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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(MARK ONE)

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



For the quarterly period ended March 31, 2004



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)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Alabama                                                        |  | 63-0896239                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification 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 May 11, 2004, 5,568,853 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  |        
|                                                                           |  | March 31,2004 |         |   | December 31,2003 |  
|                                                                           |  | (Unaudited)   |         |   |                  |  
|ASSETS:                                                                    |  |               |         |   |                  |   |         |  
|Cash and due from banks                                                    |  | $             | 68,692  |   |                  | $ | 57,433  |  
|Federal funds sold and securities purchased under agreements to resell     |  |               |        |   |                  |   | 2,048   |  
|Securities available-for-sale                                              |  |               | 225,508 |   |                  |   | 225,135 |  
|Loans, net of unearned discount                                            |  |               | 454,731 |   |                  |   | 461,405 |  
|Allowance for loan losses                                                  |  |               | (12,181 | ) |                  |   | (11,995 | )
|                                                                           |  |               |         |   |                  |   |         |  
|Net loans                                                                  |  |               | 442,550 |   |                  |   | 449,410 |  
|Bank premises and equipment, net                                           |  |               | 17,041  |   |                  |   | 17,093  |  
|Goodwill                                                                   |  |               | 6,203   |   |                  |   | 6,203   |  
|Other intangible assets                                                    |  |               | 829     |   |                  |   | 885     |  
|Other real estate, net                                                     |  |               | 2,887   |   |                  |   | 2,395   |  
|Other assets                                                               |  |               | 17,458  |   |                  |   | 17,979  |  
|                                                                           |  |               |         |   |                  |   |         |  
|Total assets                                                               |  | $             | 781,168 |   |                  | $ | 778,581 |  
|                                                                           |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY:                                      |  |               |         |   |                  |   |         |  
|Noninterest-bearing deposits                                               |  | $             | 74,991  |   |                  | $ | 74,254  |  
|Interest-bearing deposits                                                  |  |               | 571,322 |   |                  |   | 569,503 |  
|                                                                           |  |               |         |   |                  |   |         |  
|Total deposits                                                             |  |               | 646,313 |   |                  |   | 643,757 |  
|Federal funds purchased and securities sold under agreements to repurchase |  |               |        |   |                  |   | 1,816   |  
|FHLB and other borrowed funds                                              |  |               | 54,523  |   |                  |   | 54,874  |  
|Other liabilites                                                           |  |               | 5,849   |   |                  |   | 5,355   |  
|                                                                           |  |               |         |   |                  |   |         |  
|Total liabilities                                                          |  |               | 706,685 |   |                  |   | 705,802 |  
|Commitments and contingencies (Note 1)                                     |  |               |        |   |                  |   |        |  
|Common stock                                                               |  |               | 557     |   |                  |   | 556     |  
|Additional paid-in-capital                                                 |  |               | 11,207  |   |                  |   | 11,146  |  
|Accumulated other comprehensive income, net of tax                         |  |               | 1,439   |   |                  |   | 643     |  
|Retained earnings                                                          |  |               | 61,280  |   |                  |   | 60,434  |  
|                                                                           |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                 |  |               | 74,483  |   |                  |   | 72,779  |  
|                                                                           |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                 |  | $             | 781,168 |   |                  | $ | 778,581 |  
|                                                                           |  |               |         |   |                  |   |         |  



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 shareand per share data (Unaudited)
|                                                    |  | Three Months Ended March 31,                            
|                                                    |  | 2004                                                     |           | 2003
|Interest and fees on loans                          |  | $                                                        | 7,180     |      | $ | 8,497    
|Interest and dividends on investment securities     |  |                                                          | 1,940     |      |   | 1,543    
|Other interest income                               |  |                                                          | 121       |      |   | 120      
|                                                    |  |                                                          |           |      |   |          
|Total interest income                               |  |                                                          | 9,241     |      |   | 10,160   
|Interest on deposits                                |  |                                                          | 2,233     |      |   | 2,411    
|Interest on borrowed funds                          |  |                                                          | 536       |      |   | 647      
|                                                    |  |                                                          |           |      |   |          
|Total interest expense                              |  |                                                          | 2,769     |      |   | 3,058    
|                                                    |  |                                                          |           |      |   |          
|Net interest income                                 |  |                                                          | 6,472     |      |   | 7,102    
|Provision for loan losses                           |  |                                                          | 426       |      |   | 1,532    
|                                                    |  |                                                          |           |      |   |          
|Net interest income after provision for loan losses |  |                                                          | 6,046     |      |   | 5,570    
|Deposit service charges                             |  |                                                          | 1,199     |      |   | 1,301    
|Net securities gains                                |  |                                                          | 203       |      |   | 442      
|Other noninterest income                            |  |                                                          | 940       |      |   | 995      
|                                                    |  |                                                          |           |      |   |          
|Total noninterest income                            |  |                                                          | 2,342     |      |   | 2,738    
|Salaries, benefits and other personnel expense      |  |                                                          | 3,365     |      |   | 3,316    
|Premises and fixed assets expense                   |  |                                                          | 1,177     |      |   | 1,078    
|Other noninterest expense                           |  |                                                          | 1,821     |      |   | 1,628    
|                                                    |  |                                                          |           |      |   |          
|Total noninterest expense                           |  |                                                          | 6,363     |      |   | 6,022    
|                                                    |  |                                                          |           |      |   |          
|Income before income taxes                          |  |                                                          | 2,025     |      |   | 2,286    
|Provision for income taxes                          |  |                                                          | 567       |      |   | 662      
|                                                    |  |                                                          |           |      |   |          
|Net income                                          |  | $                                                        | 1,458     |      | $ | 1,624    
|                                                    |  |                                                          |           |      |   |          
|Basic weighted average number of shares             |  |                                                          | 5,565,543 |      |   | 5,562,802
|Diluted weighted average number of shares           |  |                                                          | 5,592,521 |      |   | 5,579,637
|Basic net income per share                          |  | $                                                        | 0.26      |      | $ | 0.29     
|Diluted net income per share                        |  | $                                                        | 0.26      |      | $ | 0.29     
|Dividends per share                                 |  | $                                                        | 0.11      |      | $ | 0.11     



