UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996
Commission file number 0-12154
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: (601) 680-1001
Securities registered pursuant to Section 12(b) of
the Act: None Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, $5.00 Par Value
------------------------------
(Title of Class)
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_____
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 14, 1997 was $145,035,309.
On March 14, 1997, there were 3,906,675 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Shareholders' Report are incorporated by reference
into Part I and II of this report.
Portions of annual Proxy Statement dated March 17, 1997, relating to the annual
meeting of shareholders of The Peoples Holding Company, are incorporated by
reference into Part III.
<PAGE>
Exhibit Index on Page 17
THE PEOPLES HOLDING COMPANY
FORM 10-K
For the year ended December 31, 1996
CONTENTS
PART I
Item 1. Business.............................................3
Item 2. Properties..........................................12
Item 3. Legal Proceedings...................................12
Item 4. Submission of Matters to a Vote of Security Holders.12
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters.....................12
Item 6. Selected Financial Data.............................12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......13
Item 8. Financial Statements and Supplementary Data.........13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............13
PART III
Item 10. Directors and Executive Officers of the Registrant..13
Item 11. Executive Compensation..............................13
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................13
Item 13. Certain Relationships and Related Transactions......13
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................14
2
<PAGE>
PART I
This Annual Report on 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 banking
activities are conducted through the Bank, which on December 31, 1996, had 41
banking offices in Tupelo, Aberdeen, Amory, Batesville, Booneville, Calhoun
City, Coffeeville, Corinth, Grenada, Guntown, Hernando, Iuka, Louisville, New
Albany, Okolona, Olive Branch, Plantersville, Pontotoc, Saltillo, Sardis,
Shannon, Smithville, Southaven, Verona, Water Valley, West Point, and Winona,
Mississippi. All branches are located within a 100 mile radius of Tupelo,
Mississippi.
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 branches 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 sole 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 services are 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. 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. The Bank also offers accounts receivable
factoring to qualified businesses. Neither the Registrant nor the Bank has any
foreign activities. The Bank also offers to its customers the VISA and
MasterCard credit cards.
<PAGE>
Competition
Vigorous competition exists in all major areas where the Registrant and
its subsidiary are engaged in 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, and finance
companies for available loans and depository accounts.
In the following paragraph reference is made to the Registrant's
competitive position as measured in terms of total assets on December 31, 1996.
Any such reference is used solely as a method of placing the competition in
perspective as of that particular date. Due to the intense local competition,
the Registrant makes no representation that its competitive position has
remained constant, nor can it predict whether its position will change in the
future.
On December 31, 1996, the Registrant and its subsidiary had total assets of
$893,089,352 and, as such, ranked sixth in Mississippi. The Registrant receives
a large part of its competition from BankCorp South, the Tupelo branch operation
of Deposit Guaranty National Bank and Union Planters Bank of Memphis, TN. On
December 31, 1996, BankCorp South, Deposit Guaranty National Bank, and Union
Planters Bank of Mississippi had total assets of approximately $3,617,239,000,
$4,510,498,000, and $2,319,000,000, respectively.
The Bank also receives competition from several locally owned banks in
several of the towns it serves. The National Bank of Commerce of Mississippi,
Starkville, Mississippi has branch banks in Amory and Aberdeen which are in
competition with the Bank's branches in those towns.
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 transaction 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.
<PAGE>
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 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 of a state within
a region consisting of Alabama, Arkansas, Florida, Kentucky, Louisiana,
Missouri, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West
Virginia, provided, however, that the state of an acquired bank has to have
reciprocal legislation which would allow banks or bank holding companies in that
state to acquire or be acquired by banks or bank holding companies in
Mississippi. Section 102 of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 will remove territorial restrictions for interstate bank
mergers. This section will become effective May 1, 1997.
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 earnings retained
in the current year plus retained net profits.
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, 1996, the maximum amount available for transfer from the Bank to
the Company in the form of loans was 11% of 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.
<PAGE>
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 stock and similar to the money market
mutual funds being offered by the stock and investment brokers. It would earn a
market rate of interest, with limited third-party withdrawals and a minimum
balance requirement.
Source 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, 1996, the Registrant and its subsidiary employed 551 persons on
a full-time 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.
Line of Business
The Registrant operates in the field of finance, and its activities are
solely in commercial banking. The Registrant has derived substantially all of
its consolidated total operating income from the commercial banking business of
its subsidiary bank.
Acquisition of Certain Assets and Liabilities
In the past several years, the Bank has acquired several banks and
continues to examine other possible candidates for acquisition by cash or stock
or a combination of both.
