UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
Commission File Number 0-12154
THE PEOPLES HOLDING COMPANY
(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38801
(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 3,906,675 shares outstanding
as of May 2, 1997
1
<PAGE>
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996...............3
Consolidated Statements of Income - Three Months
Ended March 31, 1997 and 1996......................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996.........5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................10
Item 6.(b) Reports on Form 8-K..............................10
Signatures..................................................11
2
<PAGE>
<TABLE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MARCH 31 DECEMBER 31
1997 1996
------------ -----------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Cash and due from banks ................ $ 36,699,189 $ 38,374,641
Federal funds sold ..................... 5,500,000 8,500,000
---------- ----------
Cash and cash equivalents ......... 42,199,189 46,874,641
Interest bearing balances with banks 2,304,586 1,824,031
Securities held-to-maturity (market
value-$52,371,345 and $52,334,931
at March 31, 1997 and December 31,
1996, respectively) ................. 52,180,136 52,051,251
Securities available-for-sale (amortized
cost-$214,355,444 and $193,696,615 at
March 31, 1997 and December 31, 1996,
respectively) ....................... 213,275,231 194,058,997
Loans, net of unearned income ......... 570,958,308 562,752,505
Allowance for loan losses ........... (9,313,276) (9,309,354)
----------- ------------
Net Loans ........................ 561,645,032 553,443,151
Premises and equipment ................. 22,004,088 21,559,955
Other assets ........................... 24,200,495 23,277,326
----------- ------------
Total Assets .................. $ 917,808,757 $ 893,089,352
=========== ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 123,217,017 $ 118,638,526
Certificates of deposit exceeding
$100,000 ........................ 92,447,778 89,435,562
Interest bearing .................... 573,859,483 564,767,920
------------ ------------
Total Deposits ............ 789,524,278 772,842,008
Treasury tax and loan note account ..... 8,017,715 6,354,142
Borrowings ................. ........... 15,694,562 11,174,638
Other liabilities ...................... 13,096,162 12,157,744
------------ ------------
Total Liabilities ......... $ 826,332,717 $ 802,528,532
Shareholders' Equity
Common Stock, $5 par value-7,500,000
shares authorized, 3,906,675 shares
issued and outstanding at March 31, 1997
and December 31, 1996, respectively ... 19,533,375 19,533,375
Additional paid-in capital .............. 39,875,796 39,875,796
Unrealized gains (losses) on securities,
available-for-sale, net of tax ........ (677,397) 227,214
Retained earnings ....................... 32,744,266 30,924,435
------------ ------------
Total Shareholders' Equity .... 91,476,040 90,560,820
------------ ------------
Total Liabilities and
Shareholders' Equity ........ $ 917,808,757 $ 893,089,352
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Interest Income
Loans .................... .......... $ 13,129,673 $ 12,265,259
Securities:
Taxable ........................ 3,203,063 2,979,267
Tax-exempt ..................... 719,164 717,022
Other ............................... 206,791 298,778
------- -------
Total interest income ..... 17,258,691 16,260,326
Interest Expense
Time deposits exceeding $100,000 .... 867,639 865,095
Other deposits ...................... 6,266,525 6,054,048
Borrowings .......................... 299,077 26,721
------ ------
Total interest expense .... 7,433,241 6,945,864
--------- ---------
Net interest income ....... 9,825,450 9,314,462
Provision for loan losses ................. 570,000 630,225
------- -------
Net interest income after
provision for loan losses . 9,255,450 8,684,237
Noninterest income:
Service charges on deposit accounts.. 1,598,356 1,600,496
Fees and commission ................. 440,016 419,300
Trust revenue ....................... 149,700 135,000
Securities gains .................... 90,655 108,450
Other ............................... 571,700 471,228
------- -------
Total noninterest income .. 2,850,427 2,734,474
Noninterest expense:
Salaries and employee benefits ...... 4,655,620 4,638,228
Net occupancy ....................... 684,009 548,005
Equipment ........................... 445,062 344,101
Other ............................... 2,567,258 2,574,932
--------- ---------
Total noninterest expense.. $ 8,351,949 $ 8,105,266
--------- ---------
Income before income taxes ................ 3,753,928 3,313,445
Income taxes .............................. 1,152,762 1,005,977
--------- ---------
Net income ................ $ 2,601,166 $ 2,307,468
========= =========
Earnings per share ........................ $ .67 $ .59
===== =====
Weighted average shares outstanding ....... 3,906,675 3,906,675
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED MARCH 31
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Operating Activities
Net income ............................ $ 2,601,166 $ 2,307,468
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses ............. 570,000 630,225
Provision for depreciation and
amortization ..................... 618,633 473,449
Net amortization (accretion) of
securities premiums/discounts .... 166,494 (139,959)
Gains on sales/calls of
securities ....................... (90,655) (79,192)
Increase in other liabilities ......... 938,418 112,997
Deferred income taxes ................. (98,387) 39,041
Losses (gains) on sales of premises