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 EndedMarch 31, 2004 |      
|                                                                                     |  | 2004                             |       | 2003 |  
|Net income                                                                           |  | $                                | 1,458 |      | $ | 1,624 |  
|Other comprehensive income:                                                          |  |                                  |       |      |   |       |  
|Unrealized gains (losses) on securities available for sale during the period         |  |                                  | 1,464 |      |   | (389  | )
|Less: reclassification adjustment for net gains included in net income               |  |                                  | 203   |      |   | 442   |  
|                                                                                     |  |                                  |       |      |   |       |  
|Other comprehensive income (loss)                                                    |  |                                  | 1,261 |      |   | (831  | )
|Income tax provision (benefit) related to items of other comprehensive income (loss) |  |                                  | 465   |      |   | (245  | )
|                                                                                     |  |                                  |       |      |   |       |  
|Other comprehensive income (loss), net of tax                                        |  |                                  | 796   |      |   | (586  | )
|                                                                                     |  |                                  |       |      |   |       |  
|Comprehensive income, net of tax                                                     |  | $                                | 2,254 |      | $ | 1,038 |  
|                                                                                     |  |                                  |       |      |   |       |  



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)   |        
|                                                            |  | Three Months EndedMarch 31 |        
|                                                            |  | 2004                       |         |   | 2003 |  
|Cash provided by operating activities                       |  | $                          | 2,103   |   |      | $ | 3,977   |  
|                                                            |  |                            |         |   |      |   |         |  
|Cash flow from investing activities                         |  |                            |         |   |      |   |         |  
|Proceeds from sales of investment securities                |  |                            | 32,419  |   |      |   | 31,708  |  
|Proceeds from maturities and calls of investment securities |  |                            | 29,762  |   |      |   | 13,052  |  
|Purchases of investment securities                          |  |                            | (61,178 | ) |      |   | (61,757 | )
|Net decrease in loans                                       |  |                            | 6,730   |   |      |   | 2,985   |  
|Purchases of bank premises and equipment                    |  |                            | (548    | ) |      |   | (554    | )
|Proceeds from sale of bank premises and equipment           |  |                            | 35      |   |      |   |        |  
|Proceeds from sale of other real estate                     |  |                            | 33      |   |      |   | 266     |  
|                                                            |  |                            |         |   |      |   |         |  
|Net cash provided by / (used in) investing activities       |  |                            | 7,253   |   |      |   | (14,300 | )
|Cash flow from financing activities                         |  |                            |         |   |      |   |         |  
|Net increase in deposits                                    |  |                            | 2,556   |   |      |   | 28,505  |  
|Net decrease in borrowed funds                              |  |                            | (2,139  | ) |      |   | (10,332 | )
|Dividends paid                                              |  |                            | (562    | ) |      |   | (592    | )
|                                                            |  |                            |         |   |      |   |         |  
|Net cash (used in) / provided by financing activities       |  |                            | (145    | ) |      |   | 17,581  |  
|Net increase in cash and cash equivalents                   |  |                            | 9,211   |   |      |   | 7,258   |  
|Cash and cash equivalents at beginning of period            |  |                            | 59,481  |   |      |   | 37,583  |  
|                                                            |  |                            |         |   |      |   |         |  
|Cash and cash equivalents at end of period                  |  | $                          | 68,692  |   |      | $ | 44,841  |  
|                                                            |  |                            |         |   |      |   |         |  
|Cash paid for interest                                      |  | $                          | 2,801   |   |      | $ | 3,021   |  
|                                                            |  |                            |         |   |      |   |         |  
|Cash paid for income taxes                                  |  | $                          |        |   |      | $ | 100     |  
|                                                            |  |                            |         |   |      |   |         |  



See notes to Unaudited Condensed
Consolidated Financial Statements



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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, 2003.



