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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 June 30, 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, 3,906,675 shares outstanding
as of July 24, 1996
1
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995.................. 3
Consolidated Statements of Income - Six Months
Ended June 30, 1996 and 1995......................... 4
Consolidated Statements of Income - Three Months
Ended June 30, 1996 and 1995......................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 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 4.
Submission of Matters to a Vote of Shareholders......... 10
Item 6.(b)
Reports on Form 8-K..................................... 10
Signatures.................................................. 10
2
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
[CAPTION]
JUNE 30 DECEMBER 31
1996 1995
------------ -----------
(Unaudited) (Note 1)
[S] [C] [C]
Assets
Cash and due from banks ................ $ 49,488,068 $ 46,918,819
Federal Fund Sold ...................... 8,000,000 17,000,000
---------- ----------
57,488,068 63,918,819
Interest bearing balances with banks .... 2,803,942 8,814,411
Securities held-to-maturity (market
value-$49,110,347 and $50,109,526
at June 30, 1996 and December 31,
1995, respectively) ................. 49,314,775 45,837,145
Securities available-for-sale (amortized
cost-$202,205,536 and $166,530,900 at
June 30, 1996 and December 31, 1995,
respectively) ....................... 197,632,445 168,381,798
Loans .................................. 539,252,359 533,545,333
Unearned Income ..................... (9,285,073) (11,231,586)
Allowance for loan losses ........... (8,849,895) (8,815,130)
----------- ------------
Net Loans ........................ 521,117,391 513,498,617
Premises and equipment ................. 20,778,646 20,323,492
Other assets ........................... 23,059,803 20,925,126
----------- ------------
Total Assets .................. $ 872,195,070 $ 841,699,408
=========== ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 116,375,637 $ 116,894,919
Certificates of deposit exceeding
$100,000 ........................ 82,438,971 62,620,549
Interest bearing .................... 566,997,782 560,029,831
------------ ------------
Total Deposits ............ 765,812,390 739,545,299
Treasury tax and loan note account ..... 3,125,607 2,400,495
Borrowings ............................. 6,907,657 4,313,109
Other liabilities ...................... 10,310,143 10,480,085
------------ ------------
Total Liabilities ......... $ 786,155,797 $ 756,738,988
Shareholders' Equity
Common Stock, $5 par value-7,500,000
authorized, 3,906,675 and 2,604,760
shares issued and outstanding at
June 30, 1996 and December 31, 1995,
respectively .......................... 19,533,375 13,023,800
Additional paid-in capital .............. 39,875,796 39,875,796
Unrealized gains (losses) on securities,
net of tax ............................ (872,032) 1,169,262
Retained earnings ....................... 27,502,134 30,891,562
------------ ------------
Total Shareholders' Equity .... 86,039,273 84,960,420
------------ ------------
Total Liabilities and
Shareholders' Equity ........ $ 872,195,070 $ 841,699,408
============ ============
See Notes to Consolidated Financial Statements
3
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
Interest Income
Loans ................................ $ 24,769,781 $ 23,963,841 $ 12,504,522 $ 12,375,787
Securities:
Taxable ......................... 6,084,321 4,812,589 3,105,054 2,478,568
Tax-exempt ...................... 1,348,120 1,268,803 631,098 639,849
Other ................................ 544,510 412,376 245,732 250,902
------- ------- ----- -------
Total interest income ...... 32,746,732 30,457,609 16,486,406 15,745,106
Interest Expense
Time deposits exceeding $100,000 ..... 1,843,044 1,538,489 977,949 833,117
Other deposits ....................... 11,888,769 10,188,548 5,834,721 5,391,431
Borrowings .......................... 143,674 197,511 116,953 93,856
------- ------- ------ ------
Total interest expense ..... 13,875,487 11,924,548 6,929,623 6,318,404
---------- ---------- --------- ---------
Net interest income ........ 18,871,245 18,533,061 9,556,783 9,426,702
