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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2000 Commission file number 1-13253 THE PEOPLES HOLDING COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Mississippi 64-0676974 ------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 209 Troy Street Tupelo, Mississippi 38802-0709 ------------------------------------------- (Address of principal offices) (Zip Code) Registrant's Telephone Number: (662) 680-1001 Securities registered pursuant to Section 12(b) of the Act: (Title of Class) Name of each exchange on which registered - ----------------------------- ----------------------------------------- Common Stock, $5.00 Par Value American Stock Exchange Indicate by 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 for such shorter periods 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_____ Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K will be contained in the registrant's proxy statement for its 2000 annual meeting of shareholders, which statement is incorporated by reference in Part III of this Form 10-K. YES_____NO__X___ The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 27, 2001, was $115,788,560, based on 6,046,400 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of annual Proxy Statement dated March 19, 2001, relating to the annual meeting of shareholders of The Peoples Holding Company, are incorporated by reference into Part III.
2 THE PEOPLES HOLDING COMPANY Form 10-K For the year ended December 31, 2000 CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
3 PART I This Annual Report (Form 10-K) 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. ITEM 1. BUSINESS General The Peoples Holding Company (the Registrant or Company) was organized under the laws of the State of Mississippi and incorporated on November 10, 1982, in order to acquire all of the common stock of The Peoples Bank & Trust Company, Tupelo, Mississippi (the Bank). Organization The Registrant commenced business on July 1, 1983, and the acquisition of the Bank was also consummated at that time. All of the Registrant's business activities are conducted through the Bank and the Bank's wholly-owned subsidiaries, Peoples Insurance Agency, Dominion Life and Health P.A., Alliance Finance Company and Dominion Company (Dominion companies). The Bank accounts for substantially all of the assets and revenues of the Registrant. On December 31, 2000, the Registrant had 41 banking offices in Tupelo, Aberdeen, Amory, Batesville, Belden, Booneville, Calhoun City, Coffeeville, Corinth, Grenada, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Olive Branch, Pontotoc, Saltillo, Sardis, Shannon, Smithville, Southaven, Verona, Water Valley, West Point, and Winona, Mississippi. The Registrant also had three insurance offices located at Corinth, Louisville and Tupelo. All members of the Board of Directors of the Registrant are also members of the Board of Directors of the Bank. Responsibility for the management of the Bank and its subsidiaries remains with the Board of Directors and Officers of the Bank; however, management services rendered to the Bank by the Registrant are intended to supplement the internal management of the Bank and expand the scope of banking services normally offered by them. The Bank, which is the Registrant's subsidiary, was established in February 1904 as a state-chartered bank. It is insured by the Federal Deposit Insurance Corporation. As a commercial bank, a complete range of banking and financial services is provided to individuals and small to medium-size businesses. These services include checking and savings accounts, business and personal loans, interim construction and residential mortgage loans, student loans, equipment leasing, as well as safe deposit and night depository facilities. Automated teller machines located throughout our market area and our PC Banking product provide 24-hour banking services. Accounts receivable factoring is also available to qualified businesses. In addition to a wide variety of fiduciary services, the Bank administers (as trustee or in other fiduciary or representative capacities) pension, profit-sharing and other employee benefit plans, and personal trusts and estates. In addition to offering annuities and mutual funds, the acquisition of the insurance agencies has expanded the Registrant's product and delivery network to include personal and business insurance coverages. Neither the Registrant nor the Bank has any foreign activities.
4 Competition Vigorous competition exists in all major areas where the Registrant Company conducts business. Not only does the Registrant compete through its subsidiary bank with state and national banks in its service areas, but also with savings and loan associations, credit unions, finance companies, mortgage companies, insurance companies, brokerage firms, and investment companies for available loans and depository accounts. All of these institutions compete in the delivery of services and products through availability, quality, and pricing. Within the Registrant's market area, none of the competitors are dominant. Supervision and Regulation The Registrant is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the Act), and is registered as such with the Board of Governors of the Federal Reserve System (the Board). The Registrant is required to file with the Board an annual report and such other information as the Board may require. The Board may also make examinations of the Registrant and its subsidiary pursuant to the Act. The Board also has the authority (which it has not exercised) to regulate provisions of certain bank holding company debt. The Act requires every bank holding company to obtain prior approval of the Board before acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority-owned by the Registrant. The Act provides that the Board shall not approve any acquisition, merger or consolidation which would result in monopoly or which would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking, or any other transactions the effect of which might substantially lessen competition, or in any manner be a restraint on trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. The Act also prohibits a bank holding company, with certain exceptions, from itself engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities. The principal exception is for engaging in or acquiring shares of a company whose activities are found by the Board to be so closely related to banking or managing banks as to be a proper incident thereto. In making such determinations the Board is required to consider whether the performance of such activities by a bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition, or gains in efficiency of resources versus the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest, or unsound banking practices. The Act prohibits the acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank to be acquired is located. The Registrant and its subsidiary are subject to certain restrictions imposed by the Federal Reserve Act and the Federal Deposit Insurance Act on any extensions of credit to the bank holding company or its subsidiary, on investments in the stock or other securities of the bank holding company or its subsidiary, and on taking such stock or other securities as collateral for loans of any borrower. The Bank Holding Company Act of 1956 was recently amended to permit "financial bank holding companies" to engage in a broad range of financial activities. The new legislation, the Gramm-Leach-Bliley Act, was enacted on November 12, 1999, and became effective on March 11, 2000. The Act sets forth requirements to be met in order to engage in financial activities and defines those financial activities. Presently, the Company is considering the implications of the Act, but has no current plans to form a financial holding company.
5 The Bank was chartered under the laws of the State of Mississippi and is subject to the supervision of, and is regularly examined by, the Department of Banking and Consumer Finance of the State of Mississippi. The Bank is also insured by the Federal Deposit Insurance Corporation and is subject to examination and review by that regulatory authority. Mississippi banks are permitted to merge with other existing banks statewide and to acquire or be acquired by banks or bank holding companies. Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed territorial restrictions for interstate bank mergers, effective May 1, 1997. Out-of-state bank holding companies may establish a bank in Mississippi only by acquiring a Mississippi bank or Mississippi bank holding company. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans, or advances. The approval of the Mississippi Department of Banking and Consumer Finance is required prior to the Bank paying dividends and is limited to earned surplus in excess of three times the Bank's capital stock. Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specific obligations. At December 31, 2000, the maximum amount available for transfer from the Bank to the Company in the form of cash dividends and loans was 17.06% of the Bank's consolidated net assets. Mississippi laws authorize multi-bank holding companies but there are no statutes regulating the operation of such companies. Monetary Policy and Economic Controls The earnings and growth of the banking industry, the Bank and, to a larger extent, the Registrant are affected by the policies of regulatory authorities, including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in U. S. Government securities, changes in the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. These instruments are used in varying degrees to influence overall growth of bank loans, investments, and deposits and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve System have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. In view of changing conditions in the national economy and in the various money markets, as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, the effect on future business and earnings of the Registrant and its subsidiary cannot be predicted with accuracy. In the past few years, the trend seems to be toward competitive equality within the financial services industry. This was evidenced in 1980 by the formation of the Depository Institution Deregulation Committee (the DIDC). The DIDC's sole purpose was to eliminate the restrictions imposed upon the rates of interest a depository institution could pay on a deposit account. The trend was again evidenced in 1982 with the passage of the Garn-St. Germain Depository Institutions Act. This act provided for, among other things, the money market account. This account was designed to operate in a manner similar to the money market mutual funds being offered by the investment brokers. It would earn a market rate of interest with limited third-party withdrawals and a minimum balance requirement.
6 Sources and Availability of Funds The funds essential to the business of the Registrant and its subsidiary consist primarily of funds derived from customer deposits and borrowings of federal funds by the banking subsidiary and from loans under established lines of credit. The availability of such funds is primarily dependent upon the economic policies of the federal government, the economy in general, and the general credit market for loans. Personnel At December 31, 2000, the Registrant and its subsidiary employed 581 people on a full-time equivalent basis. Dependence Upon a Single Customer Neither the Registrant nor its subsidiary is dependent upon a single customer or upon a limited number of customers. Segment Reporting The information under the caption "Note L - Segment Reporting" on pages 48 through 50 of the Registrant's 2000 Form 10-K is incorporated herein by reference. Acquisition of Certain Assets and Liabilities The information under the caption "Note B - Business Combinations" on pages 38 through 39 of the Registrant's 2000 Form 10-K is incorporated herein by reference. Executive Officers of the Registrant The principal executive officer of the Company and its subsidiary as of December 31, 2000, is as follows: Name Age E. Robinson McGraw 54 Position and Office: Director, President, and Chief Executive Officer of the Company since November 2000. Executive Vice President of the Bank from September 1993 until October 2000; Director, President and Chief Executive Officer of the Bank since November 2000. All of the Registrant's officers are appointed annually by the appropriate Board of Directors to serve at the discretion of the Board.
7 Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential (In Thousands) 2000 ------------------------------------------------- Tax Equivalent Average Balance Yields/ Income or Expense Sheet Amount Rates ----------------- ----------------- ----------- Earning Assets Loans, net of unearned income Commercial .......................................... $ 38,014 $ 418,969 9.07% Consumer ............................................ 19,196 209,969 9.14% Other loans ......................................... 16,314 187,650 8.69% ----------------- ----------------- Total Loans, Net .............................. 73,524 816,588 9.00% Other .................................................. 459 7,546 6.08% Taxable securities U. S. Government securities ......................... 2,832 49,530 5.72% U. S. Government agencies ........................... 3,046 48,817 6.24% Mortgage-backed securities .......................... 5,693 89,987 6.33% Other securities .................................... 700 7,935 8.82% ----------------- ----------------- Total Taxable Securities ...................... 12,271 196,269 6.25% Tax-exempt securities Obligations of states and political subdivisions .... 6,633 84,146 7.88% ----------------- ----------------- Total Securities .............................. 18,904 280,415 6.74% ----------------- ----------------- Total Earning Assets .................. 92,887 1,104,549 8.41% Cash and due from banks ................................... 39,299 Other assets, less allowance for loan losses .............. 53,409 ----------------- Total Assets ...................... $ 1,197,257 ================= Interest-Bearing Liabilities Interest-bearing demand deposit accounts ............... 2,475 $ 71,373 3.47% Savings and money market accounts ...................... 9,078 273,217 3.32% Time deposits .......................................... 30,616 545,583 5.61% ----------------- ----------------- Total Interest-Bearing Deposits ................... 42,169 890,173 4.74% Total Other Interest-Bearing Liabilities .......... 1,963 43,396 4.52% ----------------- ----------------- Total Interest-Bearing Liabilities ...... 44,132 933,569 4.73% Noninterest-bearing sources Noninterest-bearing deposits ........................... 141,094 Other liabilities ...................................... 4,690 Shareholders' equity ................................... 117,904 ----------------- Total Liabilities and Shareholders' Equity .... $ 1,197,257 ================= Net interest income/net interest margin ................... $ 48,755 4.41% ================= The average balances of non-accruing loans are included in this table. Weighted average yields on tax-exempt loans and securities have been computed on a fully tax-equivalent basis assuming a federal tax rate of 35% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit.
8 Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential (continued) 1999 ------------------------------------------------- Tax Equivalent Average Balance Yields/ Income or Expense Sheet Amount Rates ----------------- ----------------- ----------- Earning Assets Loans, net of unearned income Commercial .......................................... $ 32,541 $ 382,089 8.52% Consumer ............................................ 18,940 210,706 8.99% Other loans ......................................... 15,727 172,404 9.12% ----------------- ----------------- Total Loans, Net .............................. 67,208 765,199 8.78% Other .................................................. 401 8,328 4.82% Taxable securities U. S. Government securities ......................... 3,128 52,200 5.99% U. S. Government agencies ........................... 3,040 48,772 6.23% Mortgage-backed securities .......................... 6,008 98,525 6.10% Other securities .................................... 266 3,671 7.25% ----------------- ----------------- Total Taxable Securities ...................... 12,442 203,168 6.12% Tax-exempt securities Obligations of states and political subdivisions .... 6,612 82,901 7.98% ----------------- ----------------- Total Securities .............................. 19,054 286,069 6.66% ----------------- ----------------- Total Earning Assets .................. 86,663 1,059,596 8.18% Cash and due from banks ................................... 38,659 Other assets, less allowance for loan losses .............. 48,356 ----------------- Total Assets ...................... $ 1,146,611 ================= Interest-Bearing Liabilities Interest-bearing demand deposit accounts ............... 1,856 $ 56,752 3.27% Savings and money market accounts ...................... 8,584 283,647 3.03% Time deposits .......................................... 25,037 503,348 4.97% ----------------- ----------------- Total Interest-Bearing Deposits ................... 35,477 843,747 4.20% Total Other Interest-Bearing Liabilities .......... 1,865 32,029 5.82% ----------------- ----------------- Total Interest-Bearing Liabilities ...... 37,342 875,776 4.26% Noninterest-bearing sources Noninterest-bearing deposits ........................... 144,451 Other liabilities ...................................... 14,340 Shareholders' equity ................................... 112,044 ----------------- Total Liabilities and Shareholders' Equity .... $ 1,146,611 ================= Net interest income/net interest margin ................... $ 49,321 4.65% ================= The average balances of non-accruing loans are included in this table. Weighted average yields on tax-exempt loans and securities have been computed on a fully tax-equivalent basis assuming a federal tax rate of 35% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit.