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 March 31, 2004 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 months ended March 31, 2004 and 2003 (in thousands, except per share data):



|                                        |  |                                   |       |        |       |                 |   |     
|--------------------------------------- |  | --------------------------------- | ----- | ------ | ----- | --------------- | - | ----
|                                        |  | Three months ended March 31, 2004
|                                        |  | Net Income                        |       | Shares |       | Per-ShareAmount
|Basic EPS                               |  |                                   |       |        |       |                 |   |     
|Income available to common stockholders |  | $                                 | 1,458 |        | 5,566 |                 | $ | 0.26
|Effect of dilutive securities           |  |                                   |       |        |       |                 |   |     
|Stock options                           |  |                                   |       |        | 27    |                 |   |     
|                                        |  |                                   |       |        |       |                 |   |     
|Diluted EPS                             |  | $                                 | 1,458 |        | 5,593 |                 | $ | 0.26



|                                        |  |                                   |       |        |       |                 |   |     
|--------------------------------------- |  | --------------------------------- | ----- | ------ | ----- | --------------- | - | ----
|                                        |  | Three months ended March 31, 2003
|                                        |  | Net Income                        |       | Shares |       | Per-ShareAmount
|Basic EPS                               |  |                                   |       |        |       |                 |   |     
|Income available to common stockholders |  | $                                 | 1,624 |        | 5,563 |                 | $ | 0.29
|Effect of dilutive securities           |  |                                   |       |        |       |                 |   |     
|Stock options                           |  |                                   |       |        | 17    |                 |   |     
|                                        |  |                                   |       |        |       |                 |   |     
|Diluted EPS                             |  | $                                 | 1,624 |        | 5,580 |                 | $ | 0.29



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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.



At March 31, 2004, BancTrust had not issued stock options in 2004 to any of
its executives or directors. The majority of BancTrusts options granted in 2003 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 |  
|                            |  |                                                                                                             |       | March 31, 2004     |   | March 31, 2003 | 
|                            |  |                                                                                                             |       | (unaudited)        |  
|Net income:                 |  |                                                                                                             |       |                    |   |                | 
|As reported                 |  | $                                                                                                           | 1,458 |                    | $ | 1,624          | 
|Deducts:                    |  | Total stock-based compensation expense determined under fair value based methods for all awards, net of tax |       |                    |  |                |  | (29 | )
|                            |  |                                                                                                             |       |                    |   |                |  |     |  
|Pro forma net income        |  | $                                                                                                           | 1,458 |                    | $ | 1,595          | 
|                            |  |                                                                                                             |       |                    |   |                |  |     |  
|Basic earnings per share:   |  |                                                                                                             |       |                    |   |                | 
|As reported                 |  | $                                                                                                           | 0.26  |                    | $ | 0.29           | 
|Pro forma                   |  | $                                                                                                           | 0.26  |                    | $ | 0.29           | 
|Diluted earnings per share: |  |                                                                                                             |       |                    |   |                | 
|As reported                 |  | $                                                                                                           | 0.26  |                    | $ | 0.29           | 
|Pro forma                   |  | $                                                                                                           | 0.26  |                    | $ | 0.29           | 



Recent Accounting Pronouncements:



In April 2003, the
FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement is effective for contracts entered into or modified after June 30, 2003, with certain
exceptions, and for hedging relationships designated after June 30, 2003. In addition, the provisions of the statement, with certain exceptions, were required to be applied prospectively. The initial implementation of the Statement did not have a
material affect on BancTrusts consolidated financial position or consolidated results of operations and management does not anticipate any such impact in the future.



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



7



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particular, the changes in this Statement (1) is expected to result in a more complete depiction of an entitys
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.



Variable Interest Entities:



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. FIN 46 defines a variable interest entity (VIE)
as a corporation, partnership, trust, or any other legal structure used for business purposes that has: (a) an insufficient amount of equity to permit the entity to finance its activities, without additional subordinated financial support from other
parties; or (b) a group of equity holders that lack the direct or indirect ability to make decisions about an entitys activities through voting rights or similar rights; or (c) a group of equity holders who are not obligated to absorb the
expected losses of the entity or the right to receive the expected residual returns of the entity. FIN 46 requires a VIE to be consolidated by an investor company if the investor company, regardless of voting interests, is subject to a majority
(greater than 50 percent) of the risk of the expected losses from the VIEs activities or entitled to receive a majority (greater than 50 percent) of the VIEs expected losses from the VIEs activities or entitled to receive a
majority (greater than 50 percent) of the VIEs expected residual returns or both. Prior to FIN 46, a partially-owned entity was only consolidated into the investor companys consolidated financial statements if it was controlled by the
investor company through voting interests.



In December 2003,
the FASB issued a revision of FIN 46. The Revised Interpretation codifies both the proposed modifications and other decisions previously issued through certain FASB Staff Positions (FSPs) and supercedes the original Interpretation to include: (1)
deferring the effective date of the Interpretations provisions for certain variable interests, (2) providing additional scope exceptions for certain other variable interests, (3) clarifying the impact of troubled debt restructurings on the
requirement to reconsider (a) whether an entity is a VIE or (b) which party is the primary beneficiary of a VIE, and (4) revising Appendix B of the Interpretation to provide additional guidance on what constitutes a variable interest. The revised
Interpretation is effective for financial statements of periods ending after March 15, 2004. Entities which previously adopted the provisions of the original Interpretation have the option of continuing to apply those provisions until the effective
date of the Revised Interpretation or applying the provisions of the Revised Interpretation at an earlier date. The provisions of the Revised Interpretation will not change the accounting treatment applicable to BancTrust under the provisions of the
original Interpretation.



BancTrust adopted the provisions of
FIN 46 effective December 31, 2003. Consequently, BancTrust has consolidated its financial statements with those of a low income housing project to which it is a limited partner, and entitled to 99% of its operating income or losses. For this
project, total assets are $2.2 million as of March 31, 2004 and BancTrusts maximum exposure to loss is $1.2 million.



