UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission File Number 1-13253
THE PEOPLES HOLDING COMPANY
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(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
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(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38802-0709
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(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 6,043,124 shares outstanding
as of May 10, 2001
1
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000................ 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 2001 and 2000.......... 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000.......... 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8
Item 3.
Quantitative and Qualitative Disclosures
About Market Risk................................... 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings....................................... 11
Item 5.
Other Information....................................... 11
Item 6.(b)
Exhibits and Reports on Form 8-K........................ 11
Signatures.................................................. 12
2
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31 DECEMBER 31
2001 2000
------------ -----------
(Unaudited) (Note 1)
Assets
Cash and due from banks .................. $ 41,227 $ 27,676
Interest-bearing balances with banks ..... 16,222 29,141
---------- ---------
Cash and Cash Equivalents ... 57,449 56,817
Securities available-for-sale ............ 302,107 192,916
Securities held-to-maturity (fair
value - $0 and $85,981 at
March 31, 2001 and December 31,
2000, respectively) ................... 85,658
Loans, net of unearned income ............ 813,956 815,854
Allowance for loan losses ............. (11,067) (10,536)
---------- ---------
Net Loans ................... 802,889 805,318
Premises and equipment, net .............. 30,152 30,105
Other assets ............................. 39,672 41,126
---------- ---------
Total Assets .................... $ 1,232,269 $ 1,211,940
========== =========
Liabilities
Deposits:
Noninterest-bearing ................... $ 147,536 $ 131,718
Interest-bearing ...................... 911,757 914,887
---------- ---------
Total Deposits .............. 1,059,293 1,046,605
Treasury tax and loan note account ....... 7,329 4,603
Advances from the Federal Home Loan Bank . 19,459 19,946
Other liabilities ........................ 20,352 19,125
---------- ---------
Total Liabilities ........... 1,106,433 1,090,279
Shareholders' Equity
Common Stock, $5 par value - 15,000,000
shares authorized, 6,212,284 shares
issued; 6,043,124 and 6,056,899 shares
outstanding at March 31, 2001 and
December 31, 2000, respectively ........ 31,061 31,061
Treasury stock, at cost .................. (3,949) (3,688)
Additional paid-in capital ............... 39,931 39,931
Retained earnings ........................ 56,338 54,423
Accumulated other comprehensive income ... 2,455 (66)
---------- ---------
Total Shareholders' Equity .. 125,836 121,661
---------- ---------
Total Liabilities and
Shareholders' Equity ......... $ 1,232,269 $ 1,211,940
========== =========
See Notes to Condensed Consolidated Financial Statements
3
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
THREE MONTHS ENDED MARCH 31
2001 2000
---- ----
(Unaudited)
Interest Income
Loans ................................ $ 18,180 $ 17,523
Securities:
Taxable ......................... 3,294 2,815
Tax-exempt ...................... 1,015 1,049
Other ................................ 184 217
------- -------
Total Interest Income ...... 22,673 21,604
Interest Expense
Deposits ............................. 11,220 9,573
Borrowings .......................... 371 466
------- -------
Total Interest Expense ..... 11,591 10,039
---------- ----------
Net Interest Income ........ 11,082 11,565
Provision for loan losses .................. 1,125 989
--------- ---------
Net Interest Income After
Provision for Loan Losses .. 9,957 10,576
Noninterest Income
Service charges on deposit accounts .. 2,792 2,433
Fees and commissions ................. 1,788 932
Trust revenue ........................ 265 267
Securities gains (losses)............. 43
Other ................................ 842 751
------- -------
Total Noninterest Income ... 5,730 4,383
Noninterest Expense
Salaries and employee benefits ....... 6,077 5,496
Data processing ...................... 858 834
Net occupancy ........................ 828 733
Equipment ............................ 729 700
Other ................................ 2,563 2,655
--------- ---------
Total Noninterest Expense .. 11,055 10,418
---------- ----------
Income before income taxes ................. 4,632 4,541
Income taxes ............................... 1,330 1,273
--------- ---------
Net Income ................. $ 3,302 $ 3,268
========== ==========
Basic and diluted earnings per share ...... $ 0.55 $ 0.53
====== ======
Weighted average shares outstanding ....... 6,048,805 6,204,784
========= =========