9 Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential (continued) 1998 ------------------------------------------------- Tax Equivalent Average Balance Yields/ Income or Expense Sheet Amount Rates ----------------- ----------------- ----------- Earning Assets Loans, net of unearned income Commercial .......................................... $ 28,749 $ 315,445 9.11% Consumer ............................................ 18,524 197,272 9.39% Other loans ......................................... 16,255 168,846 9.63% ----------------- ----------------- Total Loans, Net .............................. 63,528 681,563 9.32% Other .................................................. 968 18,486 5.24% Taxable securities U. S. Government securities ......................... 3,892 62,367 6.24% U. S. Government agencies ........................... 3,174 51,162 6.20% Mortgage-backed securities .......................... 6,418 101,892 6.30% Other securities .................................... 262 3,274 8.00% ----------------- ----------------- Total Taxable Securities ...................... 13,746 218,695 6.29% Tax-exempt securities Obligations of states and political subdivisions .... 5,730 70,396 8.14% ----------------- ----------------- Total Securities .............................. 19,476 289,091 6.74% ----------------- ----------------- Total Earning Assets ..................... 83,972 989,140 8.49% Cash and due from banks ................................... 34,612 Other assets, less allowance for loan losses .............. 44,788 ----------------- Total Assets .......................... $ 1,068,540 ================= Interest-Bearing Liabilities Interest-bearing demand deposit accounts .............. 2,031 $ 59,834 3.39% Savings and money market accounts ..................... 7,235 235,831 3.07% Time deposits ......................................... 26,677 496,358 5.37% ----------------- ----------------- Total Interest-Bearing Deposits ................... 35,943 792,023 4.54% Total Other Interest-Bearing Liabilities .......... 1,491 24,820 6.01% ----------------- ----------------- Total Interest-Bearing Liabilities ...... 37,434 816,843 4.58% Noninterest-bearing sources Noninterest-bearing deposits ........................... 130,769 Other liabilities ...................................... 13,286 Shareholders' equity ................................... 107,642 ----------------- Total Liabilities and Shareholders' Equity .... $ 1,068,540 ================= Net interest income/net interest margin ................... $ 46,538 4.70% ================ The average balances of non-accruing loans are included in this table. Weighted average yields on tax-exempt loans and securities have been computed on a fully tax-equivalent basis assuming a federal tax rate of 35% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit.
10 Table 2 - Volume/Rate Analysis (In Thousands) The following table sets forth for The Peoples Holding Company, for the years ended December 31 as indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and rates. 2000 Compared To 1999 ---------------------------------------- Increase (Decrease) Due To ---------------------------------------- Volume Rate Net (1) ------------ ------------- ----------- Interest income: Loans, net of unearned income .................................... $ 4,422 $ 1,767 $ 6,189 Securities U. S. Government and agency securities ........................ (149) (131) (280) Obligations of states and political subdivisions .............. 62 (54) 8 Mortgage-backed securities .................................... (521) 206 (315) Other securities .............................................. 286 (7) 279 Other ............................................................ (38) 91 53 ------------ ------------- ----------- Total interest-earning assets .................................... 4,062 1,872 5,934 Interest expense: Interest-bearing demand deposit accounts ......................... 478 141 619 Savings accounts ................................................. (316) 810 494 Time deposits .................................................... 2,101 3,478 5,579 Other ............................................................ 662 (564) 98 ------------ ------------- ----------- Total interest-bearing liabilities ............................... 2,925 3,865 6,790 ------------ ------------- ----------- Change in net interest income .................................... $ 1,137 $ (1,993) $ (856) ============ ============= =========== (1) The change in interest due to both volume and rate has been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.
11 Table 2 - Volume/Rate Analysis (continued) 1999 Compared To 1998 ---------------------------------------- Increase (Decrease) Due To ---------------------------------------- Volume Rate Net (1) ------------ ------------- ----------- Interest income: Loans, net of unearned income .................................... $ 7,748 $ (4,158) $ 3,590 Securities U. S. Government and agency securities ....................... (753) (128) (881) Obligations of states and political subdivisions .............. 648 (156) 492 Mortgage-backed securities .................................... (209) (196) (405) Other securities .............................................. 30 (28) 2 Other ............................................................ (542) (36) (578) ------------ ------------- ----------- Total interest-earning assets .................................... 6,922 (4,702) 2,220 Interest expense: Interest-bearing demand deposit accounts ......................... (105) (70) (175) Savings accounts ................................................. 1,467 (118) 1,349 Time deposits .................................................... 376 (2,016) (1,640) Other ............................................................ 433 (59) 374 ------------ ------------- ----------- Total interest-bearing liabilities ............................... 2,171 (2,263) (92) ------------ ------------- ----------- Change in net interest income .................................... $ 4,751 $ (2,439) $ 2,312 ============ ============= =========== (1) The change in interest due to both volume and rate has been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.
12 Table 3 - Investment Portfolio (In Thousands) The following tables set forth the amortized cost of securities at December 31: 2000 1999 1998 ----------- ----------- ----------- Held to maturity: U. S. Government and agency securities ........... $ $ $ 2,234 Obligations of state and political subdivisions .. 85,658 85,611 76,893 Other securities ................................. 49 ----------- ----------- ----------- $ 85,658 $ 85,611 $ 79,176 =========== =========== =========== 2000 1999 1998 ----------- ----------- ----------- Available for sale: U. S. Government and agency securities ........... $ 98,998 $ 92,858 $ 104,997 Other securities ................................. 94,023 93,508 108,141 ----------- ----------- ----------- $ 193,021 $ 186,366 $ 213,138 =========== =========== =========== The following table sets forth the maturity distribution in thousands and weighted average yield by maturity of securities at December 31, 2000: After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years --------------------- --------------------- --------------------- --------------------- Held to Maturity: Obligations of state and political subdivisions ........ $ 3,045 8.78% $ 21,128 7.68% $ 46,468 7.34% $ 15,017 7.31% ========== ========== ========== ========== Available for Sale: U. S. Government and agency securities ........... $ 34,629 5.72% $ 64,369 6.08% $ Other securities ....... 10,681 6.55% 53,316 6.76% 30,026 6.70% ---------- ---------- ---------- Total $ 45,310 $117,685 $ 30,026 ========== ========== ========== The maturity of mortgage-backed securities, included as other securities, reflects scheduled repayments based upon the anticipated average life of the securities. Weighted average yields on tax-exempt obligations have been computed on a fully tax-equivalent basis assuming a federal tax rate of 35% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit. Yields on available for sale securities are based on amortized cost.
13 Table 4 - Loan Portfolio (In Thousands) The following table sets forth loans, net of unearned income, outstanding as of December 31, 2000, which, based on remaining scheduled repayments of principal, are due in the periods indicated. Real estate mortgage loans and consumer loans are excluded, while net receivables on leased equipment are included in commercial, financial and agricultural loans in the consolidated financial statements. Also, amounts due after one year are classified according to their sensitivity to changing interest rates. Loan Maturities ------------------------------------------------------------------- After One After Within But Within Five One Year Five Years Years Total --------------- --------------- --------------- ---------------- Commercial, financial and agricultural ............... $ 94,931 $ 53,931 $ 13,799 $ 162,661 Real estate - construction .... 23,998 1,708 25,706 --------------- --------------- --------------- ---------------- $ 118,929 $ 55,639 $ 13,799 $ 188,367 =============== =============== =============== ================ Interest Sensitivity --------------------------- Fixed Variable Rate Rate ------------ ------------- Due after 1 but within 5 years ................. $ 53,791 $ 1,848 Due after 5 years .............................. 13,752 47 ------------ ------------- $ 67,543 $ 1,895 ============ ============= Table 5 - Time Deposits (In Thousands) The following table shows the maturity of time deposits over $100 at December 31, 2000: Less than 3 Months ............. $ 49,765 3 Months- 6 Months ............. 53,788 6 Months-12 Months ............. 68,468 Over 12 Months ............... 21,756 -------------- $ 193,777 ==============
14 Short-term Borrowings (In Thousands) The bank borrowed $20,000 in short-term borrowings from the Federal Home Loan Bank (FHLB) on October 20, 1999, in anticipation of potential Y2K cash needs at a rate of 5.85%. The $20,000 was outstanding on December 31, 1999. The Federal Home Loan Bank note matured and was repaid on January 21, 2000. The average balances of other short-term borrowings for 2000 and 1999 were $11,259 and $3,243 at weighted average rates of 6.15% and 5.00%, respectively. ITEM 2. PROPERTIES The main offices of the Registrant and its subsidiary, The Peoples Bank and Trust Company, are located at 209 Troy Street, Tupelo, Mississippi. All floors of the five-story building are occupied by various departments within the Bank. The Technology Center, also located in Tupelo, Mississippi, houses the electronic data processing, proof, and statement rendering. In addition, the Bank operated thirty-two (32) full-service branches, and nine (9) limited-service branches. The Bank has two (2) full-service branches in West Point; one (1) full-service branch and two (2) limited-service branches in Booneville; one (1) full-service branch and one (1) limited-service branch in Amory, Corinth, Louisville, Pontotoc, and Southaven; one (1) full-service branch each at Aberdeen, Batesville, Calhoun City, Coffeeville, Grenada, Guntown, Hernando, Iuka, New Albany, Okolona, Olive Branch, Saltillo, Sardis, Shannon, Verona, Water Valley, and Winona, Mississippi; one (1) limited service branch at Smithville, Mississippi; and seven (7) full-service branches and one (1) limited-service branch in Tupelo, Mississippi. The Insurance divisions have one office each in Corinth, Louisville and Tupelo. The Registrant leases three branch locations for use in conducting banking activities and one location for Dominion Insurance. The aggregate annual rental for all leased premises during the year ending December 31, 2000, did not exceed five percent of the Bank's operating expenses. It is anticipated that in the next several years, branch renovations and construction will be completed at Corinth and Pontotoc, Mississippi. The other facilities owned or occupied under lease by the Bank are considered by management to be adequate. ITEM 3. LEGAL PROCEEDINGS There were no material legal proceedings pending or threatened at December 31, 2000, which in the opinion of the Company could have a material adverse effect upon the Company's operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None during the fourth quarter of 2000.