Provision for loan losses .................. 1,260,450 1,200,000 630,225 600,000
--------- --------- ------- -------
Net interest income after
provision for loan losses .. 17,610,795 17,333,061 8,926,558 8,826,702
Noninterest income:
Service charges on deposit accounts .. 3,211,701 3,055,878 1,611,205 1,573,039
Fees and commissions ................. 836,453 716,796 417,153 381,352
Trust department ..................... 270,000 261,000 135,000 130,500
Security gains(losses) ............... 161,423 (413,963) 52,973 (39,540)
Other ................................ 796,537 803,587 325,309 346,356
------- ------- ------- -------
Total noninterest income ... 5,276,114 4,423,298 2,541,640 2,391,707
Noninterest expenses:
Salaries and employee benefits ....... 9,257,253 8,852,422 4,619,025 4,582,643
Net occupancy ........................ 1,119,080 1,113,268 571,075 586,371
Equipment ............................ 746,644 643,989 402,543 306,269
Other ................................ 5,232,170 4,900,379 2,657,238 2,143,033
--------- --------- --------- ---------
Total noninterest expenses . 16,355,147 15,510,058 8,249,881 7,618,316
---------- ---------- --------- ---------
Income before income taxes ................. 6,531,762 6,246,301 3,218,317 3,600,093
Income taxes ............................... 1,961,424 1,818,055 955,447 1,059,954
--------- --------- --------- ---------
Net income ................. $ 4,570,338 $ 4,428,246 $ 2,262,870 $ 2,540,139
========== ========== ============ ============
Earnings per share ........................ $ 1.17 $ 1.13 $ .58 $ .65
====== ====== ====== ======
Weighted average shares outstanding ....... 3,906,675 3,906,675 3,906,675 3,906,675
========= ========= ========= =========
See Notes to Consolidated Financial Statements
4
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
SIX MONTHS ENDED JUNE 30
1996 1995
---- ----
(Unaudited)
[S] [C] [C]
Operating Activities
Net Income ............................. $ 4,570,338 $ 4,428,246
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses .............. 1,260,450 1,200,000
Provision for depreciation and
amortization ...................... 989,550 920,307
Net amortization (accretion) of
securities premiums/discounts ..... (731,941) 2,476,678
Losses (gains) on sales/calls of
securities ........................ (90,899) 441,542
Increase (decrease) in other liabilities (169,942) 432,506
Deferred income tax (credits)........... 120,913 (656,907)
Losses (gains) on sales of
premises and equipment ............ (15,360) 27,069
Increase in other assets ............... (778,462) (1,224,018)
-------- ----------
Net Cash Provided by Operating
Activities ................... 5,154,647 8,045,423
Investing Activities
Net increase (decrease) in balances
with other banks .................. 6,010,469 (2,871,195)
Proceeds from maturities/calls of
securities held-to-maturity ....... 669,581 654,042
Proceeds from maturities/calls of
securities available-for-sale ..... 37,835,540 30,604,300
Proceeds from sales of
securities available-for-sale ..... 18,590,899 23,883,732
Purchases of securities
held-to-maturity .................. (4,034,555) (2,990,000)
Purchases of securities
available-for-sale ................ (88,208,602) (48,037,930)
Net increase in loans .................. (9,447,845) (26,598,029)
Proceeds from sales of premises
and equipment ..................... 96,170 169,252
Purchases of premises and equipment .... (1,233,606) (1,428,090)
---------- ----------
Net Cash Used in Investing
Activities ................... (39,721,949) (26,613,918)
Financing Activities
Net decrease in
noninterest-bearing deposits ...... (519,282) (2,846,059)
Net increase in certificate of deposits
exceeding $100,000 ................. 19,818,422 6,345,198
Net increase in other
interest-bearing deposits .......... 6,967,951 24,259,992
Net increase (decrease) in treasury
tax and loan note account ......... 725,112 373,271
Increase (decrease) in borrowings ...... 2,594,548 (528,699)
Cash dividends paid .................... (1,450,200) (1,308,894)
---------- ----------
Net Cash Provided by Financing
Activities ................... 28,136,551 26,294,809
---------- ----------
Increase (Decrease) in Cash
and Cash Equivalents ......... (6,430,751) 7,726,314
Cash and Cash Equivalents at