Exposure:



|                       |  |   |          
|---------------------- |  | - | ---------
|Total partners equity |  | $ | 729,261  
|Total loan held by PBT |  |   | 431,225  
|                       |  |   |          
|                       |  |   | 1,160,486



Pension Plan:



In December 2003, the FASB issued SFAS
No. 132 (revised 2003), Employers Disclosures about Pension and Postretirement Benefits. This statement requires additional disclosures about the assets, obligations, and cash flows of defined benefit pension and postretirement plans,
as well as the expense recorded for such plans. BancTrust and its subsidiaries are participants in a pension plan that covers most employees who have met certain age and length of service requirements. The plan provides benefits based on final
average earnings, covered



8



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compensation and years of benefit service. BancTrusts policy is to contribute annually an amount that can be
deducted for federal income tax purposes using the projected unit credit method. BancTrust assesses its funded position quarterly. Actuarial computations for financial reporting purposes are based on the projected unit credit method. Pension expense
is recorded based on estimates until the final actuarially determined cost is known. The components of the net periodic benefit cost for the three months ended March 31, 2004 and 2003 are shown in the following table:



|                                              |  |                   |      |   |      |   |     |  
|--------------------------------------------- |  | ----------------- | ---- | - | ---- | - | --- | -
|                                              |  | Three Months Cost |     
|                                              |  | 2004              |      |   | 2003 |  
|Service cost                                  |  | $                 | 171  |   |      | $ | 131 |  
|Interest cost                                 |  |                   | 173  |   |      |   | 129 |  
|Expected return on plan assets                |  |                   | (143 | ) |      |   | (99 | )
|Amortization of net (gain) loss               |  |                   | 30   |   |      |   | 20  |  
|Amortization of prior service cost            |  |                   | (6   | ) |      |   | (6  | )
|Amortization of transition (asset) obligation |  |                   |     |   |      |   |    |  
|                                              |  |                   |      |   |      |   |     |  
|Net periodic benefit (income) cost            |  | $                 | 225  |   |      | $ | 175 |  
|                                              |  |                   |      |   |      |   |     |  



In December 2003, the
American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This SOP addresses accounting for differences
between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality.
It includes such loans acquired in purchase business combinations and applies to all nongovernmental entities, including not-for-profit organizations. This SOP does not apply to loans originated by the entity. This SOP limits the yield that may be
accreted (accretable yield) to the excess of the investors estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investors initial investment in the
loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP prohibits
carrying over or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an
individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The changes required by this SOP are not expected
to have a material impact on results of operations, financial position, or liquidity of BancTrust.



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 risks as of March 31, 2004 was $25,817,000. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions.
The credit risks involved in issuing letters of credit are essentially the same as that involved in extending loan facilities to customers. BancTrust holds various assets as collateral supporting these 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 March 31, 2004 was not material to BancTrusts consolidated financial condition.



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



9



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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.



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.



10



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FINANCIAL CONDITION



Cash and Cash Equivalents



At March 31, 2004, cash and cash equivalents had increased to $68,692,000, compared to $59,481,000 at December 31, 2003. 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 March 31, 2004, cash and due from banks totaled $68,692,000 compared to $57,433,000 at December 31, 2003. BancTrust held no federal
funds sold or securities purchased under agreements to resell at March 31, 2004 compared to $2,048,000 at December 31, 2003.



Investments



At March 31, 2004, investment securities totaled $225,508,000 compared to $225,135,000 at December 31, 2003.



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, must pledge qualifying securities (typically United States Treasury or Agency
debt instruments) as collateral for those amounts that exceed the FDIC insurable limit. At March 31, 2004 BancTrust had securities totaling $127,449,000 pledged to the Treasurer of the State of Alabama under the SAFE program.



At year-end 2003, and at March 31, 2004, the entire investment securities
portfolio was classified as available-for-sale, resulting in the portfolio being marked-to-market. At December 31, 2003, the portfolio had a net unrealized gain (net of taxes) of $643,000 compared to a net unrealized gain (net of taxes)
of $1,439,000 at March 31, 2004.



Loans



Total loans, net of the unearned discount, decreased $6,674,000 to
$454,731,000 at March 31, 2004, from $461,405,000 at December 31, 2003. Overall loan demand remained soft between December 31, 2003 and March 31, 2004. As a result, the volume of loan originations to customers was more than offset by loan repayments
from customers, accounting for the majority of the aforementioned decrease. 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 March 31, 2004 to December 31, 2003.