15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The public market for The Peoples Holding Company common stock is limited. The stock trades on the American Stock Exchange under the ticker symbol PHC. At February 16, 2001, there were approximately 2,745 shareholders of record based on the number of record holders. Prices Dividends ---------------------------- Per Share Low High ----------- ------------ ------------- 2000 1st Quarter .............. $ .220 $ 23.75 $ 28.50 2nd Quarter .............. .220 18.88 25.25 3rd Quarter .............. .220 19.00 21.25 4th Quarter .............. .220 17.81 21.00 1999 1st Quarter .............. $ .210 $ 30.50 $ 36.75 2nd Quarter .............. .210 29.63 36.00 3rd Quarter .............. .210 27.00 34.00 4th Quarter .............. .210 28.38 34.25
16 ITEM 6. SELECTED FINANCIAL DATA (Not covered by Report of Independent Auditors) (In Thousands, Except Share Data) 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------- Year ended December 31: Interest Income ....................... $ 89,434 $ 83,500 $ 81,280 $ 75,321 $ 69,221 Interest Expense ...................... 44,132 37,342 37,434 33,428 29,710 Provision for Loan Losses ............. 6,373 3,192 2,591 2,304 2,837 Noninterest Income .................... 18,529 19,476 14,461 12,181 11,182 Noninterest Expense ................... 42,474 41,480 39,338 36,051 33,987 ------------ ------------ ------------ ------------- ------------ Income Before Income Taxes ............ 14,984 20,962 16,378 15,719 13,869 Income Taxes .......................... 3,800 6,182 4,697 4,716 4,151 ------------ ------------ ------------ ------------- ------------ Net Income ............................ $ 11,184 $ 14,780 $ 11,681 $ 11,003 $ 9,718 ============ ============ ============ ============= ============ Per Common Share: Net Income ............................ $ 1.83 $ 2.38 $ 1.88 $ 1.77 $ 1.57 Book Value at December 31 ............. 20.09 18.71 17.80 16.61 15.35 Market Value at December 31 ........... 18.00 28.88 32.31 35.67 24.50 Cash Dividends Declared and Paid-PHC .. .88 .84 .72 .57 .50 Cash Dividends Declared and Paid-Inter-City .................... .36 .27 1.48 At December 31: Loans, Net of Unearned Income ......... $ 815,854 $ 799,085 $ 729,156 $ 661,572 $ 593,381 Securities ............................ 278,574 266,744 293,639 250,923 246,924 Assets ................................ 1,211,940 1,162,959 1,107,795 1,011,942 927,451 Deposits .............................. 1,046,605 978,958 960,295 870,082 801,545 Borrowings ............................ 24,549 51,269 22,476 18,959 11,729 Shareholders' Equity .................. 121,661 116,089 110,209 103,113 95,253 Selected Ratios Return on Average: Total Assets ....................... .93% 1.29% 1.09% 1.13% 1.08% Shareholders' Equity ............... 9.49% 13.19% 10.85% 11.07% 10.53% Average Shareholders' Equity to Average Assets ..................... 9.85% 9.77% 10.07% 10.25% 10.22% At December 31: Shareholders' Equity To Assets .......................... 10.04% 9.98% 9.95% 10.19% 10.27% Allowance for Loan Losses To Total Loans ..................... 1.29% 1.26% 1.34% 1.39% 1.59% Allowance for Loan Losses To Nonperforming Loans ............. 147.89% 126.47% 261.95% 191.39% 206.29% Nonperforming Loans to Total Loans ........................ .87% 1.00% .51% .73% .77% Dividend Payout ....................... 47.76% 35.24% 36.89% 31.38% 33.52%
17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands, Except Share Data) Overview Year 2000, much like 1999, was a year of challenge for the banking industry. The year began with rising interest rates, the moving toward an inflation bias by the Federal Reserve (the Fed), and robust competition among financial institutions. Specials, particularly in certificates of deposit, became a weekly norm. As the year progressed, the stock market began to falter somewhat, especially in high-tech stocks. Economic reports in early 2000 indicated strong growth. Consumer spending either met or exceeded expectations during the 1999 holiday season. Growth continued during the first quarter as indicated by the strong industrial activity, consumer spending, and commercial and residential construction. Even though the labor market was tight, wages showed only moderate increases. Loan demand, while still strong, was beginning to soften as interest rates continued to rise. By mid year, reports indicated that the economy was still growing, but at a more moderate rate. Consumer spending, manufacturing, and construction were softening. Energy prices were increasing as demand outpaced supply. Retail sales were flat to low and loan demand at banks was weaker. Credit quality concerns began to surface at banks across the country. And while the Fed did not change interest rates during this time, an inflationary bias was maintained. By year end, the labor market, while still tight, was showing further signs of easing. In particular, the softening of automobile sales had led to the scaling back of production. While residential and commercial real estate remained strong, signs of slowing had begun. Loan demand was weaker as lenders tightened credit standards and banks found themselves with smaller margins as competition for deposits drove prices for certificates of deposit well over Treasury rates. While the Fed voiced concerns over inflation, rumblings among economists were beginning to spell the need to cut rates. News of the slowing economy had hit the airways, but the Fed continued to keep the federal funds rate at 6.50%, up from 5.50% from the previous year. Then, at its December meeting, the Fed moved from an inflation bias to a weakness bias. This ultimately preceded the rate cuts in federal funds in early January 2001 by 50 basis points and again in early February by an additional 50 basis points. The Company's performance for 2000 was down due to two primary reasons: the decline in the net interest margin and credit deterioration. Interest rate pressures resulted in higher funds cost due to both higher rates and a dis-intermediation of deposit accounts. In following a national trend, loan losses accelerated during 2000. Losses were prevalent in most loan categories. Noninterest income, excluding the gain from the credit card sale during 1999, was up 17.58%. Noninterest expense was up a moderate 2.40%, of which 41.85% was due to depreciation on new technological systems. Net income was $11,184, down 24.33% from 1999. Net income for 1999 and 1998 was $14,780 and $11,681, respectively. Earnings per share were $1.83, $2.38, and $1.88 for 2000, 1999, and 1998, respectively. Two primary measures of performance that are used by the Company are return on average assets (ROA) and return average equity (ROE). Return on Average Assets 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ .93% 1.29% 1.09% 1.13% 1.08%
18 Return on Average Equity 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 9.49% 13.19% 10.85% 11.07% 10.53% The Company ended the year with total assets of $1,211,940, up 4.21% over 1999. Growth was 4.98% in 1999 with total assets at December 31, 1999, of $1,162,959. On May 1, the Company acquired, through its bank subsidiary, Reed Johnson Insurance Agency, the Southern Insurance Group. The Company issued 70,500 shares of stock for the agency. In conjunction with the acquisition, the two agencies were renamed The Peoples Insurance Agency, Incorporated. On September 1, the Company's bank subsidiary purchased, in a cash transaction, the Dominion Insurance Agency. Both acquisitions were accounted for under the purchase method of accounting. Effective November 1, E. Robinson McGraw became the eighth president of the Company, replacing John W. Smith who retired after 29 years of service. Results of Operations Net interest income on a tax equivalent basis declined $566, or 1.15%, from $49,321 in 1999 to $48,755 in 2000. Of the tax equivalent change, $1,232 was due to the favorable growth in earning assets with a decrease of $1,798 due to rate. While the tax equivalent yield on earnings assets was up 23 basis points, the cost of interest-bearing liabilities rose 47 basis points. This increase in the costing liabilities resulted from competitive pressure for deposits to fund loan growth. The most significant growth in deposits was from certificates of deposits. Net interest income on a tax equivalent basis rose 5.98% from $46,538 in 1998 to $49,321 in 1999. This growth resulted primarily from an increase in the volume of earning assets over the decrease in the yield on those assets. While rates began to rise during 1999, both yields on earning assets and rates paid on liabilities were lower than those from 1998. Specifically, net interest income on a tax equivalent basis increased approximately $3,809 due to an increase in the volume of earning assets and costing liabilities and decreased approximately $1,026 due to changes in rates. The Company experienced the most significant volume increase in loans, interest bearing transaction accounts, and certificates of deposit. Average Earning Assets to Total Average Assets 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 92.26% 92.41% 92.57% 92.54% 91.90% Tax equivalent net interest income for 1998 was up 5.59% from $44,075 in 1997. This change in net interest income was primarily due to the growth of both earning assets and deposits. As in 1999, yields in 1998 were down from the previous year. However, in contrast with 1999, the cost of deposits and borrowed funds in 1998 was up slightly over 1997. Net interest income on a tax equivalent basis increased approximately $4,504 due to increases in the volume of earning assets and costing liabilities and decreased approximately $2,041 due to changes in rates. The Company's growth came from loans, savings and money market accounts. Net interest margin, the tax equivalent net yield on earning assets, was down 24 basis points for 2000. In past periods, the Company's net interest margin had generally been above peer banks; however, during the year as deposit costs rose, the margin declined to peer average. The trend of a falling margin is due to interest rate changes and intense competition from other banks and non-banks.
19 Net Interest Margin - Tax Equivalent 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 4.41% 4.65% 4.70% 4.91% 5.00% Net interest margin was down for 1999. While the Company's trend followed the national trend, its net interest margin was higher than most peer banks. Loan interest income is the largest component of interest income. Loans are the most significant earning asset of the Company and comprised 67.32% and 68.71% of the assets at December 31, 2000 and 1999, respectively. During 2000, the Company sold approximately $7,951 in student loans and curtailed its sales finance division (indirect lending) which reduced the loan growth to 2.10%. The major growth came from mortgage loans, up 8.93% over 1999. Loan growth was much higher in 1999 despite rate increases during the year and the sale of approximately $18,000 in credit card loans. Overall loan growth in 1999 was 9.59%, with the most significant percentage growth in real estate construction and mortgages. The table below sets forth loans outstanding, according to loan type, net of unearned income, at December 31: Loan Portfolio 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Commercial, financial, agricultural ... $162,661 $155,785 $136,249 $119,509 $112,092 Real estate-construction .............. 25,706 37,437 26,410 24,930 21,022 Real estate-mortgage .................. 501,454 460,348 405,352 368,688 323,283 Consumer .............................. 126,033 145,515 161,145 148,445 136,984 ----------- ----------- ----------- ----------- ----------- Total loans net of discount ........ $815,854 $799,085 $729,156 $661,572 $593,381 =========== =========== =========== =========== =========== The tax equivalent loan interest income was $73,524, $67,208, and $63,528 for the years ended December 31, 2000, 1999, and 1998, respectively. The increase for 2000 was attributable to an increase in loan volume that accounted for $4,466 in income, and an increase in pricing which accounted for $1,850. The increase in 1999 was due to an increase in the average volume over 1998 of $83,636, up 12.27%. The tax equivalent yield on those loans was down 54 basis points to 8.78%. Although the tax equivalent yield on loans for 1998 was down 14 basis points, loan interest income grew from an increase of 9.63% in average loan volume. Investment income is the second largest component of interest income. The securities portfolio is used to provide term investments, to provide a source of meeting liquidity needs, and to supply securities to be used in collateralizing public funds. Interest income on a tax equivalent basis from the portfolio decreased $150 or .79% for 2000. Even though the Company ended the year with an increase in the portfolio of $11,830, the average balance on securities decreased $5,654. By third quarter the loan market had softened leaving excess deposits dollars to be invested in securities. The portfolio yield on a tax equivalent basis increased from 6.66% in 1999 to 6.74%, or 8 basis points, in 2000.
20 Securities by Sector Allocation Sector 2000 1999 ------ ------- ------- U. S. Treasury securities ........................ 18% 17% U. S. Government agencies ........................ 18% 17% Mortgage-backed securities ....................... 30% 33% Obligations of states and political subdivisions . 31% 32% FHLB stock ....................................... 3% 1% ------- ------- 100% 100% For 1999 the portfolio decreased $26,895, or 9.16%, from the previous year. This reduction was the result of allocating additional resources to the growth in higher yielding loans. The majority of the Company's investments were in the mortgage-backed and municipal sectors. Investment income on a tax equivalent basis was down from $19,476 in 1998 to $19,054 in 1999. This decrease in interest was the result of a drop in the average volume of securities from $289,091 to $286,069 and a decrease in the tax equivalent yield of 8 basis points. The tax equivalent yield of the portfolio was 6.66% and 6.74% for 1999 and 1998, respectively. The investment income for 1998 was up slightly due to an increase in volume. The average portfolio was up $25,777. The tax equivalent yield on the portfolio was down 9 basis points from 1997. The tax equivalent yields on earning assets were 8.41%, 8.18%, and 8.49%, for 2000, 1999, and 1998, respectively. The Company relies on deposits as its major source of funds. Deposits represented 86.36% and 84.18% of total assets at December 31, 2000 and 1999, respectively. Non interest-bearing deposits were $131,718 and $140,015 at December 31, 2000 and 1999, respectively. This represented 10.87% and 12.04% of total assets at those dates. The balance in this account may fluctuate significantly from day to day. The average balance for 2000 was down $3,357 primarily due to consumers continuing to move their deposits to interest-bearing accounts. During 1999, the Company experienced an average growth in non-interest bearing accounts of $13,682 over 1998. Interest-bearing deposits at December 31, 2000 and 1999 were $914,887 and $838,943, respectively. These deposits grew 9.05% during 2000, principally from certificates of deposit. The market place remained very competitive during the year as banks became creative in developing products that would attract new customers. The high loan demand early in the year fueled the need for banks to raise deposits to support the growth in loans. During 1999 these deposits grew 3.86%. On an average basis, these accounts were up from $792,023 in 1998 to $843,747 in 1999 representing a 6.53% growth. During 1999 new products were introduced for the interest-bearing transaction and money market accounts. These accounts were well received and resulted in the majority of the growth experienced during that year. Interest-Bearing Deposits to Total Deposits 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 86.32% 85.38% 85.83% 85.42% 85.06% Interest expense for deposits was $42,169, $35,477, and $35,943 for 2000, 1999, and 1998, respectively. The cost of interest-bearing deposits was 4.74%, 4.20%, and 4.54% for the same periods.
21 Less reliance was placed on borrowed funds toward the end of 2000. The balance in borrowed funds, including the treasury tax and loan account and loans from the Federal Home Loan Bank, was down $26,720, or 52.12%. The average balances of borrowed funds were $43,396 and $32,029 for 2000 and 1999, respectively. Interest expense was up from $1,865 in 1999 to $1,963. The cost of those funds was 4.52%, down from 5.82% in 1999. Interest expense for borrowed funds increased from $1,491 in 1998 to $1,865 in 1999. These funds were necessary to fund the loan growth for 1999, particularly to fund longer-term loans. In addition, the bank borrowed 90-day funds from the Federal Home Loan Bank to meet its Y2K needs. In 1998, the Company also used Federal Home Loan Bank money to fund longer-term loans. Interest rates were low and customers were taking advantage of the environment by locking in rates for longer terms. In order to minimize interest rate risk, the Company match-funded these loans with funds from the Federal Home Loan Bank. The provision for loan losses was $6,373, $3,192, and $2,591 for 2000, 1999, and 1998, respectively. The Company experienced deterioration in credit for both commercial and mortgage loans. Provision for Loan Losses to Average Loans 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ .78% .42% .38% .37% .50% Total noninterest income includes service charges on deposit accounts, fees and commissions, trust revenue, security gains, and other non-interest income accounts. Noninterest income for 2000 increased 17.58% over the core noninterest income for 1999. During the second quarter of 1999, the company sold its credit card portfolio and reported a gain of $3,717. Noninterest income was up 8.98%, excluding the credit card gain, over 1998. The Company experienced 18.72% growth in 1998. Noninterest Income (Less Securities Gains/Losses) to Average Assets 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 1.55% 1.37%* 1.35% 1.26% 1.23% * Ratio does not include the gain on the sale of the credit card portfolio. Service charges on deposit accounts comprised 9.00% of gross revenue for 2000. These fees were up 17.01% over the prior year with a total of $9,722. The Company continued to implement recommendations from the Sheshunoff Management engagement through establishing a new fee structure primarily for servicing of deposit accounts. Service charges on deposit accounts in 1999 were $8,309, up 13.62% over 1998. The Company implemented a number of service charge changes that had been recommended during 1998 and 1999 by the Alex Sheshunoff Management Services, Inc. These changes involved restructuring the charges related to overdrafts and other products. Service charges for 1998 were up 6.08% over 1997. This increase was due to charges related to the growth in transaction accounts. Fees and commissions of $5,209, representing 4.82% of gross revenue, were up 57.75% for 2000 over 1999. While the Company is cognizant of the significance of fees as a source of revenue, the largest contributor to this increase came from the sale of insurance products. The Company expanded its commitment to enhancing products and their related fees by acquiring Southern Insurance and the Dominion companies during 2000. Integration of insurance products into the bank will continue during 2001.
