----------------- | -----
|                                                                                                                     |  | September 30,2003  |      | September 30,2002 |                   |      
|                                                                                                                     |  | (unaudited)        |      |                   | (unaudited)       |      
|Net income (loss):                                                                                                   |  |                    |      |                   |                   |      
|As reported                                                                                                          |  | $                  | 235  |                   | $                 | (401 
|Deducts: Total stock-based compensation expense determined under fair value based methods for all awards, net of
tax |  |                    | 28   |                   |                   | (44  
|                                                                                                                     |  |                    |      |                   |                   |      
|Pro forma net income (loss)                                                                                          |  | $                  | 263  |                   | $                 | (445 
|                                                                                                                     |  |                    |      |                   |                   |      
|Basic earnings per share:                                                                                            |  |                    |      |                   |                   |      
|As reported                                                                                                          |  | $                  | 0.04 |                   | $                 | (0.07
|Pro forma                                                                                                            |  | $                  | 0.05 |                   | $                 | (0.08
|Diluted earnings per share:                                                                                          |  |                    |      |                   |                   |      
|As reported                                                                                                          |  | $                  | 0.04 |                   | $                 | (0.07
|Pro forma                                                                                                            |  | $                  | 0.05 |                   | $                 | (0.08



Recent Accounting Pronouncements:



In April 2003, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities, having a required
effective date for contracts entered into after June 30, 2003. The changes in this Statement improve financial reporting by requiring that financial contracts with comparable characteristics be accounted for similarly. In particular, this Statement
(1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS 133, (2) clarifies when a derivative contains a financing component, (3) amends the
definition of an underlying to conform it to language used in FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others and (4) amends certain other
existing pronouncements. The changes will result in more consistent repricing of contracts as either derivatives or hybrid instruments. Management has determined that the adoption of this standard will not have a material impact on the financial
condition or results of operations of BancTrust.



In May 2003,
the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15, 2003. The changes in this Statement require that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. In particular, the changes in this Statement (1) is expected to result in a more complete depiction of an entitys



7



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liabilities and equity and should, thereby, assist investors and creditors in assessing the amount, timing, and likelihood of potential future cash outflows
and equity share issuances, (2) is expected to enhance the relevance of accounting information by providing more information about an entitys obligations to transfer assets or issue shares, thus, improving its predictive value to users.
Reliability of accounting information should be improved by providing a portrayal of an entitys capital structure that is unbiased, verifiable, and more representationally faithful than information reported prior to issuance of this Statement.
Those changes may result in more consistent reporting of these financial instruments. Management does not believe the provisions of this standard will have a material impact on BancTrust. On November 7, 2003, the FASB deferred the effective dates
for certain aspects of SFAS 150, as originally released or amended, related to mandatorily redeemable noncontrolling interests and financial instruments of certain nonpublic entities.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, and
Interpretation of ARB No. 51 (Interpretation 46). Interpretation 46 states that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and results of the activities of the variable
interest entity should be included in the consolidated financial statements of the business enterprise. This Interpretation explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest
entity to decide whether to consolidate that entity. This Interpretation applies immediately to variable interest entities created after January 31, 2002, and to variable interest entities in which an enterprise obtains an interest after that date.
It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. This Interpretation does not apply to
securitization structures that are qualified special purpose entities (QSPE) as defined within SFAS No. 140. Management does not anticipate that BancTrust will be affected by adoption of this Interpretation. As of September 30, 2003,
BancTrust is evaluating low income housing activities as they relate to the consolidation requirements of Interpretation 46, and is awaiting further clarification as to the impact Interpretation 46 may have on trust operations. Based on current
guidance related to Interpretation 46, management does not believe that BancTrust will be materially affected by adoption of this Interpretation.



Financial Guarantees:



Standby letters of credit are commitments issued by BancTrust to guarantee the performance of a customer to a third party. The total amount of standby
letters of credit with off-balance sheet risk as of September 30, 2003 was $22,372,000. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. BancTrust holds various assets as collateral supporting those commitments for which collateral is deemed
necessary. FIN 45 requires the fair value of these commitments be recorded as of January 1, 2003; the fair value of the commitment typically approximates the fee received from the customer for issuing such commitments. The amount recorded on the
balance sheet as of January 1, 2003 was not material to BancTrusts consolidated financial condition.



8



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|Item  2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|-------- |  | --------------------------------------------------------------------------------------



GENERAL



The following analysis focuses on the financial condition and results of operations of BancTrust, and should be read in conjunction with the consolidated
financial statements included in this report.



Managements discussion and analysis includes certain forward-looking statements addressing, among other things, BancTrusts prospects for earnings, asset growth and net interest margin. Forward-looking statements are accompanied
by, and identified with, such terms as anticipates, believes, expects, intends, and similar phrases. Managements expectations for BancTrusts future necessarily involve a number of
uncertainties, assumptions and estimates. Factors that could cause actual results to differ from the expectations expressed herein include: substantial changes in interest rates and changes in the general economy, as well as changes in
BancTrusts strategies for credit-risk management, interest-rate risk management and investment activities. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may
not be realized.



Use of estimates in the preparation of
financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan and lease losses and deferred tax assets or liabilities.



CRITICAL ACCOUNTING POLICIES



Allowance for Loan LossesA loan is considered impaired, based on current information and events, if it is probable that BancTrust will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Uncollateralized loans are measured for impairment based on the present value of expected future cash flows discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair value of the collateral.



BancTrust uses several factors in determining if a loan is impaired. The internal asset classification procedures include a thorough review of significant
loans and lending relationships and include the accumulation of related data. This data includes loan payment status, borrowers financial data, and borrowers operating factors such as cash flows, operating income or loss, etc.



The allowance for loan losses is established through charges
to earnings in the form of a provision for loan losses. Increases and decreases in the allowance due to changes in the measurement of the impaired loans are included in the provision for loan losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest and principal is considered probable. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.



Managements periodic evaluation of the adequacy of the allowance also considers impaired loans and takes into consideration BancTrusts past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, and current economic conditions. While management believes that it has established the allowance in accordance with generally
accepted accounting principles and has taken into account the views of its regulators and the current economic environment, there can be no assurance that in the future BancTrusts regulators or its economic environment will not require further
increases in the allowance.



