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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
Commission File Number 0-12154
THE PEOPLES HOLDING COMPANY
(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38801
(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 2,604,760 shares outstanding
as of April 25, 1996
1
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995...............3
Consolidated Statements of Income - Three Months
Ended March 31, 1996 and 1995......................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995.........5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................10
Item 6.(b) Reports on Form 8-K..............................10
Signatures..................................................11
2
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31
1996 1995
------------ -----------
(Unaudited) (Note 1)
Assets
Cash and due from banks ................ $ 49,583,182 $ 46,918,819
Federal Fund Sold ...................... 9,000,000 17,000,000
---------- ----------
58,583,182 63,918,819
Interest bearing balances with banks 386,927 8,814,411
Securities held-to-maturity (market
value-$51,488,530 and $50,109,526
at March 31, 1996 and December 31,
1995, respectively) ................. 51,151,250 49,362,527
Securities available-for-sale (amortized
cost-$202,205,536 and $166,530,900 at
March 31, 1996 and December 31, 1995
respectively) ....................... 202,857,542 168,381,798
Loans .................................. 531,308,775 530,019,951
Unearned Income ..................... (10,075,123) (11,231,586)
Allowance for loan losses ........... (8,611,114) (8,815,130)
----------- ------------
Net Loans ........................ 512,622,538 509,973,235
Premises and equipment ................. 20,619,479 20,323,492
Other assets ........................... 21,888,240 20,925,126
----------- ------------
Total Assets .................. $ 868,109,158 $ 841,699,408
=========== ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 121,851,255 $ 116,894,919
Certificates of deposit exceeding
$100,000 ........................ 71,237,610 62,620,549
Interest bearing .................... 571,806,892 560,029,831
------------ ------------
Total Deposits ............ 764,895,757 739,545,299
Treasury tax and loan note account ..... 2,710,066 2,400,495
Borrowings ................. ........... 4,086,674 4,313,109
Other liabilities ...................... 10,593,082 10,480,085
------------ ------------
Total Liabilities ......... $ 782,285,579 $ 756,738,988
Shareholders' Equity
Common Stock, $5 par value-7,500,000
shares authorized, 2,604,760 shares
issued and outstanding at March 31, 1996
and December 31, 1995, respectively ... 13,023,800 13,023,800
Additional paid-in capital .............. 39,875,796 39,875,796
Unrealized gains on securities,
net of tax ............................ 408,705 1,169,262
Retained earnings ....................... 32,515,278 30,891,562
------------ ------------
Total Shareholders' Equity .... 85,823,579 84,960,420
------------ ------------
Total Liabilities and
Shareholders' Equity ........ $ 868,109,158 $ 841,699,408
============ ============
See Notes to Consolidated Financial Statements
3
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
1996 1995
---- ----
(Unaudited)
Interest Income
Loans .................... .......... $ 12,265,259 $ 11,542,108
Securities:
Taxable ........................ 2,979,267 2,334,021
Tax-exempt ..................... 717,022 674,900
Other ............................... 298,778 161,474
------- -------
Total interest income ..... 16,260,326 14,712,503
Interest Expense
Time deposits exceeding $100,000 .... 865,095 705,372
Other deposits ...................... 6,054,048 4,797,117
Borrowings .......................... 26,721 103,655
------ -------
Total interest expense .... 6,945,864 5,606,144
--------- ---------
Net interest income ....... 9,314,462 9,106,359
Provision for loan losses ................. 630,225 600,000
------- -------
Net interest income after
provision for loan losses . 8,684,237 8,506,359
Noninterest income:
Service charges on deposit accounts.. 1,600,496 1,482,839
Fees and commission ................. 419,300 335,444
Trust department .................... 135,000 130,500
Security gains(losses) .............. 108,450 (374,423)
Other income ........................ 471,228 457,231
------- -------
Total noninterest income .. 2,734,474 2,031,591
Noninterest expense:
Salaries and employee benefits ...... 4,638,228 4,269,779
Net occupancy ....................... 548,005 526,897
Equipment ........................... 344,101 337,720
Other ............................... 2,574,932 2,757,346
--------- ---------
Total noninterest expense.. $ 8,105,266 $ 7,891,742
--------- ---------
Income before income taxes ................ 3,313,445 2,646,208
Income taxes .............................. 1,005,977 758,101
--------- -------
Net income ................ $ 2,307,468 $ 1,888,107
========= =========
Earnings per share ........................ $ .89 $ .72
===== =====
Weighted average shares outstanding ....... 2,604,760 2,604,760
========= =========
See Notes to Consolidated Financial Statements.
