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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, 1997
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 August 13, 1997
1
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996.................. 3
Consolidated Statements of Income - Six Months
Ended June 30, 1997 and 1996......................... 4
Consolidated Statements of Income - Three Months
Ended June 30, 1997 and 1996......................... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996.............. 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....................................... 11
Item 4.
Submission of Matters to a Vote of Shareholders......... 11
Item 6.(b)
Reports on Form 8-K..................................... 11
Signatures.................................................. 12
2
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30 DECEMBER 31
1997 1996
------------ -----------
(Unaudited) (Note 1)
Assets
Cash and due from banks .................. $ 37,041,607 $ 38,374,641
Federal Fund Sold ........................ 8,500,000
---------- ----------
37,041,607 46,874,641
Interest bearing balances with banks ..... 6,792,109 1,824,031
Securities held-to-maturity (market
value-$52,955,525 and $52,334,931
at June 30, 1997 and December 31,
1996, respectively) ................... 52,525,362 52,051,251
Securities available-for-sale (amortized
cost-$215,970,045 and $193,696,615
June 30, 1997 and December 31, 1995,
respectively) ......................... 216,036,226 194,058,997
Loans .................................... 586,873,660 562,752,505
Allowance for loan losses ........... (9,306,960) (9,309,354)
----------- ------------
Net Loans ........................ 577,566,700 553,443,151
Premises and equipment ................... 22,250,582 21,559,955
Other assets ............................. 23,973,822 23,277,326
----------- ------------
Total Assets .................. $ 936,186,408 $ 893,089,352
=========== ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 118,283,628 $ 118,638,526
Certificates of deposit exceeding
$100,000 ........................ 96,420,213 89,435,562
Interest bearing .................... 591,558,174 564,767,920
------------ ------------
Total Deposits ............ 806,262,015 772,842,008
Treasury tax and loan note account ..... 8,517,494 6,354,142
Borrowings ............................. 15,153,335 11,174,638
Other liabilities ...................... 12,287,711 12,157,744
------------ ------------
Total Liabilities ......... $ 842,220,555 $ 802,528,532
Shareholders' Equity
Common Stock, $5 par value-7,500,000
authorized, 3,906,675 shares
issued and outstanding at
June 30, 1997 and December 31, 1996,
respectively .......................... 19,533,375 19,533,375
Additional paid-in capital .............. 39,875,796 39,875,796
Unrealized gains on securities
available-for-sale, net of tax ........ 41,495 227,214
Retained earnings ....................... 34,515,187 30,924,435
------------ ------------
Total Shareholders' Equity .... 93,965,853 90,560,820
------------ ------------
Total Liabilities and
Shareholders' Equity ........ $ 936,186,408 $ 893,089,352
============ ============
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
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Interest Income
Loans ................................ $ 26,764,006 $ 24,769,781 $ 13,634,333 $ 12,504,522
Securities:
Taxable ......................... 6,611,262 6,084,321 3,408,199 3,105,054
Tax-exempt ...................... 1,431,272 1,348,120 712,108 631,098
Other ................................ 359,996 544,510 153,205 245,732
------- ------- ----- -----
Total interest income ...... 35,166,536 32,746,732 17,907,845 16,486,406
Interest Expense
Time deposits exceeding $100,000 ..... 2,409,665 1,843,044 1,542,026 977,949
Other deposits ....................... 12,265,105 11,888,769 5,998,580 5,834,721
Borrowings .......................... 626,694 143,674 327,617 116,953
------- ------- ------ ------
Total interest expense ..... 15,301,464 13,875,487 7,868,223 6,929,623
---------- ---------- --------- ---------
Net interest income ........ 19,865,072 18,871,245 10,039,622 9,556,783
Provision for loan losses .................. 1,140,000 1,260,450 570,000 630,225
--------- --------- ------- -------
Net interest income after
provision for loan losses .. 18,725,072 17,610,795 9,469,622 8,926,558
Noninterest income:
Service charges on deposit accounts .. 3,287,673 3,211,701 1,689,317 1,611,205
Fees and commissions ................. 991,120 836,453 551,104 417,153