Income taxesThe
determination of BancTrusts overall income tax provision is complex and requires careful analysis. As part of the overall business strategy, BancTrust may enter into business transactions that require management to consider tax laws and
regulations that apply to the specific facts and circumstances under consideration. This analysis includes evaluating the amount and timing of the realization of income tax liabilities or benefits. Management continually monitors tax developments as
they affect BancTrusts overall tax position.



9



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Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the
period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.



Goodwill and Other Intangible AssetsGoodwill represents the
excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal
rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. On January 1, 2002, BancTrust adopted Statement of Financial Accounting Standards (SFAS) 142,
Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142, goodwill and other intangible assets with indefinite useful lives will no longer be amortized, but instead are tested for impairment as of the date of adoption and at
least annually. Intangible assets that have finite lives continue to be amortized over their estimated useful lives and also continue to be subject to impairment testing. All of BancTrusts other intangible assets have finite lives and are
amortized on an accelerated basis over a period of no more than ten years. Prior to the adoption of SFAS 142, BancTrusts goodwill was amortized over a period of 25 years using the straight-line method.



FINANCIAL CONDITION



Cash and Cash Equivalents



At September 30, 2003, cash and cash equivalents had increased to
$79,243,000, compared to $37,583,000 at December 31, 2002. Reductions in loan volume (see Loans), as well as increases in deposit volume (see Deposits) are the primary factors that contributed to the
aforementioned increase in cash and cash equivalents. Cash and cash equivalents primarily consist of cash and due from banks, combined with federal funds sold and securities purchased under agreements to resell. At September 30, 2003, cash and due
from banks totaled $35,778,000 compared to $28,526,000 at December 31, 2002. Federal funds sold and securities purchased under agreements to resell totaled $43,465,000 and $9,057,000 at September 30, 2003 and December 31, 2002, respectively.



Investments



At September 30, 2003, total investment securities had increased to
$204,782,000 from $163,207,000 at December 31, 2002. Reductions in loan volume (see Loans), as well as increases in deposit volume (see Deposits) contributed to the increase in investment securities, as each of
these fluctuations generated funds that were deployed in the investment securities portfolio.



BancTrust is a participant in the Security for Alabama Funds Enhancement (SAFE) program. Under this program, banks that hold deposits of the State of Alabama, or deposits of SAFE member municipalities
within the State of Alabama (public deposits), must pledge qualifying securities (typically United States Treasury or Agency debt instruments) as collateral for those amounts that exceed the FDIC insurable limit. At September 30, 2003
BancTrust had securities totaling $109,149,000 pledged to the Treasurer of the State of Alabama under the SAFE program.



At year-end 2002, and at September 30, 2003, the entire investment securities portfolio was classified as available-for-sale, resulting in the
portfolio being marked-to-market. At December 31, 2002, the portfolio had a net unrealized gain (net of taxes) of $1,936,000 as compared to a net unrealized gain (net of taxes) of $505,000 at September 30, 2003.



Loans



Total loans, net of the unearned discount, decreased $35,019,000 to $464,239,000 at September 30, 2003, from $499,258,000 at
December 31, 2002. A general decline in overall loan demand contributed significantly to the aforementioned decline in total loans. BancTrust continues to place emphasis on originating loans secured by real estate, as well as on loans to commercial
interests. Particular emphasis is placed on originating commercial real estate loans. The following table indicates each of the major loan categories of BancTrust, and the change in volume of each when comparing September 30, 2003 to December 31,
2002.



10



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|                                          |  | September 30, 2003 |         | December 31, 2002 |   | Change  | 
|----------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------- | 
|                                          |  | (In thousands)     |        
|Commercial and industrial                 |  | $                  | 135,193 |                   | $ | 147,233 | 
|Real estatemortgage                      |  |                    |         |                   |   |         | 
|Commercial                                |  |                    | 181,917 |                   |   | 182,177 | 
|Residential                               |  |                    | 92,477  |                   |   | 106,565 | 
|Personal                                  |  |                    | 53,914  |                   |   | 62,522  | 
|Overdrafts and credit line                |  |                    | 1,693   |                   |   | 1,918   | 
|                                          |  |                    |         |                   |   |         | 
|Total loans                               |  |                    | 465,194 |                   |   | 500,415 | 
|Less:                                     |  |                    |         |                   |   |         | 
|Unearned discount                         |  |                    | 955     |                   |   | 1,157   | 
|                                          |  |                    |         |                   |   |         | 
|Total loans, net of the unearned discount |  | $                  | 464,239 |                   | $ | 499,258 | 
|                                          |  |                    |         |                   |   |         | 



Commercial and
industrial loans declined from $147,233,000 at December 31, 2002 to $135,193,000 at September 30, 2003. Reduced demand for commercial and industrial loans was the primary contributing factor to this decline.



Real estate loans decreased $14,348,000 to $274,394,000 at September 30, 2003
from $288,742,000 at December 31, 2002. While BancTrust continues to place emphasis on originating loans that are secured by real estate, demand for new real estate loans has not been sufficient to offset the repayment frequency of existing real
estate loans within the portfolio.



Personal real estate loans
account for the largest decrease in the overall loan portfolio. Management attributes this decline to customer refinancing of existing mortgage loans, in order to benefit from the current interest rate environment, which is at historically low
levels. BancTrust has opted not to market long term, fixed rate residential mortgage products that would be competitive in the current interest rate market.



Personal loans decreased from $62,522,000 at December 31, 2002 to $53,914,000 at September 30, 2003. Both increased competition from alternative sources
of credit and an increased level in denials of personal loan applications were the primary causes of the decrease in the personal loan portfolio. Alternative sources of credit primarily include credit cards and finance companies. BancTrust continues
to decline a significant portion of personal loan applications, due in large part to existing debt levels of personal loan applicants.