22 Fees and commissions for 1999 were $3,302, up 22.12% over 1998. The increase was due to commissions from the sale of annuities and mutual funds, loan document preparation fees, and other loan fees. The Company experienced a decrease in mortgage and underwriting fees due to a slowdown in the demand for mortgage products. For 1998, fees and commissions were $2,704, up 55.40% over 1997. The growth for 1998 was attributable to commissions on annuity and mutual fund sales and sales of mortgage loans. While the growth in trust revenue had slowed during 2000, its fees increased 8.82% from 1999 to $1,024. This increase is due to both the offering of cash management products as well as increased volume of business. Trust revenue for 1999 was up 11.23% from $846 due to increased volume. In 1998, trust revenue was up 17.66% over 1997. During 1999, the Company sold its credit card portfolio. Approximately $18,000 in loans were sold resulting in a gain of $3,717. Other noninterest income was $2,574, down from $3,122, or 17.55%, for 2000. This decrease was the result of a loss in fees from the sale of the credit card portfolio in mid 1999 and the continued decline in the sale of credit life insurance. Other noninterest income for 1999 was $3,122, down 11.73% from 1998. Despite the loan growth experienced during 1999, credit life income was down 19.81%, an impairment charge related to the mortgage servicing value was recorded for approximately $100, and due to the sale of the credit card portfolio, credit card interchange fees were down 40.49%. For 1998, other noninterest income was up 23.28%. The primary growth came from credit card income and the sale of mortgage loans. Total noninterest expense includes salaries and employee benefits, data processing, net occupancy, equipment, and other noninterest expense. Noninterest expense was $42,474, $41,480, $39,338 for 2000, 1999 and 1998, respectively. Noninterest expense grew 2.40%, 5.45%, and 9.12% for 2000, 1999, 1998, respectively. The increase is attributable to the purchase of new computers and software during 1999 and 2000. The expenditures were made in order to provide better customer service, enhance productivity, and establish better risk measurements. Noninterest Expense to Average Assets 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 3.55% 3.62% 3.68% 3.72% 3.76% Salaries and benefits were up a modest 1.21%, or $270 for 2000. This slow growth resulted from the increase in staff efficiencies, the changing of health and life insurance carriers, the reduction of employee overtime, and the absence of nonrecurring personnel costs from 1999. Overall, staffing increased from the addition of two insurance agencies in 2000. In addition, the Company did not pay an incentive bonus or make an ESOP contribution for 2000. Salaries and employee benefits were $22,398 for 1999, up $1,033 or 4.84% over 1998. While regular payroll was down approximately 2% from the prior year, overtime pay jumped $192 or 36.57%. On January 2, 1999, the Company began implementing changes aimed at streamlining its operation. Namely, the support functions for loans as well as other back-office functions were consolidated. Due to the installation of new computer systems, employees spent overtime in getting those systems operational. Health insurance, pension, and ESOP costs were down 6.95%, 4.44%, and 46.67%, respectively. The Company expensed $1,564 in employee incentive pay for 1999 compared to $332 for 1998. In addition, the Company did incur a substantial cost related to employment contracts in the merger with Inter-City Federal Bank for Savings. This resulted in an increase in other benefits of 12.32%. Salaries and employee benefits were up 6.48% over 1997. This increase was the result of increases in regular payroll, overtime and incentives, health insurance, and other employee benefits.
23 Data processing expenses were down 20.61% from $4,007 in 1999 to $3,181 in 2000. The decrease in this account was due to the reduction in data processing related to the sale of the credit card portfolio in 1999, the reduction in computer costs related to running dual systems during the computer conversion for the Trust profit center during 1999, and the renegotiation of the contract with Metavante, the company's primary service provider. Net occupancy expense was up 8.96% for 2000. The $256 change was attributable the addition of new facilities during the year. A new branch was completed in the fourth quarter that replaced a facility that was being leased. In 1999, net occupancy expense was $2,858, up 4.69% over 1998. During 1999, the Company capitalized two new facilities and renovated one other facility. These facilities are located in the growing markets of the Company. They were designed to enhance the Company's service quality by providing more convenient locations. In addition, a building that had been acquired in a prior acquisition was sold at a loss. For 1998, net occupancy expense was $2,730, up 3.29% over 1997. The increase for 1998 compared to 1997 was also attributable primarily to additional locations. Equipment expense for 2000 increased $765, or 36.12% over 1999 as the result of increased depreciation costs of $525. During late 1999 and early 2000, the Company installed a number of computer systems. Due to the specifications of the software, major purchases were made for microcomputers. Equipment expense for 1999 was $2,118, or 7.19% over 1998. During 1999, the Company installed new computer and software systems, resulting in increased depreciation charges of 11.87%. In addition, the Company purchased other non-capitalized equipment that resulted in a 77.73% increase over the prior year. These expenses were somewhat offset by a gain on the sale of the residual value on leased equipment. For 1998, equipment expense was $1,976, up 7.04% over 1997 due to depreciation charges and repairs and maintenance increases. Other noninterest expense increased 5.24%, or $529, for 2000 and were more routine when compared to 1999. This increase primarily came from marketing, correspondent bank fees, credit bureau fees, intangible amortization, telephone expense, and stationery and supplies. Reductions in this account were from customer relations expenses, remuneration and temp service fees, fees paid for professional services, and expenses related to other real estate. For 1999, other noninterest expense was $10,099. With the changes resulting from the Sheshunoff recommendations, both work processes and computer systems changed. Incorporated into these changes was a move toward a more sales-oriented environment with consolidation of the support areas. This led to additional training and travel costs. Travel expenses were up $70, or 21.04% over 1998. In addition, the Company was a sponsor of the LPGA U.S. Open Golf Tournament that was held at Old Waverly. This cost resulted in an increase in public relations expenses of approximately 58.54%. The Company also incurred expenses related to conversions in outsourcing the servicing of its mortgage loan portfolio and in the merger with Inter-City Federal Bank for Savings. Other costs contributing to the increase were temporary employment expenses, marketing, and data processing. Telephone expense was up 17.00% due to the installation of a new phone system. The Call Center was put in place to handle 24-hour service to customers. This system will substantially reduce the calls being handled by the retail divisions. Other expenses for 1998 were $9,866, up 13.82% over 1997. The increase in 1998 compared to 1997 was due to education, special community functions sponsored by the Company, correspondent bank fees, and fees paid to Alex Sheshunoff Management Services, Inc. (consultant).
24 Efficiency Ratio 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 63.13% 63.82% 64.56% 64.04% 64.66% Income tax expense for 2000, 1999, and 1998 was $3,800, $6,182, and $4,697, respectively. The effective tax rates for those years were 25.36%, 29.49%, and 28.68%. During the last three years, the Company has increased its holdings in tax exempt securities, tax-free leases and loans. Note H of the Notes to Consolidated Financial Statements provides further details of the income tax expense. Risk Management The management of risk is an on-going process. Primary risks that are associated with the Company include credit, interest rate, and liquidity risks. Credit Risk Inherent in any lending activity is credit risk, that is, the risk of loss should a borrower or trading counter-party default. The Company's credit risk is monitored and managed by a Loan Committee and a Loss Management Committee. Credit quality and policies are major concerns of these committees. The Company tries to maintain diversification within its loan portfolio in order to minimize the effect of economic conditions within a particular industry. The allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on a quarterly analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including losses on loans assessed as impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." The balance of these loans determined as impaired and their related allowance is included in management's estimation and analysis of the allowance for loan losses. If the allowance is deemed inadequate, management sets aside additional reserves by increasing the provision for loan losses. The allowance for loan losses was $10,536 and $10,058 at December 31, 2000 and 1999, respectively. The Company performed a loan loss adequacy evaluation at the end of the year and has accrued its provision for loan losses based on that calculation. Allowance for Loan Losses to Loans 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 1.29% 1.26% 1.34% 1.39% 1.59% The Company's net charge-offs for 2000 and 1999 were $5,895 and $2,876, respectively. Below is a chart showing net charge-offs as a percent of total charge-offs by each sector. 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Commercial, financial, agricultural ... 36.25% 25.17% 14.06% 7.02% 9.40% Real estate-construction .............. 0.56 1.18 1.11 6.42 Real estate-mortgage .................. 27.92 6.36 8.65 18.86 8.50 Consumer .............................. 35.27 67.29 76.18 67.70 82.10 -------- -------- -------- -------- -------- Total Charge-offs .................. 100.00% 100.00% 100.00% 100.00% 100.00% ======== ======== ======== ======== ========
25 During 2000, the Company experienced losses on a limited number of larger dollar loans within its accounts receivable financing portfolio and also within the loan portfolio at two branch locations. These events comprise 62% of the total increase in charge-offs, and are reflected in the commercial and mortgage charge-off totals herein. Management has taken actions to correct the cause of the losses, and does not believe these losses are indicative of losses inherent in the December 31, 2000 portfolio. The remaining charge-offs from commercial, financial, and agricultural loans came from certain specialized farming and timber operations, inventory and accounts receivable financing, trucking operations, and commercial real estate. In a number of cases, the remaining increase in net charge-offs for real estate mortgages resulted from primary residences being pledged as collateral for commercial business purposes. During 2000, net charge-offs for consumer loans resulted primarily from losses on automobiles. During 1999, automobile and credit card losses comprised the majority of consumer charge-offs. Management continues to monitor loans and utilize diligent collection efforts. Net Charge-Offs to Average Loans 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ .72% .38% .30% .40% .41% Nonperforming loans are those on which the accrual of interest has stopped or the loan is contractually past due 90 days. Generally, the accrual of income is discontinued when the full collection of principal or interest is in doubt, or when the payment of principal or interest has been contractually 90 days past due, unless the obligation is both well secured and in the process of collection. During 2000, the Company continued to refine the credit scoring process that was implemented in August 1999. The scoring is used as a tool for evaluating credit risk and is proving itself as an effective tool in evaluating credit. Approximately 85% of the losses sustained by the Company during 2000 were loans outstanding before the credit scoring system was implemented. The loan grading system is also used to assist the Company in evaluating the adequacy of the allowance for loan losses. Loans are segregated according to a grade. Loan grades range between 1 and 7. Grade 1 loans would require only a small allowance while grade 7 loans would be classified as loss, with a 100% reserve. Non-Accrual, Past Due and Restructured Loans to Loans 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ .87% 1.01% .53% .76% .81%
26 Summary of Loan Loss Experience The table below reflects the activity in the allowance for loan losses for the years ended December 31: 2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Balance at beginning of year ......... $ 10,058 $ 9,742 $ 9,221 $ 9,409 $ 8,902 Provision for loan losses ............ 6,373 3,192 2,591 2,304 2,837 Charge-Offs Commercial, financial, agricultural ............... 2,237 882 433 248 273 Real estate-construction ........ 37 41 34 228 Real estate-mortgage ............ 1,746 223 267 667 247 Consumer ........................ 2,338 2,288 1,803 1,909 2,085 ------------ ------------ ------------ ------------ ------------ Total Charge-Offs .................... 6,358 3,434 2,537 3,052 2,605 Recoveries Commercial, financial, agricultural .............. 100 158 142 73 54 Real estate-construction ........ 4 7 11 68 Real estate-mortgage ............ 100 40 88 197 49 Consumer ........................ 259 353 226 222 172 ------------ ------------ ------------ ------------ ------------ Total Recoveries ..................... 463 558 467 560 275 ------------ ------------ ------------ ------------ ------------ Net Charge-offs ................. 5,895 2,876 2,070 2,492 2,330 ------------ ------------ ------------ ------------ ------------ Balance at end of year ............... $ 10,536 $ 10,058 $ 9,742 $ 9,221 $ 9,409 ============ ============ ============ ============ ============ The following table presents the allocation of the allowance for loan losses by loan category at December 31 for each of the years presented: 2000 1999 1998 1997 1996 --------- --------- ---------- ---------- ---------- Commercial, financial, agricultural ... $ 6,841 $ 7,519 $ 7,099 $ 6,570 $ 6,479 Real estate - construction ............ Real estate - mortgage ................ 1,246 195 283 305 202 Consumer .............................. 2,238 1,982 1,933 1,892 1,813 Unallocated ........................... 211 362 427 454 915 --------- --------- ---------- ---------- ---------- Total ................................. $10,536 $10,058 $ 9,742 $ 9,221 $ 9,409 ========= ========= ========== ========== ==========
27 Loans by Category to Total Loans The following table presents the percentage of loans, by category, to total loans at December 31 for each of the years presented: 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Commercial, financial, agricultural ... 19.94% 19.50% 18.69% 18.06% 18.89% Real estate - construction ............ 3.15 4.68 3.62 3.77 3.54 Real estate - mortgage ................ 61.46 57.61 55.59 55.73 54.48 Consumer .............................. 15.45 18.21 22.10 22.44 23.09 ----------- ----------- ----------- ----------- ----------- Total ................................. 100.00% 100.00% 100.00% 100.00% 100.00% =========== =========== =========== =========== =========== Loan Loss Analysis 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Loans-average ......................... $ 816,588 $ 765,199 $ 681,563 $ 621,716 $ 563,155 Loans-year end ........................ 815,854 799,085 729,156 661,572 593,381 Net charge-offs ....................... 5,895 2,876 2,070 2,492 2,330 Allowance for loan losses ............. 10,536 10,058 9,742 9,221 9,409 Loan Ratios 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Net Charge-offs to: Loans-average ....................... .72% .38% .30% .40% .41% Allowance for loan losses ........... 55.95% 28.59% 21.25% 27.03% 24.76% Allowance for loan losses to: Loans-year end ...................... 1.29% 1.26% 1.34% 1.39% 1.59% Non-performing loans ................ 147.89% 126.47% 261.95% 191.39% 206.29% Non-performing loans to: Loans-year end ...................... .87% 1.00% .51% .73% .77% Loans-average ....................... .87% 1.04% .55% .77% .81% The following table shows the principal amounts of non-accrual and restructured loans at December 31: 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Non-performing loans Non-accruing ....................... $ 1,209 $ 136 $ 204 $ 1,070 $ 1,655 Accruing loans past due 90 days or more ............................. 5,915 7,817 3,515 3,748 2,906 ----------- ----------- ----------- ----------- ----------- Total non-performing loans ........... 7,124 7,953 3,719 4,818 4,561 Restructured loans ................... 146 178 203 224 ----------- ----------- ----------- ----------- ----------- Total ................................ $ 7,124 $ 8,099 $ 3,897 $ 5,021 $ 4,785 =========== =========== =========== =========== ===========
28 Management and the Loss Management Committee closely monitor loans that are considered to be nonperforming. The Company's loan review staff also monitors the performance of these loans. The interest income forgone and recognized on restructured and nonaccruing loans during 2000 was not significant. Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower's financial condition. Such concessions may include a reduction in interest rates, or a deferral of interest or principal payments. Real estate acquired through the satisfaction of loan indebtedness (OREO) is recorded at the lower of cost or fair market value based on appraised value, less estimated selling costs. Any deficiency between the loan balance and the purchase price of the property is charged to the allowance for loan losses. Subsequent sales of the property may result in gains or losses to the Company. OREO grew to $2,276 at December 31, 2000, up $1,670 from December 31, 1999, due to the acquisition of the commercial and residential real estate through foreclosure. Interest Rate Risk The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Management believes the most significant impact on financial results stems from the Company's ability to react to changes in interest rates. Therefore, management is constantly monitoring the Company's rate sensitivity. The Company has an Asset/Liability Committee (ALCO), which is duly authorized by the Board of Directors to monitor the position of the Company and to make decisions relating to that process. The ALCO's goal is to maximize net interest income while providing the Company with an acceptable level of market risk due to changes in interest rates. Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its lending and deposit-taking activities. To that end, management actively monitors and manages its interest rate risk exposure. The Company's profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact the Company's earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. The Company monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Company's exposure to differential changes in interest rates between assets and liabilities is shown in the Company's Maturity and Rate Sensitivity Analysis (GAP Analysis). Another test measures the impact on net interest income and net portfolio value (NPV) of an immediate change in interest rates in 100 basis point increments. NPV is defined as the net present value of assets, liabilities, and off-balance sheet contracts. Following is the estimated impact of immediate changes in interest rates at the specified levels at December 31:
29 Percentage Change In: ------------------------------------------------- Change in Interest Rates Net Interest Income (1) Net Portfolio Value(2) (In Basis Points) 2000 1999 2000 1999 - ------------------------ -------- -------- -------- -------- +400 ............... 9.5% 18.7% (16.1%) (14.1%) +300 ............... 7.2% 14.2% (11.9%) (10.2%) +200 ............... 4.9% 9.8% (7.8%) (6.5%) +100 ............... 2.5% 6.2% (3.7%) (3.1%) -100 ............... (3.0%) (2.6%) 3.4% 2.6% -200 ............... (7.0%) (7.7%) 4.2% 2.3% -300 ............... (11.1%) (11.1%) 5.8% 5.9% -400 ............... (15.5%) (15.4%) 6.5% 6.1% (1)The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the net interest income in the various rate scenarios. (2) The percentage change in this column represents NPV of the Company in a stable interest rate environment versus the NPV in the various rate scenarios. The Company's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company's net interest income and capital, while structuring the Company's asset-liability structure to obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest rate risk. The results of the interest rate shock are within the limits set by the Board of Directors. The Company continually evaluates interest rate risk management opportunities, including the possible use of derivative financial instruments. Management believes that hedging instruments currently available are not cost-effective, and therefore, has focused its efforts on increasing the Company's yield-cost spread through retail growth opportunities. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments, and deposits decay, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the ALCO could undertake in response to changes in interest rates. Certain shortcomings are inherent in the method of analysis presented in the computation of net interest income and NPV. Actual values may differ from those projections presented in cases where market conditions vary from assumptions used in the calculation of net interest income and the NPV. 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. Approximately 67% of the Company's time deposits is composed of accounts with balances less than $100. 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 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 or the treasury tax and loan note account in order to meet liquidity needs.