beginning of period ............... 63,918,819 45,273,177
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 57,488,068 $ 52,999,491
============ ============
Non-cash transactions:
Transfer of loans to other real
estate .............................. $ 568,621 $ 403,703
============ ============
See Notes to Consolidated Financial Statements
5
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
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
to 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 consolidated financial statements included in the Registrant's
annual report for the year ended December 31, 1995. Certain information and
footnote disclosures normally included in consolidated 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 Stock Dividend:
Effective May 20, 1996, for shareholders of record at April 30, 1996, the
Company declared a 50% stock dividend. The stock dividend increased the
number of shares outstanding from 2,604,760 to 3,906,675, which is net of
465 fractional shares paid in cash by the Company. Per share data has been
restated to reflect the stock dividend. The Company also increased the
quarterly dividend from $.175 per share for the second quarter of 1995 to
$.19 per share for the second quarter of 1996.
Note 4 Reclassifications:
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the 1996 presentation.
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 $872,195,070 on June 30, 1996, or 3.62% for the six month
period. Total securities increased from $217,744,325 on December 31, 1995, to
$246,947,220 on June 30, 1996, in accordance with management's strategic plan.
Loans, less unearned income, increased $7,653,539 or 1.47% comparing June 30,
1996 to December 31, 1995.
Total deposits for the first six months of 1996 grew from $739,545,299 on
December 31, 1995 to $765,812,390 on June 30, 1996, or an increase of 3.55%,
with the majority of growth in time deposits.
The equity capital to total assets ratio was 9.86% and 10.09% for June 30, 1996
and December 31, 1995, respectively.
Results of Operations- Six and Three Month Periods ending
June 30, 1996 compared to June 30, 199
- --------------------------------------------------------------------------
The Company's net income for the six month period ending June 30, 1996 was
$4,570,338 compared to $4,428,246 for the same period in 1995. During the
second quarter of 1995, the Bank received a favorable reversal of a legal
judgement, net of tax of $348,920, which was previously recorded as a loss
in 1991. Excluding this reversal, the net income for the six month period
ending June 30, 1995 would have been $4,079,326 and compared to the current
period, net income would have increased 12.04% in 1996. Net income was
$2,262,870 and $2,540,139 for the second quarter ending June 30, 1996 and
1995, respectively. The decrease in net income for the second quarter of
1996 compared to 1995 is due to the reversal of the legal judgement
previously mentioned. The annualized returns on average assets for the six
month period ending June 30, 1996 and 1995 was 1.07% and 1.11%,
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
income are the mix and maturity balance between interest-sensitive assets
and related liabilities. The net interest income for the six month periods
ending June 30, 1996 and 1995 was $18,871,245 and $18,533,061,
respectively. The net interest income was $9,556,783 and $9,426,702 for the
three month periods ending June 30, 1996 and 1995, respectively. Earning
assets averaged $782.4 million for the six month period ending June 30,
1996 compared to $734.8 million for the same period in 1995. The net
interest margin was 5.06% and 5.23% for the six month periods ending June
30, 1996 and 1995, respectively. The decrease in net interest margin is due
to the increase in the volume and rate of costing liabilities in 1996.
7
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 totaled $1,260,450 and
$1,200,000 for the six month periods ending June 30, 1996 and 1995,
respectively. The allowance for loan losses as a percent of net loans
outstanding was 1.67% and 1.70% as of June 30, 1996 and December 31, 1995,
respectively. Net charge-offs to average loans was .23% and .05% for the
six month periods ending June 30, 1996 and 1995, respectively.