|                                          |  |                |         |                  |   |         |  |   |        |  
|----------------------------------------- |  | -------------- | ------- | ---------------- | - | ------- |  | - | ------ | -
|                                          |  | March 31,2004  |         | December31, 2003 |   | Change  | 
|                                          |  | (In thousands) |        
|Commercial and industrial                 |  | $              | 126,199 |                  | $ | 127,703 |  | $ | (1,504 | )
|Real estate - mortgage                    |  |                |         |                  |   |         |  |   |        |  
|Commercial                                |  |                | 191,136 |                  |   | 191,772 |  |   | (636   | )
|Residential                               |  |                | 85,804  |                  |   | 89,308  |  |   | (3,504 | )
|Personal                                  |  |                | 50,537  |                  |   | 51,765  |  |   | (1,228 | )
|Overdrafts and credit line                |  |                | 1,932   |                  |   | 1,790   |  |   | 142    |  
|                                          |  |                |         |                  |   |         |  |   |        |  
|Total loans                               |  |                | 455,608 |                  |   | 462,338 |  |   | (6,730 | )
|Less:                                     |  |                |         |                  |   |         |  |   |        |  
|Unearned discount                         |  |                | 877     |                  |   | 933     |  |   | (56    | )
|                                          |  |                |         |                  |   |         |  |   |        |  
|Total loans, net of the unearned discount |  | $              | 454,731 |                  | $ | 461,405 |  | $ | (6,674 | )
|                                          |  |                |         |                  |   |         |  |   |        |  



Commercial and
industrial loans declined from $127,703,000 at December 31, 2003 to $126,199,000 at March 31, 2004. Reduced demand for commercial and industrial loans was the primary contributing factor to this decline.



11



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Real estate loans decreased $4,140,000 to $276,940,000 at March 31, 2004 from $281,080,000 at December
31, 2003. 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.



Residential real estate loans accounted for the
largest decrease in the overall loan portfolio. Management attributes this decline primarily 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 $51,765,000 at December 31, 2003 to $50,537,000 at March 31, 2004. 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 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.



Using input from BancTrusts credit risk identification process,
BancTrusts credit administration area analyzes and validates the loan loss reserve methodology at least quarterly. The analysis includes specific allowances for individual loans and general allowances for certain pools of loans. The credit
administration area along with senior management reviews and ensures the methodology is appropriate and that all risk elements have been assessed in order to determine the appropriate level of allowance for the inherent losses in the loan portfolio
at each quarter end.



The first area of the allowance for loan
losses analysis involves the calculation of specific allowances for individual impaired loans as required by SFAS 114 and 118. In addition, BancTrust requires that a broad group of loans be analyzed for impairment each quarter (this includes all
loans of $500,000 and over that have internal risk ratings below a predetermined classification level). The credit administration area validates all impairment testing and validates the reserve allocations for all impaired loans each quarter.
Reserves associated with these activities are based on a thorough analysis of the most probable sources of repayment which is normally the liquidation of collateral, but also includes discounted future cash flows or the market value of the loan
itself.





12



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The second reserve area is the general allowance for loan pools assessed by applying loan loss allowance
factors to groups of loans within the portfolio that have similar characteristics. This part of the methodology is governed by SFAS 5. The general allowance factors are based upon recent and historical charge-off experience and are typically applied
to the portfolio by loan type. Historical loss analyses provide the basis for factors used for homogenous pools of smaller loans, such as residential real estate and other consumer loan categories which are not evaluated based on individual risk
ratings but almost entirely based on historical losses. The statistics used in this analysis of this second reserve element are adjusted quarterly based on loss trends and risk rating migrations.



At March 31, 2004, BancTrusts allowance for loan losses had a balance
of $12,181,000, as compared to $11,995,000 at December 31, 2003. The ratio of the allowance to total loans, net of the unearned discount, was 2.68% and 2.60% at March 31, 2004 and December 31, 2003, respectively. As a percentage of total loans, net
of the unearned discount, non-accruing loans decreased to .47% at March 31, 2004, compared to .48% at December 31, 2003. The coverage of the allowance to non-accruing loans was 569% and 544% at March 31, 2004 and December 31, 2003, respectively.



Loans requiring special attention because of potential
weakness (special attention loans) decreased to $43,365,000 at March 31, 2004 from $57,449,000 at December 31, 2003. Management believes strongly that this 24.5% reduction in special attention loans is primarily attributable to intensive
efforts and focus on the credit administration area. It is the intent of management to continually endeavor to reduce special attention loans, while maintaining adequate and profitable loan relationships with its customers. 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 March 31, 2004, approximately $5,661,000 of the $12,181,000 allowance for
loan losses was allocated to special attention loans. The following table indicates the loan charge off and recovery activity of BancTrust for the three months ended March 31, 2004 and 2003.



|                                           |  |                              |      |   |      |   |      |  
|------------------------------------------ |  | ---------------------------- | ---- | - | ---- | - | ---- | -
|                                           |  | Three Months Ended March 31, |     
|                                           |  | (unaudited)                  |     
|                                           |  | 2004                         |      |   | 2003 |  
|                                           |  | (In Thousands)               |     
|                                           |  |                             
|Loans charged-off                          |  | $                            | 639  |   |      | $ | 881  |  
|                                           |  |                             
|Recoveries of loans previously charged off |  |                              | (399 | ) |      |   | (335 | )
|                                           |  |                              |      |   |      |   |      |  
|Net loans charged-off                      |  | $                            | 240  |   |      | $ | 546  |  
|                                           |  |                              |      |   |      |   |      |  



Deposits



Total deposits at March 31, 2004 were $646,313,000, representing a
$2,556,000 increase over the December 31, 2003 total of $643,757,000. The majority of the increase was realized in interest bearing deposits, increasing to $571,322,000 at March 31, 2004 from $569,503,000 at December 31, 2003. BancTrust experienced
increases in interest bearing transaction and savings deposits while time deposits declined. At March 31, 2004 interest bearing demand deposits combined with savings deposits totaled $261,486,000 compared to $249,194,000 at December 31, 2003.
Management believes this increase was primarily attributable to some of BancTrusts customers maintaining funds in interest earning accounts where they are readily accessible, rather than placing them in stated term accounts such as
certificates of deposit.