Allowance for Loan Losses



Managements estimate of uncollectible amounts within BancTrusts loan portfolio is represented by the allowance for loan losses. The allowance
for loan losses is established through charges against earnings in the form of a provision for loan losses. A loan is charged against the allowance for loan losses when management determines that it is probable that BancTrust will not recover the
entire loan balance, either through repayment by the customer or from collateral proceeds. Should a loan that has been charged off be recovered, either partially or entirely, it is credited back to the allowance. Periodic reviews of the loan
portfolio that include analysis of such factors as current and expected economic conditions, historical loss experience and levels of non-accruing loans and delinquencies, determine the appropriate level at which to maintain the allowance for loan
losses. Because the allowance is based on assumptions and subjective judgments, it is not necessarily reflective of the charge-offs that may ultimately occur.



Management monitors and evaluates all loans, in an effort to identify those which currently possess, or otherwise indicate characteristics of weakness,
potential weakness or non-conformity with their original terms. A loan is evaluated in light of its performance against its original stated terms, the fair market value of the collateral securing the loan, known or anticipated economic events and or
trends, and the on-going credit worthiness of the borrower and any guarantors. If when a loan is evaluated, there is determined to be a deficiency (or deficiencies) in any of the aforementioned areas, the loan is added to a list of loans which are
subject to heightened scrutiny, and for which additional loss reserves are maintained, depending on the magnitude of the deficiencies. The loan continues to be monitored closely, which may include modifications through negotiations with the
borrower. Such



11



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modifications may include, but are not limited to, the assignment of additional collateral, the modification of repayment terms and the procurement of a
guarantor(s). Only after the loan has been paid back in full, or performs in a favorable manner for a sustained period of time with all identified deficiencies having been duly discharged and documented, will the loan no longer receive the
exceptionally close and frequent monitoring previously described.



Management has set about to design and implement a loan monitoring and review process that significantly refines the criteria by which loans are determined to require special attention. By doing this, it has been managements intent to
bring into focus those areas of its lending function that would benefit most from increased efforts in areas such as lender training, credit underwriting and loan relationship management. Management has been, and remains firmly committed to devoting
the necessary time, energy and other resources to the issue of credit quality. Also, management believes strongly that its efforts in the area of credit quality will produce positive results.



Late in 2002, BancTrust separated its credit function into two primary areas.
The first is loan production. This area is dedicated to the solicitation and origination of quality loans under the supervision of a Senior Lender. Second is credit administration. Credit administration operates independently from loan production
and the Senior Lender. The Senior Credit Officer was designated an executive level position, and is overseeing the operations of credit administration. Credit administration is charged with developing and nurturing a conceptual framework and
operational environment that will produce thorough and unbiased opinions, inquiries and analysis on various loan proposals.



BancTrust has engaged an independent credit risk consulting firm to assist in various areas of its credit functions. This firm has assisted BancTrust in
establishing credit underwriting methodologies, as well as in providing guidance on the timely recognition of problem credits by lenders, and lender training. Other actions BancTrust is currently considering or otherwise implementing include, but
are not limited to, the centralization of several of its credit functions. Examples of these functions include: loan documentation review, collections, repossessions and the disposition of collateral pledged on defaulted loans.



At September 30, 2003, BancTrusts allowance for loan losses had a
balance of $11,961,000, as compared to $10,257,000 at December 31, 2002. The ratio of the allowance to total loans, net of the unearned discount, was 2.58% and 2.05% at September 30, 2003 and December 31, 2002, respectively. As a percentage of total
loans, net of the unearned discount, non-accruing loans decreased to .50% at September 30, 2003, compared to 1.23% at December 31, 2002. The coverage of the allowance to non-accruing loans was 520% and 167% at September 30, 2003 and December 31,
2002, respectively.



Loans requiring special attention because
of potential weakness (special attention loans) increased to $62,392,000 at September 30, 2003 from $45,184,000 at December 31, 2002. Special attention loans are comprised of those loans classified as substandard or
doubtful, within the classification process used by BancTrust in its loan review function. At September 30, 2003, approximately $7,849,000 of the $11,961,000 allowance for loan losses was allocated to special attention loans. As
BancTrust has implemented the aforementioned refinements to its loan monitoring and review processes, it has identified an increased volume of loans that meet the criteria of special attention loans. Additionally, continued softness in local,
regional and national economies contributed to the increase in special attention loans. The majority of the increase in special attention loans (approximately $16,390,000) was in real estate loans. Real estate loans comprise the largest segment of
BancTrusts loan portfolio (see Loans), therefore management considers it reasonable that the majority of the increase in special attention loans would be attributable to real estate loans. The following table indicates the
loan charge off and recovery activity of BancTrust for both the three and nine months ended September 30, 2003 and 2002.



12



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|                                           |  | Three MonthsEnded September 30, |       |   | Nine MonthsEnded September 30, |  
|------------------------------------------ |  | ------------------------------- | ----- | - | ------------------------------ | -
|                                           |  | (unaudited)                     |       |   | (unaudited)                    |  
|                                           |  | 2003                            |       |   | 2002                           |  
|                                           |  | (In Thousands)                  |      
|Loans charged-off                          |  | $                               | 2,540 |   |                                | $
|Recoveries of loans previously charged off |  |                                 | (257  | ) |                                |  
|                                           |  |                                 |       |   |                                |  
|Net loans charged-off                      |  | $                               | 2,283 |   |                                | $
|                                           |  |                                 |       |   |                                |  



Deposits



Total deposits at September 30, 2003 were $653,525,000, representing a
$56,553,000 increase over the December 31, 2002 total of $596,972,000. Noninterest bearing deposits increased $5,082,000, from $67,205,000 at December 31, 2002 to $72,287,000 at September 30, 2003. Interest bearing deposits increased $51,471,000,
from $529,767,000 at December 31, 2002 to $581,238,000 at September 30, 2003.



BancTrust believes that noninterest bearing deposits have increased as many of its customers have kept funds out of the capital markets given recent performance. Additionally, BancTrust believes many of its customers
are curtailing spending in light of the continued softness in local, regional and national economies, thereby keeping funds on deposit rather than spending them.