Trust revenue ........................ 299,400 270,000 149,700 135,000
Security gains(losses) ............... 77,711 161,423 (12,944) 52,973
Other ................................ 1,052,575 796,537 480,875 325,309
------- ------- ------- -------
Total noninterest income ... 5,708,479 5,276,114 2,858,052 2,541,640
Noninterest expenses:
Salaries and employee benefits ....... 9,446,115 9,257,253 4,790,495 4,619,025
Net occupancy ........................ 1,247,362 1,119,080 563,353 571,075
Equipment ............................ 858,117 746,644 413,055 402,543
Other ................................ 5,426,665 5,232,170 2,859,407 2,657,238
--------- --------- --------- ---------
Total noninterest expenses . 16,978,259 16,355,147 8,626,310 8,249,881
---------- ---------- --------- ---------
Income before income taxes ................. 7,455,292 6,531,762 3,701,364 3,218,317
Income taxes ............................... 2,223,737 1,961,424 1,070,975 955,447
--------- --------- --------- ---------
Net income ................. $ 5,231,555 $ 4,570,338 $ 2,630,389 $ 2,262,870
========== ========== ============ ============
Earnings per share ........................ $ 1.34 $ 1.17 $ .67 $ .58
====== ====== ====== ======
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
SIX MONTHS ENDED JUNE 30
1997 1996
---- ----
(Unaudited)
Operating Activities
Net Income ............................. $ 5,231,555 $ 4,570,338
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses .............. 1,140,000 1,260,450
Provision for depreciation and
amortization ...................... 1,165,995 989,550
Net amortization (accretion) of
securities premiums/discounts ..... 1,335,899 (731,941)
Losses (gains) on sales/calls of
securities ........................ 61,869 (90,899)
Increase (decrease) in other liabilities 129,967 (169,942)
Deferred income taxes (credits)......... (124,567) 120,913
Losses (gains) on sales of
premises and equipment ............ 106,712 (15,360)
Increase in other assets ............... (485,867) (778,462)
-------- --------
Net Cash Provided by Operating
Activities ................... 8,561,563 5,154,647
Investing Activities
Net (increase) decrease in balances
with other banks .................. (4,968,078) 6,010,469
Proceeds from maturities/calls of
securities held-to-maturity ....... 1,772,594 669,581
Proceeds from maturities/calls of
securities available-for-sale ..... 37,377,232 37,835,540
Proceeds from sales of
securities available-for-sale ..... 31,311,869 18,590,899
Purchases of securities
held-to-maturity .................. (2,782,000) (4,034,555)
Purchases of securities
available-for-sale ................ (91,825,004) (88,208,602)
Net increase in loans .................. (25,531,038) (9,447,845)
Proceeds from sales of premises
and equipment ..................... 153,406 96,170
Purchases of premises and equipment .... (1,824,831) (1,233,606)
---------- ----------
Net Cash Used in Investing
Activities ................... (56,315,850) (39,721,949)
Financing Activities
Net decrease in
noninterest-bearing deposits ...... (354,898) (519,282)
Net increase in certificate of deposits
exceeding $100,000 ................. 6,984,651 19,818,422
Net increase in other
interest-bearing deposits .......... 26,790,254 6,967,951
Net increase in treasury
tax and loan note account ......... 2,163,352 725,112
Increase in borrowings ................. 3,978,697 2,594,548
Cash dividends paid .................... (1,640,803) (1,450,200)
---------- ----------
Net Cash Provided by Financing
Activities ................... 37,921,253 28,136,551
---------- ----------
Decrease in Cash
and Cash Equivalents ......... (9,833,034) (6,430,751)
Cash and Cash Equivalents at
beginning of period ............... 46,874,641 63,918,819
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 37,041,607 $ 57,488,068
============ ============
Non-cash transactions:
Transfer of loans to other real
estate .............................. $ 267,489 $ 568,621
============ ============
See Notes to Consolidated Financial Statements
5
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
Note 1 Basis of Presentation:
The consolidated balance sheet at December 31, 1996, 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 notes to consolidated
financial statements included in the Registrant's annual report for the year
ended December 31, 1996. 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 Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Statement No. 128
simplifies the calculation of earnings per share (EPS) standards, and is
effective for both interim and annual periods ending after December 15, 1997.