30 Repayments and maturities of loans provide substantial sources of liquidity. The Company has approximately 40.58% of loans maturing within the next twelve months. Average Loan to Deposit Ratio 2000 1999 1998 1997 1996 ------ ------ ------ ------ ------ 79.18% 77.43% 73.86% 74.33% 71.36% Capital Resources Total shareholders' equity of the Company was $121,661 and $116,089 at December 31, 2000 and 1999, respectively. Shareholders' equity grew 4.80% during 2000, and 5.34% during 1999. The growth in capital for both years was attributable to earnings less dividends declared. During 2000, the Company purchased 218,385 shares of its stock and issued 70,500 shares in an acquisition. During 1999, the Company purchased 27,600 shares of stock, retiring 20,100. In addition, the change in the net unrealized gain (loss) on securities available for sale decreased capital in 2000 by $66 and $3,281 in 1999. Shareholders' equity as a percentage of assets was 10.04% and 9.98% at December 31, 2000 and 1999, respectively. The Federal Reserve Board, the FDIC, and the OCC have issued guidelines for governing the levels of capital that banks are to maintain. Those guidelines specify capital tiers, which include the following classifications: Tier 1 Risk - Total Risk - Leverage Capital Tiers Based Capital Based Capital Ratio - ------------- ------------- ------------- -------- Well capitalized ................... 6% or above 10% or above 5% or above Adequately capitalized .............. 4% or above 8% or above 4% or above Undercapitalized .................... Less than 4% Less than 8% Less than 4% Significantly undercapitalized ...... Less than 3% Less than 6% Less than 3% Critically undercapitalized ......... 2% or less Tier 1 Leverage ratios were 9.48 % and 9.95% at December 31, 2000 and 1999, respectively, meeting the guidelines for a well capitalized company. At December 31, 2000, the total Tier 1 and total risk-based capital were $112,711 and $122,855, respectively. Tier 1 and total risk-based capital at December 31, 1999, were $113,423 and $123,339, respectively. See Note K of the Consolidated Financial Statements for capital ratios. Cash dividends have increased each consecutive year since 1987 (see selected financial data on page 14 for the previous five years). Book value per share was $20.09 and $18.71 at December 31, 2000 and 1999, respectively. The increase in capital for both years, excluding the effect of the net unrealized gain on securities available for sale, was internally generated due to a retention of earnings of 52.25% and 64.76% during 2000 and 1999, respectively. SEC Form 10-K A copy of the annual report on Form 10-K, as filed with the Securities and Exchange Commission, may be obtained without charge by directing a written request to: Stuart Johnson, Executive Vice President, The Peoples Bank & Trust Company, P. O. Box 709, Tupelo, MS 38802-0709. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under the caption "Interest Rate Risk" on pages 28 through 29 of the Registrant's 2000 Form 10-K is incorporated herein by reference.
31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Auditors Board of Directors and Shareholders The Peoples Holding Company Tupelo, Mississippi We have audited the accompanying consolidated balance sheets of The Peoples Holding Company and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Peoples Holding Company and subsidiary at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Memphis, Tennessee January 31, 2001
32 The Peoples Holding Company Consolidated Balance Sheets (In Thousands, Except Share Data) December 31 --------------------------- 2000 1999 ------------ ------------ Assets Cash and due from banks .................................... $ 27,676 $ 42,956 Interest-bearing balances with banks ....................... 29,141 915 ------------ ------------ Cash and Cash Equivalents 56,817 43,871 Time deposits with banks ................................... 152 Securities available for sale .............................. 192,916 181,133 Securities held to maturity (fair value - $85,981 and $83,373 at December 31, 2000, and 1999, respectively) .. 85,658 85,611 Loans ...................................................... 815,854 799,085 Allowance for loan losses .............................. (10,536) (10,058) ------------ ------------ Net Loans 805,318 789,027 Premises and equipment, net ................................ 30,105 27,730 Other assets ............................................... 41,126 35,435 ------------ ------------ Total Assets $ 1,211,940 $ 1,162,959 ============ ============ Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing .................................... $ 131,718 $ 140,015 Interest-bearing ....................................... 914,887 838,943 ------------ ------------ Total Deposits 1,046,605 978,958 Treasury tax and loan note account .......................... 4,603 12,000 Advances from the Federal Home Loan Bank .................... 19,946 39,269 Other liabilities ........................................... 19,125 16,643 ------------ ------------ Total Liabilities 1,090,279 1,046,870 Shareholders' Equity Common stock, $5 par value - 15,000,000 shares authorized, 6,212,284 issued; 6,056,899 and 6,204,784 outstanding at December 31, 2000 and 1999, respectively............. 31,061 31,061 Treasury stock, at cost ..................................... (3,688) (230) Additional paid-in capital .................................. 39,931 39,959 Retained earnings ........................................... 54,423 48,580 Accumulated other comprehensive loss ........................ (66) (3,281) ------------ ------------ Total Shareholders' Equity 121,661 116,089 ------------ ------------ Total Liabilities and Shareholders' Equity $ 1,211,940 $ 1,162,959 ============ ============ See notes to consolidated financial statements.
33 The Peoples Holding Company Consolidated Statements of Income (In Thousands, Except Share Data) Year ended December 31 ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Interest Income Loans ..................................... $ 72,919 $ 66,730 $ 63,140 Securities Taxable ................................ 11,934 12,222 13,506 Tax-exempt ............................. 4,122 4,142 3,650 Other .................................... 459 406 984 ---------- ---------- ---------- Total Interest Income 89,434 83,500 81,280 Interest Expense Deposits .................................. 42,169 35,477 35,943 Borrowings ................................ 1,963 1,865 1,491 ---------- ---------- ---------- Total Interest Expense 44,132 37,342 37,434 ---------- ---------- ---------- Net Interest Income .......................... 45,302 46,158 43,846 Provision for loan losses .................... 6,373 3,192 2,591 ---------- ---------- ---------- Net Interest Income After Provision for Loan Losses 38,929 42,966 41,255 Noninterest Income Service charges on deposit accounts ....... 9,722 8,309 7,313 Fees and commissions ...................... 5,209 3,302 2,704 Trust revenue ............................. 1,024 941 846 Securities gains .......................... 85 61 Gain on sale of credit card portfolio ..... 3,717 Other ..................................... 2,574 3,122 3,537 ---------- ---------- ---------- Total Noninterest Income 18,529 19,476 14,461 ---------- ---------- ---------- Noninterest Expense Salaries and employee benefits ............ 22,668 22,398 21,365 Data processing ........................... 3,181 4,007 3,401 Net occupancy ............................. 3,114 2,858 2,730 Equipment ................................. 2,883 2,118 1,976 Other ..................................... 10,628 10,099 9,866 ---------- ---------- ---------- Total Noninterest Expense 42,474 41,480 39,338 Income before income taxes ................... 14,984 20,962 16,378 Income taxes ................................. 3,800 6,182 4,697 ---------- ---------- ---------- Net Income ................................... $ 11,184 $ 14,780 $ 11,681 ========== ========== ========== Basic and diluted earnings per share ......... $ 1.83 $ 2.38 $ 1.88 ========== ========== ========== Weighted average shares outstanding .......... 6,108,196 6,205,752 6,201,061 ========== ========== ========== See notes to consolidated financial statements.
34 The Peoples Holding Company Consolidated Statements of Shareholders' Equity (In Thousands, Except Share Data) Accumulated Common Stock Additional Other ---------------------- Treasury Paid-in Retained Comprehensive Shares Amount Stock Capital Earnings Income (Loss) Total ----------- ---------- -------- ---------- ---------- ------------- ---------- Balance at December 31, 1997 ................... 6,206,854 $ 31,034 $ $ 39,876 $ 31,637 $ 566 $ 103,113 Comprehensive income: Net income ..................................... 11,681 11,681 Other comprehensive income: Unrealized holding gains on securities available for sale (net of tax of $159) .... 302 302 Less reclassification adjustment for gains realized in net income (net of tax of $23) .. (38) (38) ---------- ------------- ---------- Comprehensive income ......................... 11,681 264 11,945 Cash dividends - PHC ($.72 per share) .......... (4,184) (4,184) Cash dividends - Inter-City ($.36 per share) ... (125) (125) Treasury stock purchased and retired ........... (15,000) (75) (465) (540) ----------- ---------- -------- ---------- ---------- ------------- ---------- Balance at December 31, 1998 ................... 6,191,854 $ 30,959 $ $ 39,411 $ 39,009 $ 830 $ 110,209 Comprehensive income: Net income ..................................... 14,780 14,780 Other comprehensive income: Unrealized holding losses on securities available for sale (net of tax of ($2,447)).. (4,058) (4,058) Less reclassification adjustment for gains realized in net income (net of tax of ($32)). (53) (53) ---------- ------------- ---------- Comprehensive income ......................... 14,780 (4,111) 10,669 Cash dividends ($.84 per share) ................ (5,209) (5,209) Common stock issued for acquisition ............ 40,530 203 1,078 1,281 Treasury stock purchased ....................... (7,500) (230) (230) Treasury stock purchased and retired ........... (20,100) (101) (530) (631) ----------- ---------- -------- ---------- ---------- ------------- ---------- Balance at December 31, 1999 ................... 6,204,784 $ 31,061 $ (230) $ 39,959 $ 48,580 $ (3,281) $ 116,089 Comprehensive income: Net income ..................................... 11,184 11,184 Other comprehensive income: Unrealized holding gains on securities available for sale (net of tax of $1,985) .. 3,215 3,215 ---------- ------------- ---------- Comprehensive income ......................... 11,184 3,215 14,399 Cash dividends ($.88 per share) ................ (5,341) (5,341) Common stock issued for acquisition ............ 70,500 1,720 (28) 1,692 Treasury stock purchased ....................... (218,385) (5,178) (5,178) ----------- ---------- -------- ---------- ---------- ------------- ---------- Balance at December 31, 2000 ................... 6,056,899 $ 31,061 $(3,688) $ 39,931 $ 54,423 $ (66) $ 121,661 See notes to consolidated financial statements.