and equipment ................... 103,693 (4,660)
Increase in other assets .............. (333,169) (369,324)
-------- --------
Net Cash Provided by Operating
Activities .................. 4,476,193 2,970,045
Investing Activities
Net decrease (increase) in balances
with other banks ................. (480,555) 8,427,484
Proceeds from maturities/calls of
securities held-to-maturity ...... 342,000 634,077
Proceeds from maturities/calls of
securities available-for-sale .... 28,706,824 20,479,617
Proceeds from sales of
securities available-for-sale .... 6,090,655 5,079,192
Purchases of securities
held-to-maturity ................. (462,000) (2,348,422)
Purchases of securities
available-for-sale ............... (55,541,198) (61,088,836)
Net increase in loans ................. (8,909,423) (3,618,058)
Proceeds from sales of premises and
equipment ....................... 153,406 22,896
Purchases of premises and equipment ... (1,135,786) (643,474)
-------- --------
Net Cash Used in Investing
Activities .................. (31,236,077) (33,055,524)
Financing Activities
Net increase in
noninterest-bearing deposits ..... 4,578,491 4,956,336
Net increase in certificates of deposit
exceeding $100,000 ............... 3,012,216 8,617,061
Net increase in other interest-bearing
deposits ......................... 9,091,563 11,777,061
Net increase in treasury
tax and loan note account ........ 1,663,573 309,571
Increase (decrease) in borrowings ..... 4,519,924 (226,435)
Cash dividends paid ................... (781,335) (683,752)
-------- --------
Net Cash Provided by Financing
Activities .................. 22,084,432 24,749,842
---------- ----------
Decrease in Cash
and Cash Equivalents ........ (4,675,452) (5,335,637)
---------- ----------
Cash and cash equivalents at
beginning of period ................... 46,874,641 63,918,819
---------- ----------
Cash and cash equivalents at end of period .. $ 42,199,189 $ 58,583,182
========== ==========
Non-cash transactions:
Transfer of loans to other real estate $ 137,542 $ 338,530
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The consolidated balance sheet at December 31, 1996 has been derived from the
audited consolidated financial statements at that date. The accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
only of normally recurring accruals) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The statements should be read in conjunction with the summary of accounting
policies and notes to consolidated financial statements included in the
Registrant's annual report for the year ended December 31, 1996. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the rules of the Securities and Exchange Commission.
6
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements' within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21 of the Securities Exchange
Act of 1934, as amended. Prospective investors are cautioned that any such
forward-looking statements are not guarantees for future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to differ
materially from those in forward-looking statements include significant
fluctuations in interest rates, inflation, economic recession, significant
changes in the federal and state legal and regulatory environment, significant
underperformance in the Company's portfolio of outstanding loans, and
competition in the Company's markets. The Company undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
Financial Condition
- -------------------
Total assets of The Peoples Holding Company grew from $893,089,352 on December
31, 1996, to $917,808,757 on March 31, 1997, or 2.77% for the three month
period. Total securities increased from $246,110,248 on December 31, 1996, to
$265,455,367 on March 31, 1997, in accordance with management's strategic plan.
Loans, net of unearned income, increased $8,205,803 or 1.46%.
Total deposits for the first three months of 1997 grew from $772,842,008 on
December 31, 1996 to $789,524,278 on March 31, 1997, or an increase of 2.16%,
with the majority of growth in time deposits.
The equity capital to total assets ratio was 9.97% and 10.14% for March 31, 1997
and December 31, 1996, respectively. The decrease is mainly due to the
unrealized losses on securities, available-for-sale, at March 31, 1997.
Results of Operations-Quarter Ended March 31, 1997 compared to 1996
- -------------------------------------------------------------------
The Company's net income for the three month period ending March 31, 1997 was
$2,601,166 compared to $2,307,468 from the first quarter of 1996. The increase
in net income for the first quarter of 1997 compared to 1996 is due to the
increase in volume of loans and securities. The volume increase was slightly
affected by a decrease in the net interest margin of eight basis points for the
quarter ended March 31, 1997 compared to the same period in 1996. The annualized
returns on average assets for the first quarter of 1997 and 1996 were 1.16% and
1.09%, respectively.
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary items of concern in managing net interest income are the
mix and maturity balance between interest-sensitive assets and related
liabilities. Net interest income was $9,825,450 and $9,314,462 for the three
months ending March 31, 1997 and 1996, respectively. Earning assets averaged
$839.0 million for first quarter ending March 31, 1997 compared to $773.9
million for the same period in 1996. The net interest margin was 4.96% and 5.04%
for the three months ending March 31, 1997 and 1996, respectively. The decrease
in net interest margin is due to the increase in the volume and rate of costing
liabilities in the first quarter of 1997.