Time deposits at March 31, 2004
totaled $309,836,000, compared to $320,309,000 at December 31, 2003. This decrease was primarily attributable to the repayment by BancTrust of approximately $10,000,000 of time deposits placed by brokers (brokered deposits) which matured
in February of 2004. BancTrust was in receipt of approximately $30,000,000 of brokered deposits at December 31, 2003 and $20,000,000 at March 31, 2004 after the aforementioned $10,000,000 repayment. 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



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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
cash and cash equivalents (see- Cash and Cash Equivalents). Also, the asset base 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 March 31, 2004, 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 $54,523,000 at March 31, 2004, compared to $56,690,000 at December 31, 2003. The decrease is primarily attributable to
BancTrust having zero funds borrowed under repurchase agreements at March 31, 2004. At December 31, 2003, BancTrust had $1,816,000 of funds borrowed under repurchase agreements associated with a deposit sweep product it offers to qualifying, large
balance customers. In January of 2004, BancTrust instituted a modified deposit sweep product that did not require such borrowings, thereby eliminating the need for borrowed funds under repurchase agreements.



BancTrust has several available sources from which to borrow funds. The
predominant source of borrowed funds utilized by BancTrust is the FHLB. At March 31, 2004, BancTrust had borrowed from FHLB, $53,243,000. When combined with approximately $18,500,000 of guarantees on commercial letters of credit provided by the
FHLB, BancTrust had approximately $71,743,000 of active credit facilities at the FHLB on March 31, 2004. Total credit facilities available to BancTrust at the FHLB totaled approximately $76,166,000 on March 31, 2004. BancTrust had unused federal
funds lines of credit with correspondent financial institutions of approximately $50,000,000 at March 31, 2004.



Stockholders Equity and Regulatory Capital



At March 31, 2004, total stockholders equity was $74,483,000 compared to $72,779,000 at December 31, 2003. This change represents an increase of
$1,704,000 that is accounted for as follows: net income - $1,458,000, dividends declared and paid - $612,000, shares issued per dividend reinvestment plan - $62,000 and an increase in accumulated other comprehensive income, net of tax of $796,000.
Net income and the increase in other comprehensive income, net of tax had the effect of increasing stockholders equity, while dividends declared and paid 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 March 31, 2004.



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|                                             |  |                                                                  |         |  |              |   |  |   |         |  |       |  
|-------------------------------------------- |  | ---------------------------------------------------------------- | ------- |  | ------------ | - |  | - | ------- |  | ----- | -
|                                             |  | Risk-Based Capital Ratios & Leverage Ratios As of March 31, 2004 |        
|                                             |  | Dollars in Thousands                                             |        
|                                             |  | BancTrust                                                        |         |  | Peoples Bank |  
|RISK-BASED CAPITAL RATIOS                    |  |                                                                  |         |  |              |   |  |   |         |  |       |  
|Tier 1 Capital                               |  | $                                                                | 66,170  |  | 12.47        | % |  | $ | 66,510  |  | 12.55 | %
|Tier 1 Capital  Minimum Required            |  |                                                                  | 21,218  |  | 4.00         | % |  |   | 21,197  |  | 4.00  | %
|                                             |  |                                                                  |         |  |              |   |  |   |         |  |       |  
|Excess                                       |  | $                                                                | 44,952  |  | 8.47         | % |  | $ | 45,313  |  | 8.55  | %
|                                             |  |                                                                  |         | 
|Total Capital                                |  | $                                                                | 72,881  |  | 13.74        | % |  | $ | 73,215  |  | 13.82 | %
|Total Capital  Minimum Required             |  |                                                                  | 42,436  |  | 8.00         | % |  |   | 42,394  |  | 8.00  | %
|                                             |  |                                                                  |         |  |              |   |  |   |         |  |       |  
|Excess                                       |  | $                                                                | 30,445  |  | 5.74         | % |  | $ | 30,821  |  | 5.82  | %
|                                             |  |                                                                  |         | 
|Net risk-weighted assets                     |  | $                                                                | 530,444 |  |              |   |  | $ | 529,925 |  |       |  
|                                             |  |                                                                  |         | 
|LEVERAGE RATIOS                              |  |                                                                  |         |  |              |   |  |   |         |  |       |  
|Total Tier 1 Capital                         |  | $                                                                | 66,170  |  | 8.54         | % |  | $ | 66,510  |  | 8.58  | %
|Minimum Leverage Requirement                 |  |                                                                  | 30,993  |  | 4.00         | % |  |   | 30,993  |  | 4.00  | %
|                                             |  |                                                                  |         |  |              |   |  |   |         |  |       |  
|Excess                                       |  | $                                                                | 35,117  |  | 4.54         | % |  | $ | 35,517  |  | 4.58  | %
|                                             |  |                                                                  |         | 
|Average Total Assets, Net of all intangibles |  | $                                                                | 774,813 |  |              |   |  | $ | 774,813 |  |       |  



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.



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 executive management 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.





15



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RESULTS OF OPERATIONS



Three Months Ended March 31, 2004. Compared to Three Months Ended March 31, 2003.