35 The Peoples Holding Company Consolidated Statements of Cash Flows (In Thousands) Year ended December 31 ------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Operating Activities Net income ..................................................... $ 11,184 $ 14,780 $ 11,681 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ................................. 6,373 3,192 2,591 Net amortization of securities ............................ 258 386 765 Depreciation and amortization ............................. 3,773 3,067 2,656 Deferred income taxes ..................................... (64) (862) (429) Gain on sales of interest-bearing assets .................. (246) (4,253) (736) (Gain) loss on sales of premises and equipment ............ (93) (53) 157 Increase in other assets .................................. (971) (2,137) (2,598) Increase (decrease) in other liabilities .................. (1,250) 1,881 1,405 ---------- ---------- ---------- Net Cash Provided by Operating Activities 18,964 16,001 15,492 ---------- ---------- ---------- Investing Activities Purchases of securities available for sale ..................... (30,792) (95,808) (105,184) Proceeds from sales of securities available for sale ........... 12,410 16,242 Proceeds from call/maturities of securities available for sale . 23,826 110,074 63,692 Purchases of securities held to maturity ....................... (3,160) (11,899) (23,928) Proceeds from calls/maturities of securities held to maturity .. 3,317 5,483 6,735 Net increase in loans .......................................... (62,182) (131,594) (151,720) Proceeds from sales of loans ................................... 37,029 62,397 81,333 Proceeds from sales of premises and equipment .................. 225 369 272 Purchases of premises and equipment ............................ (4,171) (3,506) (5,362) Net cash paid in business combinations ......................... (518) ---------- ---------- ---------- Net Cash Used in Investing Activities (36,426) (52,074) (117,920) ---------- ---------- ---------- Financing Activities Net increase (decrease) in noninterest bearing deposits ........ (8,297) (12,481) 28,293 Net increase in interest-bearing deposits ...................... 75,944 31,144 61,920 Net increase (decrease) in short-term borrowings ............... (7,397) 7,045 (1,146) Proceeds from other borrowings ................................. 2,554 24,250 1,000 Repayment of other borrowings .................................. (21,877) (2,502) (2,439) Acquisition of treasury stock .................................. (5,178) (861) (540) Cash dividends paid ............................................ (5,341) (5,209) (4,309) ---------- ---------- ---------- Net Cash Provided by Financing Activities 30,408 41,386 82,779 ---------- ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 12,946 5,313 (19,649) Cash and Cash Equivalents at Beginning of Year .................. 43,871 38,558 58,207 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year $ 56,817 $ 43,871 $ 38,558 ========== ========== ========== Supplemental Disclosures: Cash paid for: Interest .................................................. $ 41,356 $ 36,823 $ 37,528 Income taxes .............................................. 5,291 7,209 5,404 Transfers of loans to other real estate ...................... $ 2,735 $ 560 $ 1,531 See notes to consolidated financial statements.
36 The Peoples Holding Company Notes to Consolidated Financial Statements December 31, 2000 (In Thousands, Except Share Data) Note A - Significant Accounting Policies Nature of Operations: The Peoples Holding Company (the Company) is a one-bank holding company, offering a diversified range of financial services to retail and commercial customers, primarily in North Mississippi, through The Peoples Bank & Trust Company (the Bank), Peoples Insurance Agency and the Dominion companies. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany balances and transactions have been eliminated. The Company carries its investment in subsidiary at its equity in the underlying net assets. Business Combinations: All prior period amounts have been restated to reflect business combinations accounted for as poolings-of-interests and, accordingly, the financial position, results of operations and cash flows are presented as though the companies were combined for all historical periods. Business combinations accounted for using the purchase method of accounting reflect the net assets of the companies recorded at their fair value at the date of acquisition. Goodwill is amortized on a straight-line basis over 15 years, the estimated period benefited. The results of operations of the purchased companies are included since the date of acquisition. Use of Estimates: 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Securities: Securities are classified as held to maturity when purchased if management has the intent and ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Securities not classified as held to maturity or trading are classified as available for sale. Available for sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. The amortized cost of securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts. Such amortization and accretion is included in interest income from securities. Dividend income is included in interest income from securities. Realized gains and losses, as well as declines in value judged to be other than temporary, are included in net securities gains (losses). The cost of securities sold is based on the specific identification method. Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees are recognized in the period the loan or commitments are granted to reflect reimbursement of the related costs associated with originating those loans and commitments.
37 Note A - Significant Accounting Policies (continued) Generally, the accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in the process of collection. Consumer and other retail loans are typically charged off no later than 120 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued for the current year, but not collected for loans that are placed on nonaccrual or charged off, is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for Loan Losses: The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio. The allowance for loan losses is evaluated based on a continuing assessment of problem loans, historical loss experience, new lending products, emerging credit trends, changes in the size and character of loan categories, and other factors including its risk rating system, regulatory guidance and economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. When the ultimate collectibility of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been foregone, and then they are recorded as recoveries of any amounts previously charged off. Large groups of smaller balance homogeneous loans are evaluated collectively for impairment. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily by use of the straight-line method for furniture, fixtures, equipment, and premises. Leasehold improvements are amortized over the period of the leases or the estimated useful lives of the improvements, whichever is shorter. Other Real Estate: Other real estate of $2,276 and $606 at December 31, 2000 and 1999, respectively, is included in other assets and consists of properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. These properties are carried at the lower of cost or fair market value based on appraised value less estimated selling costs. Losses arising from the acquisition of properties are charged against the allowance for loan losses.
38 Note A - Significant Accounting Policies (continued) Mortgage Servicing Rights: The Company capitalizes purchased and internally-originated mortgage servicing rights based on the fair value of the mortgage servicing rights relative to the loan as a whole. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income. The fair value of mortgage servicing rights is determined using assumptions that market participants would use in estimating future net servicing income. Mortgage servicing rights are stratified by loan type (government or conventional) and interest rate for purposes of measuring impairment on a quarterly basis. An impairment loss is recognized to the extent by which the unamortized capitalized mortgage servicing rights for each stratum exceeds the current fair value. Income Taxes: Income taxes are accounted for under the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiary file a consolidated federal income tax return. The Bank provides for income taxes on a separate-return basis and remits to the Company amounts determined to be currently payable. Impact of Recently Issued Accounting Standards: In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by FASB No. 137 and FASB No. 138, which is required to be adopted in years beginning after June 15, 2000. Because the Company does not currently use derivatives or intend to use derivatives, the adoption of this Statement will not have an impact on earnings or the financial position of the Company. Note B - Business Combinations Southern Insurance Group, Incorporated, Southern Insurance of Corinth, Inc., and Southern Financial Services, P.A. (collectively, Southern) were acquired on May 1, 2000, by the Company by issuing 70,500 shares of its stock for a total price of $1,692. The acquired companies were merged into the Bank's insurance subsidiary. The transaction was accounted for as a purchase. Southern offers both property and casualty insurance products, life and health insurance, and annuity and mutual funds. The Bank acquired Dominion Company (Dominion), Dominion Health and Life P.A. (Dominion) and Alliance Finance Company (Alliance) (collectively, Dominion companies) on September 1, 2000. Dominion offers products similar to Southern and used Alliance to finance insurance premiums. The Bank paid $450 in a cash transaction for the companies. The transaction was accounted for as a purchase. On June 24, 1999, the Company purchased Reed-Johnson Insurance Agency, Inc.(Reed-Johnson) with the issuance of 40,530 shares of the Company's common stock. Located in Tupelo, Mississippi, Reed-Johnson, is an independent insurance agency representing property and casualty companies and providing personal and business coverage. Reed-Johnson retained its name and staff and operates as a wholly-owned subsidiary of The Peoples Bank and Trust Company. Subsequently, in May 2001, Reed-Johnson and Southern were renamed The Peoples Insurance Agency. The transaction was accounted for as a purchase.
39 Note B - Business Combinations (continued) The results of operations of all purchase business combinations have been included in the financial statements of the Company since their acquisition dates. All intangibles resulting from these transactions are being amortized over a 15 year life. The proforma results, giving effect to these transactions as though they occurred as of the beginning of the reporting periods, do not vary significantly from actual results. On March 26, 1999, the Company merged with Inter-City Federal Bank for Savings (Inter-City). At the merger date, total assets, loans, and deposits for Inter-City totaled $43,482, $33,812, and $37,751, respectively. The merger was accounted for using the pooling of interests method of accounting. The Company exchanged 347,382 shares of its common stock for all the outstanding common stock of Inter-City. The following table presents selected financial information, split between the Company and Inter-City. Year ended December 31 -------------------------- 1999 1998 ------------ ------------ Interest Income The Peoples Holding Company ................... $82,720 $77,913 Inter-City Federal Bank for Savings (1) ....... 780 3,367 ------------ ------------ Total ...................................... $83,500 $81,280 ============ ============ Interest Expense The Peoples Holding Company ................... $36,916 $35,643 Inter-City Federal Bank for Savings (1) ....... 426 1,791 ------------ ------------ Total ...................................... $37,342 $37,434 ============ ============ Net Income The Peoples Holding Company ................... $14,910 $11,368 Inter-City Federal Bank for Savings (1) ....... (130) 313 ------------ ------------ Total ...................................... $14,780 $11,681 ============ ============ (1) The results of operations from March 27, 1999, through December 31, 1999, are included in The Peoples Holding Company amounts.
40 Note C - Securities The amortized cost and fair value of securities available for sale and held to maturity at December 31, 2000, are as follows: Securities Available For Sale ---------------------------------------------------------------- Amortized Gross Unrealized Gross Unrealized Cost Gains Losses Fair Value --------- ---------------- ---------------- ---------- U. S. Treasury securities ................. $ 49,698 $ 169 $ (20) $ 49,847 Obligations of other U. S. Government agencies and corporations ... 49,300 109 (300) 49,109 Mortgage-backed securities ................ 84,976 356 (444) 84,888 FHLB stock ................................ 9,047 25 9,072 --------- ---------------- ---------------- ---------- $ 193,021 $ 659 $ (764) $ 192,916 ========= ================ ================ ========== Securities Held to Maturity ---------------------------------------------------------------- Amortized Gross Unrealized Gross Unrealized Cost Gains Losses Fair Value --------- ---------------- ---------------- ---------- Obligations of states and political subdivisions ................. $ 85,658 $ 799 $ (476) $ 85,981 ========= ================ ================ ========== The amortized cost and fair value of securities available for sale and held to maturity at December 31, 1999, are as follows: Securities Available For Sale ---------------------------------------------------------------- Amortized Gross Unrealized Gross Unrealized Cost Gains Losses Fair Value --------- ---------------- ---------------- ---------- U. S. Treasury securities ................. $ 45,564 $ $ (494) $ 45,070 Obligations of other U. S. Government agencies and corporations ... 47,294 (1,885) 45,409 Mortgage-backed securities ................ 89,828 13 (2,867) 86,974 FHLB stock ................................ 3,680 3,680 --------- ---------------- ---------------- ---------- $ 186,366 $ 13 $ (5,246) $ 181,133 ========= ================ ================ ========== Securities Held to Maturity ---------------------------------------------------------------- Amortized Gross Unrealized Gross Unrealized Cost Gains Losses Fair Value --------- ---------------- ---------------- ---------- Obligations of states and political subdivisions ................. $ 85,611 $ 357 $ (2,595) $ 83,373 ========= ================ ================ ==========
41 Note C - Securities (continued) The amortized cost and fair value of securities available for sale and held to maturity at December 31, 2000, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Fair Securities Available for Sale Cost Value ----------- ----------- Due in one year or less ................. $ $ Due after one year through five years ... 34,629 34,665 Due after five years through ten years .. 64,369 64,291 ----------- ----------- 98,998 98,956 Mortgage-backed securities .............. 84,976 84,888 FHLB stock .............................. 9,047 9,072 ----------- ----------- $ 193,021 $ 192,916 =========== =========== Amortized Fair Securities Held to Maturity Cost Value ----------- ----------- Due in one year or less ................. $ 3,045 $ 3,056 Due after one year through five years ... 21,128 21,369 Due after five years through ten years .. 46,468 46,795 Due after ten years ..................... 15,017 14,761 ----------- ----------- $ 85,658 $ 85,981 =========== =========== At December 31, 2000 and 1999, securities with an amortized cost of approximately $197,434 and $196,349, respectively, were pledged to secure government, public, and trust deposits. Note D - Loans and Allowance for Loan Losses Loans are summarized as follows: December 31 ----------------------------- 2000 1999 ---------- ---------- Commercial, financial, and agricultural ...... $ 165,370 $ 158,107 Real estate - construction ................... 25,706 37,437 Real estate - mortgage ....................... 501,454 460,349 Consumer ..................................... 129,898 150,831 ---------- ---------- 822,428 806,724 Unearned income .............................. (6,574) (7,639) Allowance for loan losses .................... (10,536) (10,058) ---------- ---------- $ 805,318 $ 789,027 ========== ========== Changes in the allowance for loan losses were as follows: Year ended December 31 --------------------------------- 2000 1999 1998 -------- -------- -------- Balance at beginning of year ............... $ 10,058 $ 9,742 $ 9,221 Provision for loan losses ................ 6,373 3,192 2,591 Loans charged-off ........................ (6,358) (3,434) (2,537) Recoveries of loans previously charged-off................. 463 558 467 -------- -------- -------- Balance at end of year ..................... $ 10,536 $ 10,058 $ 9,742 ======== ======== ========
42 Note D - Loans and Allowance for Loan Losses (continued) Impaired loans recognized in conformity with SFAS No. 114, as amended by SFAS No. 118, were as follows: December 31 ----------------------------- 2000 1999 ---------- ---------- Impaired loans with a related allowance for loan losses ............................... $ 1,802 $ 1,741 Impaired loans without a specific allowance for loan losses ........................... 2,364 2,370 ---------- ---------- Total impaired loans ......................... $ 4,166 $ 4,111 ========== ========== Year ended December 31 --------------------------------- 2000 1999 1998 -------- -------- -------- Average recorded investment in impaired loans. $ 4,138 $ 4,192 $ 3,841 Interest income recognized using the accrual basis of income recognition .............. $ 345 $ 436 $ 340 Interest income recognized using the cash-basis of income recognition .......... $ 191 $ 4 $ 13 Certain Bank executive officers and directors and their associates are customers of and have other transactions with the Bank. Related party loans and commitments are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than a normal risk of collectibility. The aggregate dollar amount of these loans was $11,882 and $11,341 at December 31, 2000 and 1999, respectively. During 2000, $1,283 of new loans were made and payments received totaled $742. Note E - Deposits At December 31, 2000, the approximate scheduled maturities of time deposits are as follows: 2001 ................ $ 478,561 2002 ................ 86,455 2003 ................ 12,511 2004 ................ 5,654 2005 ................ 2,373 Thereafter .......... 1,157 --------- Total ............... $ 586,711 ========= The aggregate amount of time deposits in denominations of $100 or more at December 31, 2000 and 1999 was $193,777 and $141,778, respectively. Certain executive officers and directors had amounts on deposit with the Bank of approximately $2,955 at December 31, 2000.