The most significant increase in interest bearing deposits was in time deposits. At September 30, 2003, time deposits
totaled $330,538,000, which was an increase of $20,332,000 when compared to the December 31, 2002 total of $310,206,000. The majority of this increase is accounted for in BancTrust having accepted $10,000,000 in time deposits placed by brokers
(brokered deposits) in February of 2003. This brought to approximately $30,000,000 the total of brokered deposits held by BancTrust. Brokered deposits are more likely to be withdrawn from BancTrust upon maturity than other more
traditional types of deposits. These deposits are fully insured by the Federal Deposit Insurance Corporation and are deployed by management to meet short-term funding needs. The balance of the increase in time deposits is considered to be the result
of increased marketing efforts by BancTrust of its time based deposit products. Such efforts include, but are not limited to, target advertising, and the offering of time deposit products with what would be considered non-typical maturity terms and
interest rates.



Liquidity



Liquidity describes BancTrusts ability to meet its needs for cash.
Those needs primarily include lending, withdrawal demands of customers and the payment of operating expenses.



Liquidity management is crucial in ensuring that BancTrust is able to conduct its day-to-day business. Without proper liquidity management, BancTrust
would be restricted in its activities as a financial institution, including its ability to meet the needs of the communities it serves.



Typically, increasing the liquidity of BancTrust would serve to reduce its profits as a result of reduced earnings from assets with shorter maturities.
Estimating liquidity needs is made more complex by the fact that certain balance sheet components are, by nature, more controllable by management than others. For example, the maturity frequency of the securities portfolio is generally manageable at
the time investment decisions are made. However, deposits flowing into and out of BancTrust are much less predictable and controllable by management. Monitoring liquidity needs and the changing relationships between certain balance sheet components
is the responsibility of BancTrusts Asset Liability Committee (ALCO) (seeInterest Rate Risk).



The asset items that are BancTrusts primary sources of liquidity are federal funds sold and securities purchased under agreements to resell, and
cash and due from banks. At September 30, 2003, federal funds sold and securities purchased under agreements to resell totaled $43,465,000, representing a $34,408,000 increase over the



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December 31, 2002 total of $9,057,000. This increase is primarily attributed to increases in total deposits (see Deposits) and decreases
in total loans (see Loans).



The asset base
also provides liquidity through interest and fee income on loans, loan repayments and the maturity or sales of other earning assets, including securities. BancTrusts securities are generally high grade and exchange traded. At September 30,
2003, the entire investment securities portfolio of BancTrust was classified as available-for-sale (see Investments).



The liability base provides liquidity through deposit growth, the rollover of maturing deposits and accessibility to external sources of funds,
(borrowed funds). Borrowed funds totaled $56,727,000 at September 30, 2003, compared to $67,478,000 at December 31, 2002. This decrease in borrowed funds is primarily attributable to the repayment by BancTrust of a $10 million Federal
Home Loan Bank of Atlanta (FHLB) advance in February, 2003. BancTrust has several available sources from which to borrow funds. The predominant source of borrowed funds utilized by BancTrust is the FHLB. At September 30, 2003, BancTrust
had borrowed from FHLB, $54,452,000. When combined with approximately $18,500,000 of guarantees on commercial letters of credit provided by the FHLB, BancTrust had approximately $72,952,000 of active credit facilities at the FHLB on September 30,
2003. Total credit facilities available to BancTrust at the FHLB totaled approximately $75,800,000 on September 30, 2003. At September 30, 2003, BancTrust had unused federal funds lines of credit with correspondent financial institutions of
approximately $44,000,000.



Stockholders Equity and Regulatory Capital



At September 30, 2003, total stockholders equity
was $71,149,000 compared to $71,181,000 at December 31, 2002. This change represents a decrease of $32,000 that is accounted for as follows: net income$3,234,000, dividends declared and paid$1,835,000 and a decrease in accumulated other
comprehensive income, net of tax of $1,431,000. Net income had the effect of increasing stockholders equity, while dividends declared and paid and the decrease in accumulated other comprehensive income, net of tax had the effect of lowering
stockholders equity.



Risk-based capital regulations
require all bank holding companies and banks to achieve and maintain a minimum total capital to risk based assets ratio of 8%, at least half of which must be in the form of Tier 1 capital (consisting of stockholders equity less goodwill, other
qualifying intangible assets and allowance for loan losses). The following table indicates the risk-based capital ratios of BancTrust and Peoples Bank at September 30, 2003.



|                                  |  | Risk-Based Capital Ratios & Leverage Ratios As of September 30, 2003 |        
|--------------------------------- |  | -------------------------------------------------------------------- | -------
|RISK-BASED CAPITAL RATIOS         |  | Dollars in Thousands                                                 |        
|                                  |  | BancTrust                                                            |        
|Tier 1 Capital                    |  | $                                                                    | 63,498 
|Tier 1 Capital  Minimum Required |  |                                                                      | 21,856 
|                                  |  |                                                                      |        
|Excess                            |  | $                                                                    | 41,642 
|                                  |  |                                                                      |        
|Total Capital                     |  | $                                                                    | 70,404 
|Total Capital  Minimum Required  |  |                                                                      | 43,713 
|                                  |  |                                                                      |        
|Excess                            |  | $                                                                    | 26,691 
|                                  |  |                                                                      |        
|Net risk-weighted assets          |  | $                                                                    | 546,409
|                                  | 
|LEVERAGE RATIOS                   |  |                                                                      |        
|Total Tier 1 Capital              |  | $                                                                    | 63,498 
|Minimum Leverage Requirement      |  |                                                                      | 30,999 
|                                  |  |                                                                      |        
|Excess                            |  | $                                                                    | 32,499 
|                                  |  |                                                                      |        
|Average Total Assets,             |  |                                                                      |        
|Net of all intangibles            |  | $                                                                    | 774,970



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Interest Rate Risk



The profitability of most financial institutions, including BancTrust, is greatly dependent on net interest income. Given this, management believes
changes in interest rates impact BancTrusts profitability to a greater extent than the effects of general inflation levels. Interest rates do not always move with the same magnitude, or in the same direction, as inflation. When
interest-earning assets are repricing to market rate levels at a different pace than interest-bearing liabilities, net interest income is affected either positively or negatively, depending on the direction market rates are moving. When interest
rates are volatile, liquidity and maturity of BancTrusts assets and liabilities is crucial in maintaining desired performance levels. Interest rates are highly sensitive to many factors, including Federal Reserve monetary policies and domestic
and international political conditions such as inflation, recession, unemployment, money supply and government borrowing. Other factors beyond managements control may also affect interest rates. Management is unable to predict the future of
interest rate movements; therefore, management attempts to strike a relative balance between rate sensitive assets and liabilities. This strategy is designed to protect BancTrusts profitability against radical shifts in interest rate levels.