The Company does not believe that the adoption of this statement will have a
material effect on its consolidated financial position or results of operations.
6
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements' within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21 of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that
any such forward-looking statements are not guarantees for future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
- -------------------
Total assets of The Peoples Holding Company grew from $893,089,352 on December
31, 1996, to $936,186,408 on June 30, 1997, or 4.83% for the six month period.
Total securities increased from $246,110,248 on December 31, 1996, to
$268,561,588 on June 30, 1997, with the majority of growth in US Government
Agencies and Mortgage-backed securities. Loans, net of unearned income,
increased $24,121,155 or 4.29%.
Total deposits for the first six months of 1997 grew from $772,842,008 on
December 31, 1996 to $806,262,015 on June 30, 1997, or an increase of 4.32%,
with the majority of growth in time deposits.
The equity capital to total assets ratio was 10.04% and 10.14% for June 30, 1997
and December 31, 1996, respectively. The decrease is mainly due to the
decline in unrealized gains on securities available-for-sale at June 30, 1997.
Results of Operations-June 30, 1997 compared to June 30, 1996
- -------------------------------------------------------------------
The Company's net income for the six month period ending June 30, 1997, was
$5,231,555 representing an increase of $661,217 or 14.47% over net income
for the six month period ending June 30, 1996 which totaled $4,570,338. The
increase in net income for the six month period came from usual and
customary deposit gathering and lending operations. Net income was
$2,630,389 and $2,262,870 for the second quarter ending June 30, 1997 and
1996, respectively. The annualized returns on average assets for the six
month period ending June 30, 1997 and 1996, was 1.14% and 1.05%,
respectively.
7
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,
1997 and 1996, was $19,865,072 and $18,871,245, respectively. The net interest
income was $10,039,622 and $9,556,783 for the three month periods ending June
30, 1997 and 1996, respectively. Earning assets averaged $846.7 million for the
six month period ending June 30, 1997, compared to $782.4 million for the same
period in 1996. The increase in average earning assets is mainly due to the
increase in loan volume, based on consumer demand, and an increase in the
securities portfolio. The net interest margin was 4.94% and 5.06% for the six
month periods ending June 30, 1997 and 1996, respectively. The decrease in net
interest margin is due to the increase in the volume and rate of costing
liabilities in 1997.
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 and regulators. The provision for loan
losses totaled $1,140,000 and $1,260,450 for the six month periods ending
June 30, 1997 and 1996, respectively. The allowance for loan losses as a
percent of net loans outstanding was 1.59% and 1.65% as of June 30, 1997 and
December 31, 1996, respectively. Net charge-offs to average loans was .20%
and .23% for the six month periods ending June 30, 1997 and 1996,
respectively.
Noninterest income was $5,708,479 for the six month period ending June 30, 1997,
compared to $5,276,114 for same period in 1996, or an increase of 8.19%. The
increase in deposits at June 30, 1997 compared to same period in 1996 resulted
in an increase in service charges and fees and commissions. The increase in
other income for the six months ending June 30, 1997, compared to the same
period in 1996, was attributable to an increase in debit card and merchant
activity and mortgage loan servicing. Noninterest income for the quarter ending
June 30, 1997 increased $316,412 or 12.45% compared to the same period in 1996.
The increase is mainly due to an increase in fees and commissions along with the
increased loan and deposit volume, coupled with security losses in the quarter
ending June 30, 1997 compared to securities gains in the same quarter of 1996.