7
<PAGE>
The provision for loan losses 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 absorb inherent 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 totalled $570,000 and
$630,225 for quarters ending March 31, 1997 and 1996, respectively. The
allowance for loan losses as a percentage of net loans outstanding was 1.63% and
1.65% as of March 31, 1997 and 1996, respectively. Net charge-offs to average
loans was .10% and .16% for the three months ending March 31, 1997 and 1996,
respectively.
Noninterest income, excluding security gains and losses was $2,759,772 for the
quarter ending March 31, 1997, compared to $2,626,024 for same period in 1996,
or a increase of 5.09%. Fees and commissions were up $20,716, and other
operating income was up $100,472. These increases were due in part to an
increase in total deposits of the Company.
Noninterest expenses were $8,351,949 for the quarter ending March 31, 1997,
compared to $8,105,266 for the same period in 1996, or an increase of 3.04%. The
components of noninterest expenses reflect normal increases for personnel
related expenses and general inflation in the cost of services and supplies
purchased by the Company.
Income tax expense was $1,152,762 for the three months ending March 31, 1997,
compared to $1,005,977 for the same period in 1996. The increase is due to
increased profits for the first quarter of 1997 compared to 1996. The Company
continues to invest in assets whose earnings are given favorable tax treatment.
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is a key to assuring liquidity. The Company has worked toward lowering
its dependence on other public funds. This has added more stability to the
Company's core deposit base reducing the dependence on highly liquid assets.
Approximately 88% of the Company's deposits are composed of accounts with
balances less than $100,000. When evaluating the movement of these funds even
during large interest rate changes, it is apparent that the Company continues to
attract deposits that can be used to meet cash flow needs.
Other sources available for meeting the Company's liquidity needs includes
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.
8
<PAGE>
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). As of March 31, 1997, the Bank has meet all
capital adequacy requirements to which it is subject.
As of March 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of
management, there are no conditions or events since the last notification that
have changed the institution's category.
The Bank's actual capital amounts and applicable ratios are as follows:
<TABLE>
<CAPTION>
Actual
Amount Ratio
------ -----
(000)
<S> <C> <C>
As of March 31, 1997
Total Capital .................... $ 94,818 16.4%
(to Risk Weighted Assets)
Tier I Capital ................... $ 87,585 15.1%
(to Risk Weighted Assets)
Tier I Capital ................... $ 87,585 9.7%
(to Average Assets)
As of December 31, 1996
Total Capital .................... $ 92,734 16.4%
(to Risk Weighted Assets)
Tier I Capital ................... $ 85,618 15.1%
(to Risk Weighted Assets)
Tier I Capital ................... $ 85,618 9.9%
(to Average Assets)
</TABLE>
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 $ 23.42 and $23.18 at March 31, 1997 and December 31,
1996, respectively. Quarterly cash dividends were raised to $.20 per share, up
from $.18 per share during the first quarter of 1996.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
9
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material proceedings pending at
March 31 1997, against the registrant or its subsidiary.
Item 6(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the first
quarter of 1997.
10
<PAGE>
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 2, 1997 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 36699
<INT-BEARING-DEPOSITS> 2305
<FED-FUNDS-SOLD> 5500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 213275
<INVESTMENTS-CARRYING> 52180
<INVESTMENTS-MARKET> 52371
<LOANS> 570958
<ALLOWANCE> 9313
<TOTAL-ASSETS> 917809
<DEPOSITS> 789527
<SHORT-TERM> 8018
<LIABILITIES-OTHER> 13096
<LONG-TERM> 15695
0
0
<COMMON> 19533
<OTHER-SE> 71943
<TOTAL-LIABILITIES-AND-EQUITY> 917809
<INTEREST-LOAN> 13130
<INTEREST-INVEST> 3922
<INTEREST-OTHER> 207
<INTEREST-TOTAL> 17259
<INTEREST-DEPOSIT> 7134
<INTEREST-EXPENSE> 7433
<INTEREST-INCOME-NET> 9825
<LOAN-LOSSES> 570
<SECURITIES-GAINS> 91
<EXPENSE-OTHER> 8352
<INCOME-PRETAX> 3754
<INCOME-PRE-EXTRAORDINARY> 3754
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2601
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<YIELD-ACTUAL> 4.96
<LOANS-NON> 1377
<LOANS-PAST> 3158
<LOANS-TROUBLED> 199
<LOANS-PROBLEM> 1000
<ALLOWANCE-OPEN> 9309
<CHARGE-OFFS> 737
<RECOVERIES> 171
<ALLOWANCE-CLOSE> 9313
<ALLOWANCE-DOMESTIC> 9313
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