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 March 31, 2004 (the 2004 quarter) than during the three months ended March 31, 2003 (the 2003
quarter). It is primarily because of lower interest rates that the interest income BancTrust earned on its interest earning assets in the 2004 quarter was lower than in the 2003 quarter. Also, the interest expense BancTrust paid on its
interest bearing liabilities was lower in the 2004 quarter than in the 2003 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 2004
quarter compared to the 2003 quarter.



Interest income for the
2004 quarter totaled $9,241,000. For the 2003 quarter interest income totaled $10,160,000. This decrease is primarily due to a decrease in the average yield earned on interest-earning assets. As BancTrust continued to experienced soft loan demand in
the 2004 quarter (see - Loans), available funds were deployed in the lower yielding short-term investments and investment securities portfolios. In the 2004 quarter, the average annual yield earned on interest-earning assets was
5.14%, compared to 5.96% for the 2003 quarter. For the 2004 and 2003 quarters, the average volume of interest-earning assets totaled $720,819,000 and $691,228,000, respectively.



Interest income earned on investment securities in the 2004 quarter totaled $1,940,000, compared to $1,543,000 for the 2003
quarter. The investment securities portfolio earned an average annual yield of 3.44% on average volume of $226,249,000 in the 2004 quarter, and 3.67% on average volume of $170,591,000 in the 2003 quarter. Given the soft 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 2004 quarter than in the 2003 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 $7,180,000 in the 2004 quarter, which was a decrease from the 2003 quarter total of $8,497,000. This decrease is attributable to reductions in both the average annual yield earned, as well as the average volume of
loans in the 2004 quarter compared to the 2003 quarter. In the 2004 quarter, the loan portfolio generated an average annual yield of 6.31% on average volume of $456,590,000. In the 2003 quarter, the loan portfolio generated an average annual yield
of 6.89% on average volume of $500,409,000. Lower market rates of interest in the 2004 quarter than in the 2003 quarter were the primary reason for the decreased loan yields. The decrease in the average volume of loans was primarily attributable to
continued soft loan demand (see - Loans).



In the 2004 quarter, interest and fee income on real estate loans totaled $4,349,000 compared to $4,929,000 in the 2003 quarter. This reduction is attributable to decreases in both the average annual yield earned on real estate loans and
the average volume of real estate loans from the 2003 quarter to the 2004 quarter. In the 2004 quarter, real estate loans earned an average annual yield of 6.30% on average volume of $276,825,000. In the 2003 quarter, the average annual yield earned
was 6.86% on average volume of $291,403,000. 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 2004 quarter compared to
the 2003 quarter. The decrease in the average volume of real estate loans was primarily attributable to lower demand levels (see - Loans).



Interest and fee income on business loans totaled $1,674,000 in the 2004 quarter, and $2,016,000 in the 2003 quarter. Both the average volume and average
annual yield of business loans decreased from the 2003 quarter to the 2004 quarter, accounting for the decrease in interest income earned. Business loans earned an average annual yield of 5.21% on average volume of $128,806,000 in the 2004 quarter,
and an average annual yield of 5.67% on average volume of $144,201,000 in the 2003 quarter. Soft loan demand (see - Loans) contributed to the lower average balance of business loans, while lower market rates of interest
contributed to the lower average annual yield earned on business loans.





16



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Interest and fee income on personal loans totaled $1,156,000 and $1,553,000 for the 2004 and 2003
quarters, respectively. This decrease was the result of declines in both the average annual yield earned and average volume in the 2004 quarter compared to the 2003 quarter. In the 2004 quarter, personal loans earned an average annual yield of 9.10%
on an average volume of $50,959,000. In the 2003 quarter, personal loans earned an average annual yield of 9.72% on an average volume of $64,805,000. Lower market interest rates, as well as fewer personal loan originations, contributed to lower
yields and average volumes in the 2004 quarter.



Interest
expense on deposits in the 2004 quarter totaled $2,233,000, compared to $2,411,000 for the 2003 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
2004 quarter, the average annual rate of interest paid on interest bearing deposits was 1.56%, compared to 1.82% in the 2003 quarter. The average volume of interest bearing deposits increased significantly in the 2004 quarter, compared to the 2003
quarter (see - Deposits). In the 2004 quarter, the average volume of interest bearing deposits totaled $573,988,000 and in the 2003 quarter totaled $538,308,000. 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 $536,000 in the 2004
quarter and $647,000 in the 2003 quarter. Reductions in both the average annual rate of interest paid and average volumes are the primary reasons for the decline in interest expense on borrowed funds between the 2003 and 2004 quarters. In the 2003
and 2004 quarters, the average annual rate of interest paid on borrowed funds was 4.14% and 3.90%, respectively. The average volume of borrowed funds for the 2003 and 2004 quarters was $62,894,000 and $55,265,000, respectively.



The resulting net interest income for the 2004 quarter totaled $6,472,000,
compared to $7,102,000 for the 2003 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 2004 quarter was
3.60%, compared to 4.17% for the 2003 quarter. The following table illustrates the changes, and causes of those changes, in the primary components of net interest income for the 2004 quarter compared to the 2003 quarter.