4
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
1996 1995
---- ----
(Unaudited)
Operating Activities
Net Income ............................ $ 2,307,468 $ 1,888,107
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses ............. 630,225 600,000
Provision for depreciation and
amortization ..................... 473,449 455,067
Net amortization (accretion)
securities premiums/discounts .... (139,959) 2,240,233
Losses (gains) on sales/calls of
securities ....................... (79,192) 387,712
Increase in other liabilities ......... 112,997 295,886
Deferred income tax (credits) ......... 39,041 (697,734)
Losses (gains) on sales of premises
and equipment ................... (4,660) 6,420
Increase in other assets .............. (369,324) (894,079)
-------- --------
Net Cash Provided by Operating
Activities .................. 2,970,045 4,281,612
Investment Activities
Net decrease (increase) in balances
with other banks ................. 8,427,484 (2,975,538)
Proceeds from maturities/calls of
securities held-to-maturity ...... 634,077 170,791
Proceeds from maturities/calls of
securities available-for-sale .... 20,479,617 14,264,636
Proceeds from sales of
securities available-for-sale .... 5,079,192 15,482,942
Purchases of securities
held-to-maturity ................. (2,348,422) (1,935,056)
Purchases of securities
available-for-sale ............... (61,088,836) (17,674,336)
Net increase in loans ................. (3,618,058) (11,124,542)
Proceeds from sale of premises and
equipment ....................... 22,896 107,945
Purchases of premises and equipment ... (643,474) (757,743)
-------- --------
Net Cash Used in Investment
Activities .................. (33,055,524) (4,440,901)
Financing Activities
Net increase (decrease) in
noninterest-bearing deposits ..... 4,956,336 (4,106,913)
Net increase in certificates of deposit
exceeding $100,000 ............... 8,617,061 3,476,538
Net increase in other interest-bearing
deposits ......................... 11,777,061 17,050,697
Net increase (decrease) in treasury
tax and loan note account ........ 309,571 (1,103,347)
Decrease in borrowings ................ (226,435) (312,774)
Cash dividends paid ................... (683,752) (625,142)
-------- --------
Net Cash Provided by Financing
Activities .................. 24,749,842 14,379,059
---------- ----------
(Decrease) Increase in Cash
and Cash Equivalents ........ (5,335,637) 14,219,770
---------- ----------
Cash and cash equivalents at
beginning of period ................... 63,918,819 45,273,177
---------- ----------
Cash and cash equivalents at end of period .. $ 58,583,182 $ 59,492,947
========== ==========
Non-cash transactions:
Transfer of loans to other real estate $ 338,530 $ 70,200
======= ======
See Notes to Consolidated Financial Statements
5
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The consolidated balance sheet at December 31, 1995, has been derived from the
audited financial statements at that date. The accompanying unaudited
consolidated financial statements reflect all adjustments (consisting only of
normally recurring accruals) which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. The
statements should be read in conjunction with the summary of accounting policies
and notes to financial statements included in the Registrant's annual report for
the year ended December 31, 1995. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with the rules of
the Securities and Exchange Commission.
Note 2 Changes in Accounting Methods
Beginning in 1995, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"
which was amended by FASB Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." Under these new
standards, the 1995 allowance for loan losses related to loans that are
identified for evaluation in accordance with Statement No. 114 is based on
discounted cash flows using the loan's initial effective interest rate or fair
value of the collateral for certain collateral-dependent loans. The adoption of
these new standards did not have a significant effect on the allowance for loan
losses or the method of income recognition for impaired loans.
Note 3 Income Taxes
[CAPTION]
The components of income tax expense for the three months
ended March 31, 1996, are presented below:
[S] [C]
Current $ 966,936
Deferred 39,041
--------
$1,005,977
========
[CAPTION]
The reconciliation of income tax attributable to continuing operations computed
at the United States federal statutory tax rates to income tax expense is:
[S] [C]
Tax at United States statutory rate $ 1,126,567
Add (deduct) effect of:
Tax-exempt interest income ...... (242,028)
State of Mississippi, net of
federal tax benefit 62,479
Amortization of intangible assets 18,276
Dividends received deduction .... (6,021)
Other items-net ................. 46,704
----------
$ 1,005,977
==========
6
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Total assets of The Peoples Holding Company grew from $841,699,408 on December
31, 1995, to $868,109,158 on March 31, 1996, or 3.14% for the three month
period. Total securities increased from $217,744,325 on December 31, 1995, to
$254,008,792 on March 31, 1996, in accordance with management's strategic plan.
Loans, less unearned income, increased $2,445,287 or .47%.
Total deposits for the first three months of 1996 grew from $739,545,299 on
December 31, 1995 to $764,895,757 on March 31, 1996, or an increase of 3.43%,
with the majority of growth in time deposits.
The equity capital to total assets ratio was 9.89% and 10.09% for March 31, 1996
and December 31, 1995, respectively.
Results of Operations-Quarter Ended March 31, 1996 compared to 1995
- -------------------------------------------------------------------
The Company's net income for the first quarter of 1996 was $2,307,468 compared
to $1,888,107 from the first quarter of 1995. The increase in net income for
1996 compared to 1995 is primarily due to security losses incurred in first
quarter of 1995 based on management's decision to reinvest funds in securities
which will yield a higher rate of return for the future. The annualized returns
on average assets for the first quarter of 1996 and 1995 were 1.09% and .96%,
respectively.