43 Note F - Advances from the Federal Home Loan Bank The Company had outstanding advances from the FHLB of $19,946 and $39,269 at December 31, 2000 and 1999, respectively. The interest rates on these advances are all at fixed rates which range from 5.29% to 7.93% at December 31, 2000. The Company had availability on unused lines of credit with the FHLB of $218,096 at December 31, 2000. Future minimum payments, by year and in the aggregate, related to the Federal Home Loan Bank advances with initial or remaining terms of one year or more, consisted of the following at December 31, 2000: 2001 ................ $ 4,859 2002 ................ 4,017 2003 ................ 1,054 2004 ................ 1,078 2005 ................ 1,435 Thereafter .......... 7,503 --------- Total ............... $ 19,946 ========= Note G - Commitments, Contingent Liabilities and Financial Instruments with Off-Balance Sheet Risk Loan commitments are made to accommodate the financial needs of the Company's customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company's normal credit policies. Collateral (e.g., securities, receivables, inventory, equipment) is obtained based on management's credit assessment of the customer. The Company's unfunded loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding at December 31, 2000, were approximately $90,850 and $7,523, respectively, compared to December 31, 1999, which were approximately $145,758 and $6,598, respectively. Various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company and the Bank. In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on the consolidated financial statements. Market risk resulting from interest rate changes on particular off-balance sheet financial instruments may be offset by other on- or off-balance sheet transactions. Interest rate sensitivity is monitored by the Company for determining the net effect of potential changes in interest rates on the market value of both on- or off-balance sheet financial instruments. Note H - Income Taxes Deferred income taxes, included in other assets, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. No valuation allowance was recognized as the deferred tax assets were determined to be realizable in future years. This determination was based on the Company's earnings history with no basis for believing future performance will not continue to follow the same pattern. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2000 and 1999, are as follows:
44 Note H - Income Taxes (continued) December 31 ----------------------------- 2000 1999 ---------- ---------- Deferred tax assets Allowance for loan losses ................. $ 3,760 $ 3,745 Net unrealized losses on securities available for sale .................... 40 1,952 Deferred compensation .................... 1,777 1,572 Other ..................................... 947 1,016 ---------- ---------- Total deferred tax assets .............. 6,524 8,285 Deferred tax liabilities Depreciation .............................. 1,256 1,425 Other ..................................... 990 734 ---------- ---------- Total deferred tax liabilities ......... 2,246 2,159 ---------- ---------- Net deferred tax assets ............... $ 4,278 $ 6,126 ========== ========== Significant components of the provision for income taxes (benefits) are as follows: Year ended December 31 -------------------------------- 2000 1999 1998 -------- -------- -------- Current Federal ............................ $ 3,555 $ 6,307 $ 4,654 State .............................. 309 737 472 -------- -------- -------- 3,864 7,044 5,126 Deferred Federal ............................ (55) (735) (373) State .............................. (9) (127) (56) -------- -------- -------- (64) (862) (429) -------- -------- -------- $ 3,800 $ 6,182 $ 4,697 ======== ======== ======== The reconciliation of income taxes (benefits) computed at the United States federal statutory tax rates to the provision for income taxes is: Year ended December 31 -------------------------------- 2000 1999 1998 -------- -------- -------- Tax at U.S. statutory rate ............... $ 5,244 $ 7,337 $ 5,732 Tax-exempt interest income ............... (1,784) (1,709) (1,498) State income tax, net of federal benefit . 195 401 271 Amortization of intangible assets ........ 62 27 27 Dividends received deduction ............. (58) (9) (12) Other items-net .......................... 141 135 177 -------- -------- -------- $ 3,800 $ 6,182 $ 4,697 ======== ======== ========
45 Note I - Restrictions on Cash, Bank Dividends, Loans, or Advances The Bank is required to maintain average balances with the Federal Reserve Bank. The average amount of those balances for the year ended December 31, 2000, was approximately $16,973. Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans, or advances. The approval of the Mississippi Department of Banking and Consumer Finance is required prior to the Bank paying dividends, which are limited to earned surplus in excess of three times the Bank's capital stock. At December 31, 2000, the unrestricted surplus was approximately $105,581. Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specific obligations. At December 31, 2000, the maximum amount available for transfer from the Bank to the Company in the form of cash dividends and loans was 17.06% of the Bank's consolidated net assets. There were no loans outstanding from the Bank to the Company at December 31, 2000. Note J - Employee Benefit and Deferred Compensation Plans The Company sponsored a defined benefit noncontributory pension plan which was curtailed as of December 31, 1996. Accordingly, participant accruals were frozen as of that date. The Company's funding policy is to contribute annually an amount that is at least equal to the minimum amount determined by consulting actuaries in accordance with the Employee Retirement Income Security Act of 1974. The Company did not make a contribution to the Plan for the years 2000, 1999, or 1998. The Company also provides certain health care and/or life insurance to retired employees. Substantially all of the Company's employees may become eligible for these benefits if they reach normal or early retirement while working for the Company. The Company pays one-half of the health insurance premium. Up to age 70, each retired employee receives life insurance coverage paid entirely by the Company. The Company has accounted for its obligation related to these plans in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company has limited its liability for the rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) to the rate of inflation assumed to be 4% each year. Increasing or decreasing the assumed health care cost trend rates by one percentage point in each year would not materially increase or decrease the accumulated postretirement benefit obligation nor the service and interest cost components of net periodic postretirement benefit costs as of December 31, 2000, and for the year then ended.
46 Note J - Employee Benefit and Deferred Compensation Plans (continued) Pension Benefits represent the defined benefit pension plan previously offered by the Company and Other Benefits represent the postretirement health and life plans. There is no additional minimum pension liability required to be recognized. The following table sets forth the required disclosures as of December 31: Pension Benefits Other Benefits -------------------------- ------------------------ 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Change in benefit obligation Benefit obligation at beginning of year .......$ 11,409 $ 12,417 $ 480 $ 455 Service cost .................................. 38 33 Interest cost ................................. 881 867 53 38 Plan participants' contributions .............. 39 44 Actuarial gain (loss).......................... 645 (1,336) 329 56 Benefits paid ................................. (487) (539) (212) (185) Plan amendment ................................ 39 ---------- ---------- ---------- ---------- Benefit obligation at end of year ...............$ 12,448 $ 11,409 $ 727 $ 480 ========== ========== ========== ========== Change in plan assets Fair value of plan assets at beginning of year.$ 13,330 $ 13,015 Actual return on plan assets .................. (14) 854 Benefits paid ................................. (487) (539) ---------- ---------- Fair value of plan assets at end of year ........$ 12,829 $ 13,330 ========== ========== Prepaid (accrued) benefits cost Funded status .................................$ 381 $ 1,921 $ (727) $ (480) Unrecognized net actuarial (gain) loss ........ 1,107 (600) 416 90 Unamortized prior service cost ................ 259 290 29 34 ---------- ---------- ---------- ---------- Prepaid (accrued) benefit cost ..................$ 1,747 $ 1,611 $ (282) $ (356) ========== ========== ========== ========== Weighted-average assumptions as of December 31 Discount rate ................................. 7.5% 8.0% 7.5% 8.0% Expected return on plan assets ................ 8.0% 8.0% N/A N/A
47 Note J - Employee Benefit and Deferred Compensation Plans (continued) Year ended December 31 Year ended December 31 ------------------------------------- ------------------------------------ Pension Benefits Other Benefits ------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- Components of net periodic benefit cost(income) Service cost ................... $ $ $ $ 38 $ 33 $ 27 Interest cost .................. 881 867 820 53 38 31 Expected return on plan assets . (1,047) (1,022) (950) Prior service cost recognized .. 30 30 30 8 5 ---------- ---------- ---------- ---------- ---------- ---------- Net periodic benefit cost(income). $ (136) $ (125) $ (100) $ 99 $ 76 $ 58 ========== ========== ========== ========== ========== ========== Effective January 1, 1997, the Company adopted two defined contribution plans: a money purchase pension plan and a 401(k) plan. The money purchase pension plan is a noncontributory pension plan. The Company contributes 5% of compensation for each participant annually into this plan. The Company accrued $730, $674 and $738 to the money purchase pension plan in 2000, 1999 and 1998, respectively. The 401(k) plan is a contributory plan. Employees may contribute up to 10% of pre-tax earnings into this plan. In addition, the Company provides for a matching contribution up to 3% of compensation for each employee who has attained age 21, completed a year of service and is employed on the last day of the plan year. The Company's costs related to the 401(k) plan in 2000, 1999 and 1998 were $408, $371 and $381, respectively. The Company and its subsidiary also sponsor an employee stock ownership plan covering substantially all full-time employees who are 21 years of age and have completed one year of employment. Contributions are determined by the Board of Directors and may be paid in either cash or the Company's common stock. Total contributions to the Plan charged to operating expenses were $0, $160, and $300 in 2000, 1999, and 1998, respectively. The Company adopted the existing Incentive Compensation Plan effective January 1, 1997. Incentive benefits are paid to eligible officers and employees after the end of each calendar year and are determined based on established criteria relating to growth, profitability, asset quality and productivity. Management sets key performance indicators for all applicable profit centers to reward employees on improved economic benefit derived from the profit center. The expense associated with the Plan for 2000, 1999 and 1998 was $0, $1,564 and $332, respectively. The Company's Deferred Compensation Plan is available to eligible directors and officers. Directors may defer up to 100% of their fees and retainers. Employees may defer up to 10% of their salaries. Opportunities to increase deferrals, or for new participants to enter the Plan, are offered periodically. The interest amount accrued on deferrals is tied to Moody's Average Corporate Bond Rate for the previous year. The Plans are unfunded, and it is anticipated that they will result in no cost of the Company over the term of the Plans because life insurance policies on the lives of the Participants have been purchased in amounts estimated to be sufficient to pay benefits under the Plans. The Company is both the owner and beneficiary of the life insurance policies. The expense recorded in 2000, 1999 and 1998 for the Employee Deferred Compensation Plans, inclusive of the salary deferrals, was $381, $341 and $281, respectively. The expense recorded in 2000, 1999 and 1998 for the Directors Deferred Compensation Plans, inclusive of fee deferrals, was $128, $136 and $125, respectively. There were no retainer deferrals for 2000, 1999 or 1998.
48 Note K - Regulatory Matters 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). Management believes, as of December 31, 2000, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2000, 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. There are no conditions or events since that notification that management believes have changed the institution's category. December 31 ----------------------------------------------------- 2000 1999 ------------------------ ---------------------------- Amount Ratio Amount Ratio ------------ ----------- -------------- ------------- The Company Total Capital ..... $122,855 15.15% $123,339 15.55% Tier I Capital .... 112,711 13.90% 113,423 14.30% Tier I Leverage ... 112,711 9.48% 113,423 9.95% The Bank Total Capital ..... $122,165 15.06% $123,208 15.54% Tier I Capital .... 112,022 13.81% 113,294 14.29% Tier I Leverage ... 112,022 9.42% 113,294 9.94% Note L - Segment Reporting The Company has defined two reportable segments: branches and specialized products. Branches offer commercial, consumer, and mortgage loans as well as full range of deposit services. Specialized products include leasing, student loans, credit cards, accounts receivable factoring, trust services, financial investment alternatives and insurance products. The Company evaluates performance based on profit or loss from operations. The reportable segments do not receive any allocations for income taxes or gains and losses from security sales. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment transfers are recorded at cost; there is no intercompany profit or loss on these transfers. There are no intercompany receivables.