17



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ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE

for the three months ended March 31, 2004

(In Thousands)

|                                                                           |  |                       |        |   |                      |   |      |                     |  |   |         |   |  |   |     |  
|-------------------------------------------------------------------------- |  | --------------------- | ------ | - | -------------------- | - | ---- | ------------------- |  | - | ------- | - |  | - | --- | -
|                                                                           |  | 2004 Compared to 2003 |       
|                                                                           |  | Total                 |        |   | Changesin Volume (1) |   |      | Changesin Rates (1) |  |   | Mix (1) |  
|Interest income on:                                                        |  |                       |        |   |                      |   |      |                     |  |   |         |   |  |   |     |  
|Loans                                                                      |  | $                     | (1,317 | ) |                      | $ | (744 | )                   |  | $ | (629    | ) |  | $ | 56  |  
|Investment securities                                                      |  |                       | 397    |   |                      |   | 503  |                     |  |   | (80     | ) |  |   | (26 | )
|Federal funds sold and securities purchases under agreements to resell     |  |                       | 1      |   |                      |   | 105  |                     |  |   | (55     | ) |  |   | (49 | )
|                                                                           |  |                       |        |   |                      |   |      |                     |  |   |         |   |  |   |     |  
|                                                                           |  |                       |        |  
|Total interest income                                                      |  | $                     | (919   | ) |                      | $ | (136 | )                   |  | $ | (764    | ) |  | $ | (19 | )
|                                                                           |  |                       |        |   |                      |   |      |                     |  |   |         |   |  |   |     |  
|                                                                           |  |                       |        |  
|Interest expense on:                                                       |  |                       |        |   |                      |   |      |                     |  |   |         |   |  |   |     |  
|Interest bearing demand deposits                                           |  | $                     | 47     |   |                      | $ | 97   |                     |  | $ | (41     | ) |  | $ | (8  | )
|Savings deposits                                                           |  |                       | 1      |   |                      |   | 1    |                     |  |   | 0       |   |  |   | 0   |  
|Time deposits                                                              |  |                       | (226   | ) |                      |   | (3   | )                   |  |   | (223    | ) |  |   | 0   |  
|Federal funds purchased and securities sold under agreements to repurchase |  |                       | (4     | ) |                      |   | (4   | )                   |  |   | (2      | ) |  |   | 2   |  
|FHLB borrowings                                                            |  |                       | (107   | ) |                      |   | (56  | )                   |  |   | (56     | ) |  |   | 5   |  
|                                                                           |  |                       |        |   |                      |   |      |                     |  |   |         |   |  |   |     |  
|Total interest expense                                                     |  | $                     | (289   | ) |                      | $ | 34   |                     |  | $ | (322    | ) |  | $ | (1  | )
|Net change in net interest income before loan losses                       |  | $                     | (630   | ) |                      |   |      |                     |  |   |         |   |  |   |     |  

---

|(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 2004 quarter totaled $426,000, compared to $1,532,000 in the 2003 quarter. (see Allowance for Loan
Losses).



Deposit service charges totaled $1,199,000
in the 2004 quarter, and $1,301,000 in the 2003 quarter. Management believes that this reduction is at least partially attributable to many customers maintaining generally higher balances in transaction accounts (see Deposits),
thereby reducing or avoiding some service charges. Realized gains on securities sold totaled $203,000 in the 2004 quarter and $442,000 in the 2003 quarter. Other noninterest income totaled $940,000 in the 2004 quarter and $995,000 in the 2003
quarter. This reduction is primarily accounted for in BancTrust having realized lower income from its secondary market real estate origination program, its accounts receivable management service and income from rent on other real estate owned.



Noninterest expense increased from $6,022,000 in the 2003
quarter to $6,363,000 in the 2004 quarter. Salaries, benefits and other personnel expense increased from $3,316,000 in the 2003 quarter to $3,365,000 in the 2004 quarter, primarily as a result of personnel additions and increased expense associated
with BancTrusts defined benefit pension plan (see - Critical Accounting Policies). Premises and fixed assets expense increased from $1,078,000 in the 2003 quarter to $1,177,000 in the 2004 quarter. Expenses associated with
network upgrades accounted for some of the increase in premises and fixed assets expense, as did depreciation expense associated with various premises and equipment upgrades performed after the 2003 quarter. Other noninterest expense increased from
$1,628,000 in the 2003 quarter to $1,821,000 in the 2004 quarter. Expenses associated with the disposition of other real estate owned, as well as various advisory boards and education accounted for the majority of the increase in other noninterest
expense.



18



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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 March 31, 2004, 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 March 31, 2004, 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.



PART II 
OTHER INFORMATION



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



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



Current Report on Form 8-K dated February 17, 2004, reporting under Item 12 announcement of BancTrusts results of operation for the quarter and year
ended December 31, 2003.





19



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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: May 13, 2004 |  | /s/ Elam P. Holley, Jr.                             
|                   |  | Elam P. Holley, Jr.                                 
|                   |  | President and Chief Executive Officer               
|                   | 
|Date: May 13, 2004 |  | /s/ Andrew C. Bearden, Jr.                          
|                   |  | Andrew C. Bearden, Jr.                              
|                   |  | Executive Vice President and Chief Financial Officer
|                   | 
|Date: May 13, 2004 |  | /s/ Thomas P. Wilbourne                             
|                   |  | Thomas P. Wilbourne                                 
|                   |  | Vice President and Principal Accounting Officer     





20