In June of 2002, BancTrust entered into an agreement known as
an interest rate swap. Interest rate swaps are typically used to mitigate exposure to interest rate risk. Pursuant to the agreement, BancTrust is receiving payment from its counterparty for the same amount of interest it is being charged
on a $12,000,000 loan from FHLB, which bears an interest rate of 6.85%. In turn, BancTrust pays its counterparty an amount equal to the three month London Inter-Bank Offering Rate (LIBOR) plus 2.61% on a specified day each calendar
quarter. The interest rate swap qualifies for treatment under the short-cut method of accounting; therefore, fluctuations in the fair value of the interest rate swap are fully offset by fluctuations in the fair value of the underlying debt and have
no effect on the results of operations of BancTrust.



The
process of measuring, compiling and analyzing the maturity and repricing dynamics of interest sensitive assets and interest sensitive liabilities is referred to as, asset liability management (ALM). BancTrust has established
an ALCO (seeLiquidity), consisting of the Chief Executive Officer, Chief Financial Officer, Risk Management Officer, Senior Lender, Chief Investment Officer, Retail Division Manager, Senior Credit Officer and the Principal
Accounting Officer. The ALCO is responsible for ensuring that the relationship of interest sensitive assets and liabilities, as defined by their respective maturity and repricing characteristics, does not become so mismatched as to expose BancTrust
to unacceptable levels of risk in the areas of equity capital valuation, earnings or liquidity. ALCO achieves its objectives via regular meetings where various data relating to specific liquidity and interest rate issues are presented and discussed.
At least quarterly, ALCO utilizes an interest rate risk computer model which compiles the detailed repricing and maturity characteristics of BancTrusts interest sensitive instruments (both assets and liabilities), and produces various reports
and supporting detail, which indicate BancTrusts overall interest rate risk status.



RESULTS OF OPERATIONS



Three Months
Ended September 30, 2003, Compared to Three Months Ended September 30, 2002



Like many financial institutions, the profitability of BancTrust is largely dependent on the net interest income it is able to generate. Simply stated, net interest income is the difference between the interest earned
on loans and investments (interest earning assets), and the interest expense paid on deposits and borrowings (interest bearing liabilities). Market rates of interest were generally lower during the three months ended
September 30, 2003 (the 2003 quarter) than during the three months ended September 30, 2002 (the 2002 quarter). It is primarily because of lower interest rates that the interest income BancTrust earned on its interest earning
assets in the 2003 quarter was lower than in the 2002 quarter. Also, the interest expense BancTrust paid on its interest bearing liabilities was lower in the 2003 quarter than in the 2002 quarter. The reduction in interest expense was not sufficient
to fully offset the reduction in interest income, thereby resulting in lower net interest income in the 2003 quarter compared to the 2002 quarter.



Interest income for the 2003 quarter totaled $9,461,000. For the 2002 quarter interest income totaled $11,158,000. This decrease is primarily due to a
decrease in the average yield earned on interest-earning assets. As BancTrust experienced decreased demand for loans (see Loans), available funds were deployed in the lower yielding short-term investments and investment securities
portfolios. In the 2003 quarter, the average annual yield earned on interest-earning assets was 5.22%, compared to 6.69% for the 2002 quarter. For the 2003 and 2002 quarters, the average volume of interest-earning assets totaled $718,922,000 and
$662,119,000, respectively.



15



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Interest income earned on investment securities in the 2003 quarter totaled $1,388,000, compared to
$1,986,000 for the 2002 quarter. The investment securities portfolio earned an average annual yield of 3.04% on average volume of $181,016,000 in the 2003 quarter, and 4.80% on average volume of $164,209,000 in the 2002 quarter. Given the decrease
in demand for loans, available funds were placed in the investment securities portfolio in order to earn higher rates of return than would have been earned had the funds been placed in, or remained in, cash equivalent instruments such as federal
funds sold or securities purchased under agreements to resell. Consequently, the average balance of investment securities increased. Lower market rates of interest in the 2003 quarter than in the 2002 quarter contributed to the reduction in the
average annual yield earned on investment securities between the two periods.



Interest and fee income earned on loans totaled $7,925,000 in the 2003 quarter, which was a decrease from the 2002 quarter total of $9,091,000. This decrease is attributable to reductions in both the average annual
yield earned, as well as the average volume of loans in the 2003 quarter compared to the 2002 quarter. In the 2003 quarter, the loan portfolio generated an average annual yield of 6.60% on average volume of $476,224,000. In the 2002 quarter, the
loan portfolio generated an average annual yield of 7.36% on average volume of $489,815,000. Lower market rates of interest in the 2003 quarter than in the 2002 quarter were the primary reason for the decreased loan yields. The decrease in the
average volume of loans was primarily attributable to lower loan demand (see Loans).



In the 2003 quarter, interest and fee income on real estate loans totaled $4,770,000 compared to $5,262,000 in the 2002 quarter. This reduction is
attributable to decreases both the average annual yield earned on real estate loans and the average volume of real estate loans from the 2002 quarter to the 2003 quarter. In the 2003 quarter, real estate loans earned an average annual yield of 6.71%
on average volume of $282,013,000. In the 2002 quarter, the average annual yield earned was 7.20% on average volume of $289,866,000. The primary reason for the reduction in the average annual yield earned on real estate loans between the two
quarters is that market rates of interest were generally lower in the 2003 quarter compared to the 2002 quarter. . The decrease in the average volume of real estate loans was primarily attributable to lower demand levels.