See Notes to Condensed Consolidated Financial Statements
4
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
THREE MONTHS ENDED MARCH 31
2001 2000
---- ----
(Unaudited)
Operating Activities
Net Cash Provided by Operating
Activities .................... $ 6,720 $ 3,315
Investing Activities
Purchases of securities
available-for-sale ................. (40,425) (15,832)
Proceeds from sales of securities
available-for-sale ................. 5,000
Proceeds from calls/maturities of
securities available-for-sale ...... 15,951 3,651
Proceeds from calls/maturities of
securities held-to-maturity ........ 1,106
Net increase in loans ................... (17,687) (24,087)
Proceeds from sales of loans ............ 18,523 6,027
Proceeds from sales of premises
and equipment ...................... 71
Purchases of premises and equipment ..... (728) (1,071)
---------- ----------
Net Cash Used in Investing
Activities .................... (19,366) (30,135)
Financing Activities
Net increase in
noninterest-bearing deposits ........ 15,818 8,632
Net increase (decrease) in
interest-bearing deposits ........... (3,130) 56,612
Net increase (decrease) in
short-term borrowings ............... 2,726 (5,155)
Proceeds from other borrowings .......... 570
Repayments of other borrowings .......... (487) (20,590)
Acquisition of treasury stock ........... (261)
Cash dividends paid ..................... (1,388) (1,365)
---------- ----------
Net Cash Provided by Financing
Activities ................... 13,278 38,704
---------- ----------
Increase in Cash
and Cash Equivalents ......... 632 11,884
Cash and Cash Equivalents at
beginning of period ............... 56,817 43,871
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 57,449 $ 55,755
============ ============
Supplemental Disclosures:
Non-cash transactions:
Transfer of loans to other real
estate ............................... $ 608 $ 309
============ ============
See Notes to Condensed Consolidated Financial Statements
5
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
(in thousands, except share data)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001.
For further information, refer to the consolidated financial statements and
footnotes thereto included in The Peoples Holding Company and Subsidiary's
(collectively, the Company) annual report on Form 10-K for the year ended
December 31, 2000.
Note 2 Comprehensive Income
For the three month periods ended March 31, 2001 and 2000, total comprehensive
income amounted to $5,823 and $2,429, respectively. Total comprehensive income
consists of net income and the change in the unrealized gain (loss) on
securities available for sale.
Note 3 Segment Reporting
The operating segments for the three months ended March 31, 2001 are the same as
prior years. However, the Company changed its internal reporting mechanism to
more closely match expenses with the revenues generated by each segment.
Accordingly, prior periods' segment information has been adjusted to reflect the
current method of management reporting as though it had been in place for all
periods presented.
Segment information for the three months ended March 31, 2001 and 2000, is
presented below.
Three Months Ended March 31, 2001
Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 10,473 $ 356 $ 253 $ 11,082
Provision for loan loss .... 1,118 0 7 1,125
------- ------- ------- -------
Net interest income after
provision for loan loss .. 9,355 356 246 9,957
Non-interest income ........ 3,738 1,859 133 5,730
Non-interest expense ....... 7,406 1,712 1,937 11,055
------- ------- ------- -------
Income before income taxes . 5,687 503 (1,558) 4,632
Income taxes ............... 0 53 1,277 1,330
------- ------- ------- -------
Net income ................. $ 5,687 $ 450 $ (2,835) $ 3,302
======= ======= ======= =======
6
Three Months Ended March 31, 2000
Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 10,551 $ 629 $ 385 $ 11,565
Provision for loan loss .... 890 20 79 989
------- ------- ------- -------
Net interest income after
provision for loan loss .. 9,661 609 306 10,576
Non-interest income ........ 3,238 1,042 103 4,383
Non-interest expense ....... 6,957 1,049 2,412 10,418
------- ------- ------- -------
Income before income taxes . 5,942 602 (2,003) 4,541
Income taxes ............... 0 (8) 1,281 1,273
------- ------- ------- -------
Net income ................. $ 5,942 $ 610 $ (3,284) $ 3,268
======= ======= ======= =======
Note 4 Other Accounting Pronouncements
On January 1, 2001, the Company adopted Financial Accounting Standards Board
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." As permitted with the adoption of this Statement, the Company
transferred its held-to-maturity securities to securities available-for-sale on
January 1, 2001. At the time of the transfer, the held-to-maturity securities
had a carrying value of $85,658 and a market value of $85,981. The adoption of
the new Statement did not have a material impact on the earnings or the
financial position of the Company.