Noninterest expenses were $16,978,259 for six month period ending June 30,1997,
compared to $16,355,147 for the same period 1996, or an increase of 3.81%.
The components of noninterest expenses for the quarter ending and six
months ending June 30, 1997 and 1996, 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, 1997 increased $376,429 or 4.56% compared to the same period in 1996.
8
Income tax expense was $2,223,737 for the six month period ending June 30, 1997,
compared to $1,961,424 for the same period in 1996. The increase is due to
increased profits for the six month period ending 1997 compared to 1996. The
Company continues to invest in assets whose earnings are given favorable tax
treatment, which lowered the indicated tax rate from 30.03% to 29.83%,
respectively.
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 a key to assuring liquidity. Approximately 88% 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. Management continues to monitor the liquidity and
potentially volatile liabilities ratios to ensure compliance with Asset
Liability Committee targets. These targets are set to ensure that the Company
meets the liquidity requirements deemed necessary by management and regulators.
Other sources available for meeting the Company's liquidity needs include
available-for-sale securities. The available-for-sale 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 and may also obtain
advances from the Federal Home Loan Bank (FHLB) or the treasury tax and loan
note account, in order to meet liquidity needs. Historically, the Company has
not relied upon these sources to meet long-term liquidity needs. Sources of
funds derived from the FHLB are used primarily to match mortgage loan
originations in order to minimize interest rate risk.
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). As of June 30, 1997, the Bank has met all
capital adequacy requirements to which it is subject.
9
As of June 30, 1997, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of
management, there are no conditions or events since the last notification that
have changed the institution's category. The Bank's actual capital amounts and
applicable ratios are as follows:
Actual
Amount Ratio
------ -----
(000)
As of June 30, 1997
Total Capital .................... $ 96,975 16.3%
(to Risk Weighted Assets)
Tier I Capital ................... $ 89,504 15.0%
(to Risk Weighted Assets)
Tier I Capital ................... $ 89,504 9.8%
(to Adjusted Average Assets)
As of December 31, 1996
Total Capital .................... $ 92,734 16.4%
(to Risk Weighted Assets)
Tier I Capital ................... $ 85,618 15.1%
(to Risk Weighted Assets)
Tier I Capital ................... $ 85,618 9.9%
(to Adjusted Average Assets)
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 $ 24.05 and $23.18 at June 30, 1997 and December 31,
1996, respectively. Quarterly cash dividends were raised to $.22 per share
during the second quarter of 1997, up from $.19 per share during the second
quarter of 1996.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material proceding against the Company
during the quarter ending June 30, 1997.
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 8, 1997, for the purpose of electing
five members to the board of directors for a three year term, and
one member to the board of directors for a one 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.
Election of Directors For Withheld Not Voting
THREE-YEAR TERM
George H. Booth, II 3,118,308 0 788,367
Frank B. Brooks 3,114,693 3,615 788,367
Robert C. Leake 3,118,308 0 788,367
Larry Michael 3,113,162 5,146 788,367
J. Heywood Washburn 3,117,438 870 788,367
ONE-YEAR TERM
John M. Creekmore 3,117,635 673 788,367
For Against Abstain
Ratify appointment of
Ernst & Young LLP as
independent auditors
for 1997 3,120,481 0 786,194
Item 6(b) Reports on Form 8-K
Form 8-K was not filed during the quarter ending June 30, 1997.
11
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: August 13, 1997 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
12
9 1000 6-MOS DEC-31-1997 JUN-30-1997 37042 6792 0 0 216036 52525 52956 586574 9307 936186 806262 8517 12288 15153 0 0 19533 74432 936186 26764 8043 360 35167 14675 15301 19865 1140 78 16978 7455 7455 0 0 5232 1.34 1.34 4.94 1213 3715 0 1213 9309 1530 388 9307 9307 0 9307