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary items of concern in managing net interest revenue are
the mix and maturity balance between interest-sensitive assets and related
liabilities. The net interest revenue was $9,314,462 and $9,106,359 for the
three months ending March 31, 1996 and 1995, respectively. Earning assets
averaged $773.9 million for first quarter of 1996 compared to $727.9 million for
the same period in 1995. The net interest margin was 5.04% and 5.24% for the
three months ending March 31, 1996 and 1995, respectively. The decrease in net
interest margin is due to the increase in the volume and rate of costing
liabilities in the first quarter of 1996.
The provision for loan losses charged to operating expense is an amount which,
in the judgement of management, is necessary to maintain the allowance for loan
losses at a level that is adequate to meet the present and potential risks of
losses on the Company's current portfolio of loans. The appropriate level of the
allowance is based on a quarterly analysis of the loan portfolio including
consideration of such factors as the risk rating of individual credits, size and
diversity of the portfolio, economic conditions, prior loss experience, and the
results of periodic credit reviews by internal loan review, regulators, and the
Company's independent accounting firm. The provision for loan losses totalled
$630,225 and $600,000 for quarter ending March 31, 1996 and 1995, respectively.
The allowance for loan losses as a percent of net loans outstanding was 1.65%
and 1.67% as of March 31, 1996 and 1995, respectively. Net charge-offs to
average loans was .16% and .05% for the three months ending March 31, 1996 and
1995, respectively.
Noninterest income, excluding security gains and losses was $2,626,024 for the
quarter ending March 31, 1996, compared to $2,406,014 for same period in 1995,
or a increase of 9.14%. Service charges were up $117,657, fees and commissions
were up $83,856, and other operating income was up $13,997. These increases were
due in part to an increase in total deposits of the Company.
7
Noninterest expenses were $8,105,266 for the quarter ending March 31, 1996,
compared to $7,891,742 for the same period 1995, or an increase of 2.71%. The
components of noninterest expenses reflect normal increases for personnel
related expenses and general inflation in the cost of services and supplies
purchased by the Company.
Income tax expense was $1,005,977 for the three months ending March 31, 1996,
compared to $758,101 for the same period in 1994. The increase is due to
increased profits for the first quarter of 1996 compared to 1995 and also due to
a net operating loss carryforward in the first quarter of 1995, which reduced
state income taxes. The Company continues to invest in assets whose earnings are
given favorable tax treatment.
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is the key to assuring liquidity. The Company has worked toward lowering
its dependence on other public funds. This has added more stability to the
Company's core deposit base reducing the dependence on highly liquid assets.
Approximately 90% of the Company's deposits are composed of accounts with
balances less than $100,000. When evaluating the movement of these funds even
during large interest rate changes, it is apparent that the Company continues to
attract deposits that can be used to meet cash flow needs.
Other sources available for meeting the Company's liquidity needs include the
available-for-sale securities portfolio. The portfolio is composed of securities
with a readily available market that can be used to convert to cash if the need
arises. In addition the Company maintains a federal funds position that provides
day-to-day funds to meet liquidity needs.
8
Capital Resources
The Company is required to comply with the risk-based capital requirements of
the Federal Reserve Board, the FDIC and the OCC. These requirements apply a
variety of weighing factors which vary according to the level of risk associated
with the particular assets. The Company met the guidelines for a well
capitalized bank for March 31, 1996, and December 31, 1995. The table below
shows the capital ratios of the Company at the dates indicated:
[CAPTION]
March 31 December 31 Well-
1996 1995 Capitalized
--------- ----------- -----------
[S] [C] [C] [C]
Tier 1 Risk-Based Capital 15.41% 14.87% 6% or above
Total Risk-Based Capital 16.67% 16.14% 10% or above
Leverage Ratio 9.47% 9.67% 5% or above
Retained earnings through operations have been the primary source of capital
over the past three months. The ratio of shareholders' equity to total assets
was 9.89% as of March 31, 1996, compared to 10.09% at December 31, 1995. Total
shareholders' equity of the Company was $85,823,579 and $84,960,420 for March
31, 1996 and December 31, 1995, respectively. This represented an increase of
$863,159 or 1.02%.
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well
capitalized bank.
Book value per share was $32.95 and $32.62 at March 31, 1996 and December 31,
1995, respectively. Cash dividends were raised to $.2625 per quarter, up from
$.24 per share during the first quarter of 1995.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material proceedings pending at
March 31 1996, against the registrant or its subsidiary.
Item 6(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the first
quarter of 1996.
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: May 9, 1996 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
11
9 1000 3-MOS DEC-31-1996 MAR-31-1996 49583 387 9000 0 202858 51151 51489 521234 8611 868109 764896 2710 10593 4087 13024 0 0 72800 868109 12265 3696 299 16260 6919 6946 9314 630 108 8105 3313 3313 0 0 2307 .89 .89 5.04 2063 2896 0 1500 8815 883 49 8611 8611 0 0