Note 5 Subsequent Events
On April 16, 2001, the Company filed Form SC TO-I with the Securities and
Exchange Commission announcing a tender offer to repurchase up to 604,312 shares
of its common stock at $23.00 per share. The offer is scheduled to expire at
5:00 p.m., New York City time, on May 15, 2001, unless extended by the Company.
7
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(in thousands, except share data)
This Form 10-Q may contain, or incorporate by reference, statements which may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Prospective investors are cautioned that any such
forward-looking statements are not guarantees for future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements include significant
fluctuations in interest rates, inflation, economic recession, significant
changes in the federal and state legal and regulatory environment, significant
underperformance in the Company's portfolio of outstanding loans, and
competition in the Company's markets. The Company undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
Financial Condition
Total assets of The Peoples Holding Company grew from $1,211,940 on December 31,
2000, to $1,232,269 on March 31, 2001, or 1.68% for the three month period. Most
of the growth in assets occurred in the investment portfolio, which increased
from $278,574 on December 31, 2000, to $302,107 on March 31, 2001. As permitted
with the adoption of Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," all
held-to-maturity securities were transferred to the available-for-sale portfolio
at the beginning of the year which improved the Company's liquidity and provided
more flexibility in asset management.
Total deposits for the first three months of 2001 grew from $1,046,605 on
December 31, 2000 to $1,059,293 on March 31, 2001, or an increase of 1.21%, with
the majority of growth in noninterest bearing deposits.
The equity capital to total assets ratios were 10.21% and 10.04% at March 31,
2001 and December 31, 2000, respectively. Capital increased $4,175 or 3.43% from
December 31, 2000 to March 31, 2001. Net income and changes in unrealized
portfolio gains due to recent decreases in interest rates have contributed to
the growth in capital. Cash dividends declared increased from $.22 per share in
the fourth quarter of 2000 to $.23 per share in the first quarter of 2001.
Results of Operations
The Company's net income for the three month period ended March 31, 2001, was
$3,302, representing an increase of $34, or 1.04% over net income for the three
month period ended March 31, 2000, which totaled $3,268. The increase in net
income for the three month period ended March 31, 2001, compared to the same
period of 2000 resulted from usual and customary deposit gathering and lending
operations and increases in noninterest income for specialized products. The
annualized return on average assets for the three month periods ending March 31,
2001 and 2000, was 1.06% and 1.11%, respectively.
8
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary concerns in managing net interest income are the mix and
the repricing of rate-sensitive assets and liabilities. While the Company has
maintained steady growth in its asset base, net interest income has declined due
in part to a shift within the mix of assets from loans to investments. Net
interest income has also been adversely impacted by the volume of time deposits,
a higher cost funding source, which represented approximately 55% of total
average deposits for the three month period ended March 31, 2001, compared to
approximately 51% for the same period during 2000. Net interest income for the
three month periods ending March 31, 2001 and 2000 was $11,082 and $11,565,
respectively, while earning assets for the same periods averaged $1,119,020 and
$1,093,873 respectively. Recent changes in the pricing environment coupled with
the pricing strategies enacted by management have stabilized the Company's net
interest margin. Although net interest margin was lower than the 4.55% reported
for the first quarter of 2000, it was 4.30% for the first quarter of 2001, up
from 4.29% for the fourth quarter of 2000.
The provision for loan losses charged to operating expense is an amount which,
in the judgement of management, is necessary to maintain the allowance for loan
losses at a level that is adequate to meet the inherent risks of losses on the
Company's current portfolio of loans. The appropriate level of the allowance is
based on a quarterly analysis of the loan portfolio including consideration of
such factors as the risk rating of individual credits, size and diversity of the
portfolio, economic conditions, prior loss experience, and the results of
periodic credit reviews by internal loan review and regulators. The provision
for loan losses totaled $1,125 and $989 for the three month periods ending March
31, 2001 and 2000, respectively. The allowance for loan losses as a percentage
of loans outstanding was 1.36% and 1.29% as of March 31, 2001 and December 31,
2000, respectively. Net charge-offs to average loans was .07% and .11% for the
three month periods ending March 31, 2001 and 2000, respectively. Net
charge-offs for the first quarter of 2000 were higher than the total reported
for the first quarter of 2001 primarily because of a group of automobile loans
that were isolated to a specific location.