49 Note L - Segment Reporting (continued) Branches are defined as a reportable segment because, while they offer a variety of products, they offer the same set of products, use the same delivery system, and are evaluated by the same set of standards. Specialized products are grouped together, not because of similarities in the products, but because of the delivery system, which is largely marketed through branch referrals and the immateriality of the revenue generated by each division separately. The similarity in these is that they are all specialized financial services products, which must be supported by experts. Year ended December 31, 2000 Specialized Branches Products All Other Total ------------- ---------------- --------------- ------------- Net interest income ....................... $ 42,994 $ 2,267 $ 41 $ 45,302 Provision for loan losses ................. 4,788 1,388 197 6,373 ------------- ---------------- --------------- ------------- Net interest income after provision for loan losses ........................ 38,206 879 (156) 38,929 Noninterest income ........................ 12,877 5,018 634 18,529 Noninteret expense ........................ 23,986 5,705 12,783 42,474 ------------- ---------------- --------------- ------------- Income before income taxes ................ 27,097 192 (12,305) 14,984 Income taxes .............................. 3,800 3,800 ------------- ---------------- --------------- ------------- Net income ................................ $ 27,097 $ 192 $ (16,105) $ 11,184 ============= ================ =============== ============= Intersegment revenue (expense) ............ $ 482 $ (482) ============= ================ Segment assets ............................ $ 1,085,758 $ 70,053 $ 56,129 $ 1,211,940 ============= ================ =============== ============= Year ended December 31, 1999 Net interest income ....................... $ 42,369 $ 3,752 $ 37 $ 46,158 Provision for loan losses ................. 1,780 1,209 203 3,192 ------------- ---------------- --------------- ------------- Net interest income after provision for loan losses ........................ 40,589 2,543 (166) 42,966 Noninterest income ........................ 11,310 7,510 656 19,476 Noninteret expense ........................ 24,061 4,595 12,824 41,480 ------------- ---------------- --------------- ------------- Income before income taxes ................ 27,838 5,458 (12,334) 20,962 Income taxes .............................. 6,182 6,182 ------------- ---------------- --------------- ------------- Net income ................................ $ 27,838 $ 5,458 $ (18,516) $ 14,780 ============= ================ =============== ============= Intersegment revenue (expense) ............ $ 551 $ (551) ============= ================ Segment assets ............................ $ 1,044,751 $ 68,857 $ 49,351 $ 1,162,959 ============= ================ =============== =============
50 Note L - Segment Reporting (continued) Year ended December 31, 1998 Specialized Branches Products All Other Total ------------- ---------------- --------------- ------------- Net interest income ....................... $ 40,276 $ 3,519 $ 51 $ 43,846 Provision for loan losses ................. 1,707 714 170 2,591 ------------- ---------------- --------------- ------------- Net interest income after provision for loan losses ........................ 38,569 2,805 (119) 41,255 Noninterest income ........................ 9,964 4,233 264 14,461 Noninteret expense ........................ 24,830 5,275 9,233 39,338 ------------- ---------------- --------------- ------------- Income before income taxes ................ 23,703 1,763 (9,088) 16,378 Income taxes .............................. 4,697 4,697 ------------- ---------------- --------------- ------------- Net income ................................ $ 23,703 $ 1,763 $ (13,785) $ 11,681 ============= ================ =============== ============= Intersegment revenue (expense) ............ $ 517 $ (517) ============= ================ Segment assets ............................ $ 984,273 $ 91,385 $ 32,137 $ 1,107,795 ============= ================ =============== ============= Note M - Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and due from banks: The carrying amount reported in the consolidated balance sheet for cash and due from banks approximates fair value. Interest-bearing balances with banks: The carrying amount reported in the consolidated balance sheet for interest-bearing balances with banks approximates fair value. Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fixed-rate loan fair values, including mortgages, commercial, agricultural, and consumer loans are estimated using a discounted cash flow analysis based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Deposits: The fair values disclosed for demand deposits, both interest-bearing and non interest-bearing, are, by definition, equal to the amount payable on demand at the reporting date. The fair values of certificates of deposit and individual retirement accounts are estimated using a discounted cash flow based on currently effective interest rates for similar types of accounts. Treasury tax and loan note account: The carrying amounts reported in the consolidated balance sheet approximate the fair value. Borrowings: The fair value was determined by discounting the cash flow using the current market rate. Off-balance sheet: Off-balance-sheet items are primarily short-term commitments, often at variable rates which are tied to prime, accordingly, the commitment amounts approximate fair value.
51 Note M - Disclosures About Fair Value of Financial Instruments (continued) 2000 1999 ----------------------- ---------------------- Carrying Fair Carrying Fair Value Value Value Value ---------- --------- ---------- --------- Financial assets: Cash and due from banks ......................... $ 27,676 $ 27,676 $ 42,956 $ 42,956 Interest-bearing balances with banks ............ 29,141 29,141 1,067 1,067 Securities ...................................... 278,574 278,897 266,744 264,506 Loans, net ...................................... 805,318 800,962 789,027 782,928 Financial liabilities: Deposits ........................................ 1,046,605 953,544 978,958 978,295 Treasury tax and loan note account .............. 4,603 4,603 12,000 12,000 FHLB Borrowings ................................. 19,946 20,547 39,269 38,704 Note N - The Peoples Holding Company (Parent Company Only) Condensed Financial Information December 31 ------------------------- Balance Sheets 2000 1999 ------------ ------------ Assets Cash* .......................................... $ 557 $ 209 Stock .......................................... 75 75 Investment in bank subsidiary* ................. 120,971 115,959 Dividends receivable* .......................... 1,367 1,305 Other assets ................................... 95 ------------ ------------ Total Assets ................................. $ 123,065 $ 117,548 ============ ============ Liabilities and Shareholders' Equity Dividends payable* ............................. $ 1,367 $ 1,305 Accrued interest payable and other liabilities . 37 154 Shareholders' equity ........................... 121,661 116,089 ------------ ------------ Total Liabilities and Shareholders' Equity ... $ 123,065 $ 117,548 ============ ============ *Eliminates in consolidation
52 Note N - The Peoples Holding Company (Parent Company Only) Condensed Financial Information (continued) Year ended December 31 ----------------------------------------- Statements of Income 2000 1999 1998 ------------- ------------- ------------- Income Dividends from bank subsidiary* .............. $ 11,067 $ 6,389 $ 4,988 Other dividends .............................. 41 37 51 ------------- ------------- ------------- 11,108 6,426 5,039 Expenses Other ........................................ 40 245 256 Income before income tax credits and equity in undistributed net income of bank subsidiary .. 11,068 6,181 4,783 Income tax credits .............................. (12) (94) (84) ------------- ------------- ------------- 11,080 6,275 4,867 Equity in undistributed net income of bank subsidiary* .................................. 104 8,505 6,814 ------------- ------------- ------------- Net Income ................................... $ 11,184 $ 14,780 $ 11,681 ============= ============= ============= *Eliminates in consolidation Year ended December 31 ----------------------------------------- Statements of Cash Flows 2000 1999 1998 ------------- ------------- ------------- Operating Activities Net Income ..................................... $ 11,184 $ 14,780 $ 11,681 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of bank subsidiary ............................... (104) (8,505) (6,814) Increase in dividends receivable and other assets ............................. (157) (195) (251) Increase (decrease) in other liabilities ... (56) 233 216 ------------- ------------- ------------- Net Cash Provided by Operating Activities .. 10,867 6,313 4,832 Net Cash Used in Investing Activities ...... (76) Financing Activities Cash dividends ................................. (5,341) (5,209) (4,309) Purchase of treasury stock ..................... (5,178) (861) (540) ------------- ------------- ------------- Net Cash Used in Financing Activities ...... (10,519) (6,070) (4,849) ------------- ------------- ------------- Increase (Decrease) In Cash ................ 348 167 (17) Cash at Beginning of Year ....................... 209 42 59 ------------- ------------- ------------- Cash at End of Year ........................ $ 557 $ 209 $ 42 ============= ============= =============
53 Note O - Quarterly Results of Operations (Unaudited) The following is a summary of the unaudited quarterly results of operations: Three Months Ended ------------------------------------------------- Mar 31 June 30 Sept 30 Dec 31 ------------ ----------- ------------ ----------- Year ended December 31, 2000 Interest income ....................... $ 21,604 $ 22,115 $ 22,743 $ 22,972 Interest expense ...................... 10,039 10,804 11,445 11,844 ------------ ----------- ------------ ----------- Net interest income ................... 11,565 11,311 11,298 11,128 Provision for loan losses ............. 989 1,690 1,389 2,305 Noninterest income .................... 4,383 4,522 4,892 4,732 Noninterest expense ................... 10,418 10,412 10,774 10,870 ------------ ----------- ------------ ----------- Income before income taxes ............ 4,541 3,731 4,027 2,685 Income taxes .......................... 1,273 1,015 1,113 399 ------------ ----------- ------------ ----------- Net income ............................ $ 3,268 $ 2,716 $ 2,914 $ 2,286 ============ =========== ============ =========== Basic and diluted earnings per share .. $ 0.53 $ 0.44 $ 0.48 $ 0.38 ============ =========== ============ =========== Year ended December 31, 1999 Interest income ....................... $ 20,538 $ 21,002 $ 20,889 $ 21,071 Interest expense ...................... 9,136 9,267 9,291 9,648 ------------ ----------- ------------ ----------- Net interest income ................... 11,402 11,735 11,598 11,423 Provision for loan losses ............. 746 1,275 530 641 Noninterest income .................... 3,988 7,548 3,909 4,031 Noninterest expense ................... 10,327 10,323 10,337 10,493 ------------ ----------- ------------ ----------- Income before income taxes ............ 4,317 7,685 4,640 4,320 Income taxes .......................... 1,102 2,528 1,448 1,104 ------------ ----------- ------------ ----------- Net income ............................ $ 3,215 $ 5,157 $ 3,192 $ 3,216 ============ =========== ============ =========== Basic and diluted earnings per share .. $ 0.52 $ 0.83 $ 0.51 $ 0.52 ============ =========== ============ ===========
54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and nominees of the Registrant appear under "Election of Directors" on pages 3 through 4 of the Company's definitive Proxy Statement, dated March 19, 2001, which is incorporated herein by reference. Information concerning executive officers of the Registrant and its subsidiary appears on page 6 under the caption "Executive Officers" of the Company's definitive Proxy Statement, dated March 19, 2001, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Summary Compensation Table-Annual Compensation" on pages 6 through 10 of the Company's definitive Proxy Statement, dated March 19, 2001, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing under "Principal Holders of Voting Security" on page 2 of the Company's definitive Proxy Statement, dated March 19, 2001, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under "Transactions with Management" on page 10 of the Company's definitive Proxy Statement, dated March 19, 2001, is incorporated herein by reference.
55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) and (c) The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits: (3) Articles of Incorporation and Bylaws of the Registrant are incorporated herein by reference to exhibits filed with the Registration Statement on Form S-14, File No. 2-21776. (23) Consent of Independent Auditors (27) Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K was filed October 2, 2000, to report Item 5: Other Events. At a special called meeting Friday, September 22, 2000, the Board of Directors of The Peoples Holding Company elected E. Robinson McGraw President and Chief Executive Officer of The Company and its subsidiary, The Peoples Bank and Trust Company. Mr. McGraw succeeded John W. Smith, 65, who retired October 31, 2000, after 29 years of service with the Bank, the last seven as President and Chief Executive Officer. Mr. Smith remains on the Board of Directors of both the Company and the Bank. Mr. McGraw has been with the Bank since 1974, serving as Executive Vice President since 1993. The transition started immediately and Mr. McGraw assumed the responsibilities of the office November 1, 2000. (c) Financial Statement Schedules -- None
56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 HOLDING COMPANY DATED: March 19, 2001 By /s/ E. Robinson McGraw ---------------------- E. Robinson McGraw, President & CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated. E. Robinson McGraw, President and Director (Chief Executive Officer) ............................/s/ E. Robinson McGraw Robert C. Leake, Chairman of the Board and Director ............................................./s/ Robert C. Leake John W. Smith, Vice Chairman of the Board and Director .................................../s/ John W. Smith William M. Beasley, Director ........................./s/ William M. Beasley George H. Booth, II, Director ......................../s/ George H. Booth, II Frank B. Brooks, Director ............................/s/ Frank B. Brooks John M. Creekmore, Director ........................../s/ John M. Creekmore Marshall H. Dickerson, Director ....................../s/ Marshall H. Dickerson Eugene B. Gifford, Jr., Director ...................../s/ Eugene B. Gifford, Jr. J. Niles McNeel, Director ............................/s/ J. Niles McNeel C. Larry Michael, Director .........................../s/ C. Larry Michael H. Joe Trulove, Director ............................./s/ H. Joe Trulove J. Heywood Washburn, Director ......................../s/ J. Heywood Washburn Robert H. Weaver, Director .........................../s/ Robert H. Weaver J. Larry Young, Director ............................./s/ J. Larry Young
57 Form 10-K--Item 14 (a) (1) and (2) THE PEOPLES HOLDING COMPANY AND SUBSIDIARY LIST OF FINANCIAL STATEMENTS The following consolidated financial statements and report of independent auditors of The Peoples Holding Company and subsidiary are included in this Form 10-K (Item 8) of the registrant for the year ended December 31, 2000. Report of Independent Auditors Consolidated Balance Sheets--December 31, 2000 and 1999 Consolidated Statements of Income--Years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Shareholders' Equity--Years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Cash Flows--Years ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements--December 31, 2000 Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are not applicable and therefore, have been omitted.
Exhibit 23
The Peoples Holding Company
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-20108) of The Peoples Holding Company and in the related Prospectus
of our report dated January 31, 2001, with respect to the consolidated financial
statements of The Peoples Holding Company included in this Annual Report (Form
10-K) for the year ended December 31, 2000.
/s/ Ernst & Young LLP
Memphis, Tennessee
March 14, 2001
9 1,000 YEAR DEC-31-2000 DEC-31-2000 27,676 29,141 0 0 192,916 85,658 85,981 815,854 10,536 1,211,940 1,046,605 4,603 19,125 19,946 0 0 31,061 90,600 1,211,940 72,919 16,056 459 89,434 42,169 44,132 45,302 6,373 0 42,474 14,984 14,984 0 0 11,184 1.83 1.83 4.41 1,209 5,915 0 0 10,058 6,358 463 10,536 10,536 0 211