Interest and fee income on business loans totaled $1,811,000 in the 2003
quarter, and $2,045,000 in the 2002 quarter. The average volume of business loans increased from the 2002 quarter to the 2003 quarter, while the average annual yield decreased. It was primarily the decrease in the average yield earned on business
loans that caused the decrease in interest income between the two quarters, given the increase in average balances. Business loans earned an average annual yield of 5.24% on average volume of $137,198,000 in the 2003 quarter, and an average annual
yield of 6.12% on average volume of $132,604,000 in the 2002 quarter. Lower market rates of interest contributed to the decline in the average annual yield earned on business loans between the two quarters.



Interest and fee income on personal loans totaled $1,344,000 and $1,784,000
for the 2003 and 2002 quarters, respectively. This was the result of decreases in both the average annual yield earned and average volume in the 2003 quarter compared to the 2002 quarter. In the 2003 quarter, personal loans earned an average annual
yield of 9.35% on an average volume of $57,013,000. In the 2002 quarter, personal loans earned an average annual yield of 10.51% on an average volume of $67,345,000. Lower market interest rates, as well as fewer personal loan originations,
contributed to lower yields and average volumes in the 2003 quarter.



Interest expense on deposits in the 2003 quarter totaled $2,400,000, compared to $2,725,000 for the 2002 quarter. The largest factor in this reduction was the average annual rate of interest paid on interest bearing deposits between the two
quarters. In the 2003 quarter, the average annual rate of interest paid on interest bearing deposits was 1.66%, compared to 2.12% in the 2002 quarter. The average volume of interest bearing deposits increased significantly in the 2003 quarter,
compared to the 2002 quarter (see Deposits). In the 2003 quarter, the average volume of interest bearing deposits totaled $572,698,000 and in the 2002 quarter totaled $510,709,000. The decline in general market interest rates is
the primary reason for the decrease in the average rate of interest paid on interest bearing deposits between the two quarters.



Interest expense on borrowed funds, including federal funds purchased and securities sold under agreements to repurchase, totaled $588,000 in the 2003
quarter and $792,000 in the 2002 quarter. Reductions in both the average annual rate of interest paid and the average volume are the primary reasons for the decline in interest expense on borrowed funds between the 2002 and 2003 quarters. In the
2003 and 2002 quarters, the average annual rate of interest paid on borrowed funds was 4.07% and 4.62%, respectively. The average volume of borrowed funds for the 2003 and 2002 quarters was $57,349,000 and $68,080,000, respectively.



16



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The resulting net interest income for the 2003 quarter totaled $6,473,000, compared to $7,641,000 for the
2002 quarter. When expressed as an average annual rate, net interest income as a percent of average earning assets is referred to as the net interest margin. The net interest margin for the 2003 quarter was 3.57%, compared to 4.58% for
the 2002 quarter. The following table illustrates the changes, and causes of those changes, in each line item that makes up net interest income for the 2003 quarter compared to the 2002 quarter.



ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

for the three months ended September 30, 2003

(In Thousands)



|                                                                       |  | 2003 Compared to 2002 |       
|---------------------------------------------------------------------- |  | --------------------- | ------
|                                                                       |  | Total                 |       
|Interest income on:                                                    |  |                       |       
|Loans                                                                  |  | $                     | (1,166
|Investment securities                                                  |  |                       | (598  
|Federal funds sold and securities purchases under agreements to resell |  |                       | 67    
|                                                                       |  |                       |       
|Total interest income                                                  |  | $                     | (1,697
|                                                                       |  |                       |       
|Interest expense on:                                                   |  |                       |       
|Interest bearing deposits                                              |  | $                     | (325  
|Borrowed funds                                                         |  |                       | (204  
|                                                                       |  |                       |       
|Total interest expense                                                 |  | $                     | (529  
|Net change in net interest income before loan losses                   |  | $                     | (1,168
|                                                                       |  |                       |       



|(1) |  | Increases (decreases) are attributed to volume changes and rate changes on the following
basis: Changes in Volume = change in volume times old rate. Changes in Rates = change in rate times old volume. The mix change = change in volume times change in rate.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provision for loan losses in the 2003 quarter totaled $2,280,000, compared to $4,375,000 in the 2002 quarter. (see
Allowance for Loan Losses).



Realized gains
on securities sold totaled $403,000 in the 2003 quarter and $121,000 in the 2002 quarter. Other noninterest income totaled $2,407,000 in the 2003 quarter, and $2,161,000 in the 2002 quarter. Comparing the 2003 quarter to the 2002 quarter, BancTrust
realized increased noninterest income associated with the issuance of letters of credit, trust operations, secondary market real estate loan originations and the operation of a commercial property it took possession of in lieu of foreclosure in
August of 2002. Additionally, BancTrust realized lower levels of noninterest income for the same period on deposit service charges and its accounts receivable management service.



Noninterest expense increased from $6,145,000 in the 2002 quarter to $6,666,000 in the 2003 quarter. Management places
significant focus on the area of noninterest expense. Salaries and benefits expenses declined slightly, while premises and equipment as well as other noninterest expenses increased.



BancTrust realized approximately $151,000 less in salaries and benefits expense in the 2003 quarter than in the 2002
quarter, as personnel cost control initiatives continued to take effect. Premises and fixed assets expense increased to $1,481,000 in the 2003 quarter from $1,088,000 in the 2002 quarter. The primary factors contributing to the increase in premises
and fixed assets expenses were expenses associated with data and communications infrastructure upgrades. Other noninterest expense increased to $1,855,000 in the 2003 quarter from $1,576,000 in the 2002 quarter. This increase was primarily
attributable to fees paid to a credit management consulting firm engaged by BancTrust to assist in credit administration initiatives (see Allowance for Loan Losses), increased professional services fees associated with compliance
initiatives related to the Sarbanes-Oxley Act of 2002, as well the recognition of expenses associated with a consulting agreement between BancTrust and a former senior



17



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executive. It is managements belief that it must continually endeavor to reduce these expenses while maintaining adequate staffing and facilities to
compete effectively in its markets.