Noninterest income, excluding gains from the sales of securities, was $5,687 for
the three month period ending March 31, 2001, compared to $4,383 for the same
period in 2000, or an increase of 29.75%. While the Company has continued its
emphasis on sales of specialized products and services, the increase in
noninterest income between 2001 and 2000 is due primarily to fees and
commissions associated with the expansion of The Peoples Insurance Agency, Inc.,
which occurred with the acquisitions of The Southern Insurance Group and The
Dominion Insurance Agency during the second and fourth quarters of 2000,
respectively. Excluding the additional fee income related to the insurance
expansions, non-sufficient fund fees accounted for the majority of the increase
in service charges while improvements in mortgage loan fees, loan document
preparation fees, PC banking fees, and cash management fees boosted fees and
commissions.
Noninterest expense was $11,055 for the three month period ended March 31, 2001,
compared to $10,418 for the same period in 2000, or an increase of 6.11%.
Excluding the impact of the acquisition of the insurance companies, the Company
experienced negligible growth in all noninterest expense categories.
Income tax expense was $1,330 for the three month period ended March 31, 2001,
(with an effective tax rate of 28.71%) compared to $1,273 (with an effective tax
rate of 28.03%) for the same period in 2000. The Company continues to invest in
assets whose earnings are given favorable tax treatment.
9
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is a key to assuring liquidity. When evaluating the movement of these
funds even during times of large interest rate changes, it is apparent that the
Company continues to attract deposits that can be used to meet cash flow needs.
Management continues to monitor the liquidity and potentially volatile
liabilities ratios to ensure compliance with Asset-Liability Committee targets.
These targets are set to ensure that the Company meets the liquidity
requirements deemed necessary by management and regulators.
Another source available for meeting the Company's liquidity needs is
available-for-sale securities. The available-for-sale portfolio is composed of
securities with a readily available market that can be used to convert to cash
if the need arises. In addition, the Company maintains a federal funds position
that provides day-to-day funds to meet liquidity needs and may also obtain
advances from the Federal Home Loan Bank (FHLB) or the treasury tax and loan
note account. Historically, the Company has not relied upon these sources to
meet long-term liquidity needs. Funds obtained from the FHLB are used primarily
to match mortgage loan originations in order to minimize interest rate risk, but
may be used to provide short-term funding.
On April 16, 2001, the Company announced a tender offer to repurchase up to
604,312 shares of its common stock at $23.00 per share. The Company expects to
fund any repurchases under this tender offer from cash and the liquidation of
short-term investments.
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum balances and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). As of March 31, 2001, the Bank met all
capital adequacy requirements to which it is subject.
As of March 31, 2001, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of
management, there are no conditions or events since the last notification that
have changed the institution's category. The Bank's actual capital amounts and
applicable ratios are as follows:
10
Actual
Amount Ratio
------ -----
(000)
As of March 31, 2001
Total Capital .................... $ 124,182 15.4%
(to Risk Weighted Assets)
Tier I Capital ................... $ 114,079 14.1%
(to Risk Weighted Assets)
Tier I Capital ................... $ 114,079 9.4%
(to Adjusted Average Assets)
As of December 31, 2000
Total Capital .................... $ 122,165 15.1%
(to Risk Weighted Assets)
Tier I Capital ................... $ 112,022 13.8%
(to Risk Weighted Assets)
Tier I Capital ................... $ 112,022 9.4%
(to Adjusted Average Assets)
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well
capitalized bank.
Book value per share was $20.82 and $20.09 at March 31, 2001 and December 31,
2000, respectively. Quarterly cash dividends were $.23 per share during the
first quarter of 2001, up from $.22 per share during the fourth quarter of 2000.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to our disclosure on quantitative and
qualitative disclosures about market risk since December 31, 2000. For
additional information, see the Company's Form 10-K for the year ended December
31, 2000.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material proceedings against the Company
during the quarter ending March 31, 2001.
Item 5. Other Information
On April 16, 2001, the Company filed Form SC TO-I with the
Securities and Exchange Commission announcing a tender offer to
repurchase up to 604,312 shares of its common stock at $23.00
per share. The offer is scheduled to expire at 5:00 p.m., New
York City time, on May 15, 2001, unless extended by the Company.
For further information, contact The Peoples Bank & Trust
Company, the information agent for the offer, at 1-800-492-0365
or refer to the Company's Form SC TO-I filed on April 16, 2001.
Item 6.(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the first quarter
of 2001.
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: May 14, 2001 /s/ E. Robinson McGraw
---------------------------
E. Robinson McGraw
President & Chief Executive Officer
12