Noninterest income was $5,276,114 for the six month period ending June 30,
1996, compared to $4,423,298 for same period in 1995, or an increase of
19.28%. The majority of the increase between 1996 and 1995 is due to
security gains of $161,423 in 1996 compared to security losses of $413,963
in 1995. The increase in deposits at June 30, 1996 compared to same period
in 1995 resulted in an increase in service charges and fees and
commissions. Noninterest income for the quarter ending June 30, 1996
increased $149,933 or 6.27% compared to the same period in 1995. The
increase is due to security gains in the second quarter of 1996 compared to
security losses in 1995 and an increase in the deposits resulted in more
service charges and fees and commissions.
Noninterest expenses were $16,355,147 for six month period ending June 30,
1996, compared to $15,510,058 for the same period 1995, or an increase
of 5.45%. 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. Noninterest
expenses for the quarter ending June 30, 1996 increased $631,565 or
8.29% compared to the same period in 1995. The increase is mainly due to the
reversal of the legal judgement in 1995 that was previously mentioned.
Income tax expense was $1,961,424 for the six month period ending June
30, 1996, compared to $1,818,055 for the same period in 1995. The
increase is due to increased profits for the six month period ending
1996 compared to 1995 and the Company paying State of Mississippi
taxes after a net operating loss carryforward was depleted in the
first quarter of 1995. 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.
8
Approximately 89% 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 and Federal Home
Loan Bank borrowings. 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.
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 June 30, 1996, and December 31, 1995. The table below shows
the capital ratios of the Company at the dates indicated:
[CAPTION]
June 30 December 31 Well-
1996 1995 Capitalized
--------- ----------- -----------
[S] [C] [C] [C]
Tier 1 Risk-Based Capital 15.55% 14.87% 6% or above
Total Risk-Based Capital 16.80% 16.14% 10% or above
Leverage Ratio 9.57% 9.67% 5% or above
Retained earnings through operations have been the primary source of capital
over the past six months. The ratio of shareholders' equity to total assets
was 9.86% as of June 30, 1996, compared to 10.09% at December 31, 1995. Total
shareholders' equity of the Company was $86,039,273 and $84,960,420 for June
30, 1996 and December 31, 1995, respectively. This represented an increase of
$1,078,853 or 1.27%.
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 $22.02 and $21.75 at June 30, 1996 and December 31,
1995, respectively. Cash dividends were raised to $.19 per quarter, up from
$.175 per share during the second 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 June 30,
1996 against the registrant or its subsidiary.
Item 4. Submission of Matters to a Vote of Shareholders
The annual meeting of the shareholders of The Peoples
Holding Company was held on April 9, 1996, for the
purpose of electing four members to the board of
directors for a three year term, and to ratify the
appointment of the independent auditors. Proxies for
the meeting were solicited pursuant to Section 14(a)
of the Securities Exchange Act of 1934.
[CAPTION]
Election of Directors For Against Abstain
[S] [C] [C] [C]
William M. Beasley 2,105,918 3,265 495,577
Marshall H. Dickerson 2,103,550 5,633 495,577
A.M. Edwards, Jr. 2,102,291 6,892 495,577
Eugene B. Gifford, Jr. 2,104,240 4,943 495,577
Ratify appointment of
Ernst & Young LLP as
independent auditors
for 1996 2,100,633 4,160 499,967
Item 6(b) Reports on Form 8-K
The following 8-K was filed on May 20, 1996:
The Board of Directors of The Peoples Holding Company, at
the April board meeting, voted to declare a 50% stock
dividend to shareholders of record April 30, 1996, to be
issued on May 20, 1996.
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: July 24, 1996 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
10
9 1000 6-MOS DEC-31-1996 JUN-30-1996 49488 2804 8000 0 197632 49315 49110 529967 8850 872195 765812 3126 10310 6908 0 0 19533 66506 872195 24770 7432 545 32747 13732 144 18871 1260 161 16355 6532 6532 0 0 4570 1.17 1.17 5.06 1992 2697 243 1000 8815 1363 137 8849 8849 0 1000