Nine Months Ended September 30, 2003,
Compared to Nine Months Ended September 30, 2002



Like the
2003 quarter compared to the 2002 quarter, market rates of interest were generally lower during the nine months ended September 30, 2003 (YTD 2003) than during the nine months ended September 30, 2002 (YTD 2002). It is
primarily because of lower interest rates that the interest income BancTrust earned on its interest earning assets in YTD 2003 was lower than in YTD 2002. Also, the interest expense BancTrust paid on its interest bearing liabilities was lower in the
same period. The reduction in interest expense was not sufficient to fully offset the reduction in interest income, thereby resulting in lower net interest income in YTD 2003 compared to YTD 2002.



Interest income for YTD 2003 totaled $29,213,000. For YTD 2002 interest
income totaled $33,140,000. This decrease is primarily due to a decrease in the average annual yield earned on interest-earning assets. As BancTrust experienced decreased demand for loans (see Loans), available funds were deployed
in the lower yielding short-term investments and investment securities portfolios. In YTD 2003, the average annual yield earned on interest-earning assets was 5.53%, compared to 6.79% for YTD 2002. For YTD 2003 and YTD 2002, the average volume of
interest-earning assets totaled $705,925,000 and $652,250,000, respectively.



Interest income earned on investment securities in YTD 2003 totaled $4,385,000 compared to $5,921,000 for YTD 2002. The investment securities portfolio earned an average annual yield of 3.35% on average volume of
$175,201,000 in YTD 2003, and 4.92% on average volume of $161,008,000 in YTD 2002. Given the decreased demand for loans (see Loans), available funds were placed in the investment securities portfolio in order to earn higher rates
of return than would have been earned had the funds been placed in, or remained in, cash equivalent instruments such as federal funds sold or securities purchased under agreements to resell. Consequently, the average balance of investment securities
increased. Lower market rates of interest in YTD 2003 than in YTD 2002 contributed to the reduction in the average annual yield earned on investment securities between the two periods.



Interest and fee income earned on loans totaled $24,490,000 in YTD 2003, which was a decrease from the YTD 2002 total of
$26,981,000. This decrease is primarily attributable to a decrease in the average annual yield earned on loans in YTD 2003 compared to YTD 2002, given that the average volume increased between the two periods. In YTD 2003, the loan portfolio
generated an average annual yield of 6.68% on average volume of $490,153,000. In YTD 2002, the loan portfolio generated an average annual yield of 7.55% on average volume of $477,986,000. Lower market rates of interest in YTD 2003 than in YTD 2002
was the primary reason for the decreased loan yields.



In YTD
2003, interest and fee income on real estate loans totaled $14,428,000 compared to $15,537,000 in YTD 2002. This reduction is primarily attributable to a decrease in the average annual yield earned on real estate loans from YTD 2002 to YTD 2003. The
average volume of real estate loans increased between the two periods. In YTD 2003, real estate loans earned an average annual yield of 6.69% on average volume of $288,452,000. In YTD 2002, the average annual yield earned was 7.39% on average volume
of $281,174,000. The primary reason for the reduction in the average annual yield earned on real estate loans between the two periods is that market rates of interest were generally lower in YTD 2003 compared to YTD 2002.



Interest and fee income on business loans totaled $5,763,000 in YTD 2003, and
$5,835,000 in YTD 2002. The average volume of business loans increased from YTD 2002 to YTD 2003, while the average annual yield decreased. It was primarily the decrease in the average annual yield that caused the decrease in interest income between
the two periods. Business loans earned an average annual yield of 5.42% on average volume of $142,085,000 in YTD 2003, and an average annual yield of 6.12% on average volume of $127,374,000 in YTD 2002. Lower market rates of interest contributed the
decline in the average annual yield earned on business loans between the two periods.



18



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Interest and fee income on personal loans totaled $4,298,000 and $5,609,000 for YTD 2003 and YTD 2002,
respectively. This was the result of decreases in both the average annual yield earned and average volume in YTD 2003 compared to YTD 2002. In YTD 2003, personal loans earned an average annual yield of 9.64% on average volume of $59,617,000. In YTD
2002, personal loans earned an average annual yield of 10.80% on average volume of $69,438,000. Lower market interest rates, as well as fewer personal loan originations (see Loans), contributed to lower yields and average volumes
in YTD 2003.



Interest expense on deposits in YTD 2003 totaled
$7,248,000, compared to $8,574,000 for YTD 2002. The largest factor in this reduction was the average annual rate of interest paid on interest bearing deposits between the two periods. In YTD 2003, the average annual rate of interest paid on
interest bearing deposits was 1.75%, compared to 2.28% in YTD 2002. The average volume of interest bearing deposits increased significantly in YTD 2003, compared to YTD 2002 (see Deposits). In YTD 2003, the average volume of
interest bearing deposits totaled $555,321,000 and in YTD 2002 totaled $501,922,000. The decline in general market interest rates is the primary reason for the decrease in the average rate of interest paid on interest bearing deposits between the
two quarters.



Interest expense on borrowed funds, including
federal funds purchased and securities sold under agreements to repurchase, totaled $1,828,000 in YTD 2003 and $2,482,000 in YTD 2002. Reductions in both the average annual rate of interest paid and the average volume are the primary reasons for the
decline in interest expense on borrowed funds between YTD 2002 and YTD 2003. In YTD 2003 and YTD 2002, the average annual rate of interest paid on borrowed funds was 4.13% and 5.22%, respectively. The average volume of borrowed funds for YTD 2003
and YTD 2002 was $59,104,000 and $63,517,000, respectively.



The resulting net interest income for YTD 2003 totaled $20,137,000, compared to $22,084,000 for YTD 2002. The net interest margin for YTD 2003 was 3.81%, compared to 4.53% for YTD 2002. The following table illustrates the changes, and
causes of those changes, in each line item that makes up net interest income for YTD 2003 compared to YTD 2002.



ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

for the nine months ended
September 30, 2003

(In Thousands)



|                                                                       |  | 2003 Compared to 2002 |       
|---------------------------------------------------------------------- |  | --------------------- | ------
|                                                                       |  | Total                 |       
|Interest income on:                                                    |  |                       |       
|Loans                                                                  |  | $                     | (2,491
|Investment securities                                                  |  |                       | (1,536
|Federal funds sold and securities purchases under agreements to resell |  |                       | 100   
|                                                                       |  |                       |       
|Total interest income                                                  |  | $                     | (3,927
|                                                                       |  |                       |       
|Interest expense on:                                                   |  |                       |       
|Interest bearing deposits                                              |  | $                     | (1,326
|Borrowed funds                                                         |  |                       | (654  
|                                                                       |  |                       |       
|Total interest expense                                                 |  | $                     | (1,980
|Net change in net interest income before loan losses                   |  | $                     | (1,947
|                                                                       |  |                       |       



|(1) |  | Increases (decreases) are attributed to volume changes and rate changes on the following basis:
|--- |  | -----------------------------------------------------------------------------------------------



Changes in Volume = change in volume times old rate. Changes in Rates = change in rate times
old volume. The mix change = change in volume times change in rate.



19



---

Provision for loan losses in YTD 2003 totaled $4,688,000, compared to $6,052,000 in YTD 2002. (see
Allowance for Loan Losses).



Realized gains
on securities totaled $970,000 in YTD 2003 and $650,000 in YTD 2002. Other noninterest income totaled $7,029,000 in YTD 2003, and $6,493,000 in YTD 2002. This increase in other noninterest income between the two periods was realized primarily in
fees associated with the issuance of letters of credit, trust operations, secondary market real estate loan originations and the operation of a commercial property BancTrust took possession of in lieu of foreclosure in August of 2002.



Noninterest expense increased from $18,672,000 in YTD 2002 to $18,827,000 in
YTD 2003. Management places significant focus on the area of noninterest expense. Salaries and benefits expenses declined slightly, while premises and equipment as well as other noninterest expenses increased.



BancTrust realized approximately $571,000 less in salaries and benefits
expenses in YTD 2003 than YTD 2002, as personnel cost control initiatives continued to take effect. Premises and fixed assets expenses increased to $3,628,000 in YTD 2003 from $3,299,000 in YTD 2002. The primary factors contributing to the increase
in premises and fixed assets expenses were expenses associated with data and communications infrastructure upgrades. Other noninterest expenses increased to $5,220,000 in YTD 2003 from $4,823,000 in YTD 2002. This increase was primarily attributable
to fees paid to a credit management consulting firm engaged by BancTrust to assist in credit administration initiatives (see Allowance for Loan Losses), increased professional services fees associated with compliance initiatives
related to the Sarbanes-Oxley Act of 2002, as well the recognition of expenses associated with a consulting agreement between BancTrust and a former senior executive. It is managements belief that it must continually endeavor to reduce these
expenses while maintaining adequate staffing and facilities to compete effectively in its markets. The most significant decrease was in salaries and benefits expenses.



IMPACT OF NEW ACCOUNTING STANDARDS



See Notes to the Unaudited Condensed Consolidated Financial Statements.



|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk
|------- |  | ----------------------------------------------------------



Interest sensitivity is one measure of the vulnerability of earnings to changes in the general level of interest rates. Whenever interest-earning assets
reprice to market interest rates at a different pace than interest-bearing liabilities, net interest income performance will be affected favorably or unfavorably, depending on the whether or not market interest rates are in a state of decline or
rise. Management is unable to predict future changes in market rates and their impact on BancTrusts profitability. At September 30, 2003, market interest rates were at historically low levels. Consequently, interest income, interest expense
and net interest income have been impacted within the context of prior period comparisons. Management believes that the current relationship of interest-earning assets to interest-bearing liabilities provides adequate protection against any
potential negative impact arising from changes in market rates of interest.



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



BancTrust carried out an evaluation, under the supervision and with the participation of its chief executive officer and chief financial officer, of the
effectiveness of the design and operation of its disclosure controls and procedures as of September 30, 2003, pursuant to Rule 13a  15(b) of the Securities Exchange Act of 1934. Based on this evaluation, BancTrusts chief executive
officer and chief financial officer concluded that BancTrusts disclosure controls and procedures, as designed and implemented, are effective in timely alerting them to material information required to be included in its periodic SEC reports.
It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.



In
addition, BancTrust reviewed its internal controls. There has been no change in BancTrusts internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect,
BancTrusts internal controls over financial reporting.



20



---

PART IIOTHER INFORMATION



|Item 5. |  | Other information
|------- |  | -----------------



On November 13, 2003, BancTrust announced it results of operations for the quarter and nine months ended September 30, 2003. A copy of the related press
release is attached as Exhibit 99.1 to this Quarterly Report on Form 10-Q. The information furnished herein, including Exhibit 99.1, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor
shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.



|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



| | (a) | Exhibits
| | --- | --------



|Exhibit No. 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the SarbanesOxley Act of 2002                                                                        
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 | 
|Exhibit No. 31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the SarbanesOxley Act of 2002                                                                        
|                 | 
|Exhibit No. 32.1 |  | Chief Executive Officer and Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|                 | 
|Exhibit No. 99.1 |  | Press release dated November 12, 2003 containing results of operations and selected other financial information for the quarter
and six months ended September 30, 2003   



| | (b) | Reports on Form 8-K
| | --- | -------------------



Current Report on Form 8-K dated April 16, 2003, reporting under Item 9 (pursuant to Item 12) announcement of BancTrusts results of operation for
the quarter ended March 31, 2003.



21



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|                        |  |  |  | The Peoples BancTrust Company, Inc.                      
|----------------------- |  |  |  | ---------------------------------------------------------
|                        |  | 
|Date: November 12, 2003 |  |  |  | /s/    Elam P. Holley,
Jr.                               
|                        |  |  |  | Elam P. Holley, Jr. President and Chief
Executive Officer



|                        |  | 
|----------------------- |  | 
|Date: November 12, 2003 |  | 
|                        |  | 



|                        |  | 
|----------------------- |  | 
|Date: November 12, 2003 |  | 
|                        |  | 



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