Executive Officers of The Registrant
The principal executive officer of the Company and its subsidiary as of
December 31, 1996, is as follows:
Name Age
---- ---
John W. Smith 61
Position and Office: Director and Executive Vice President of the Company from
July, 1983, until July 1993, and Director and President since August, 1993.
Director and Executive Vice President of the Bank from 1978 and 1976,
respectively, until August, 1993, and Director and President of the Bank since
August, 1993.
Mr. Smith has been employed by the Registrant or its subsidiary in a management
position for the last eight (8) years. All of the Registrant's officers are
appointed annually by the appropriate Board of Directors to serve at the
discretion of the Board.
<PAGE>
The following table sets forth for The Peoples Holding Company, as of
December 31 for the years indicated, a summary of the changes in interest earned
and interest paid resulting from changes in volume and rates. The change in
volume and rate is calculated using the tax equivalent basis.
[CAPTION]
1996 COMPARED TO 1995
INCREASE(DECREASE) DUE TO
-------------------------
VOLUME RATE NET (1)
------ ---- -------
(In Thousands)
[S] [C] [C] [C]
Earning assets:
Loans, net of
unearned income ................ $ 1,580 $ (315) $ 1,265
Securities
U. S. government
securities and agencies ...... 1,160 333 1,493
Obligations of states and
political subdivisions ....... 440 (132) 308
Mortgage-backed securities ..... 549 27 576
Other securities ............... (18) (25) (43)
Other ............................ (40) (95) (135)
-------- -------- --------
Total earning assets ............. $ 3,671 $ (207) $ 3,464
-------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposit accounts ............... $ 173 $ 743 $ 916
Savings accounts ................. 58 (125) (67)
Time deposits .................... 1,591 73 1,664
Other ............................ 159 (49) 110
-------- -------- --------
Total interest-bearing
liabilities .................... $ 1,981 $ 642 $ 2,623
-------- -------- --------
Change in net interest
income ......................... $ 1,690 $ (849) $ 841
======== ======== ========
(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.
<PAGE>
[CAPTION]
1995 COMPARED TO 1994
INCREASE(DECREASE) DUE TO
-------------------------
VOLUME RATE NET (1)
------ ---- -------
(In Thousands)
[S] [C] [C] [C]
Earning assets:
Loans, net
unearned income ................. $ 4,607 $ 4,832 $ 9,439
Securities:
U. S. Government
securities and agencies ....... (1,508) 989 (519)
Obligations of states and
political subdivisions ........ 280 80 360
Mortgage-backed securities ...... 156 563 719
Other securities ................. (31) 94 63
Other ............................. 172 328 500
-------- -------- --------
Total earning assets .............. $ 3,676 $ 6,886 $ 10,562
-------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposits accounts ............... $ (513) $ 630 $ 117
Savings accounts .................. (155) 186 31
Time deposits ..................... 2,253 4,346 6,599
Other ............................. (77) 61 (16)
-------- -------- --------
Total interest-bearing
liabilities ..................... $ 1,508 $ 5,223 $ 6,731
-------- -------- --------
Change in net interest
income .......................... $ 2,168 $ 1,663 $ 3,831
======== ======== ========
(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.
<PAGE>
INVESTMENT PORTFOLIO
The following table sets forth the amortized cost of securities at the
dates indicated:
[CAPTION]
December 31
-----------
1996 1995 1994
--------- -------- --------
(In Thousands)
[S] [C] [C] [C]
U.S. Government and
Agency Securities .... $ 125,087 $ 99,842 $124,463
Obligations of State and
Political Subdivisions 52,051 45,837 42,910
Other Securities ....... 68,610 66,688 48,124
------ ------ ------
$ 245,748 $212,367 $215,497
========= ======== ========
The following table sets forth the maturity distribution in thousands and
weighted average yield by maturity of securities at December 31, 1996:
<TABLE>
<CAPTION>
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S Government
and Agency
Securities ... $ 33,034 6.36% $ 73,537 6.44% $ 18,515 6.88% $
Obligations of
States and
Political
Subdivisions . 2,531 9.59% 12,277 9.79% 27,214 8.38% 10,029 7.72%
Other Securities 23,938 6.73% 39,372 6.71% 5,300 6.83%
------ ------ ----- ------
Total .......... $59,503 $125,186 $ 51,029 $ 10,029
====== ======= ====== ======
</TABLE>
The maturity of mortgage-backed securities, included as other securities,
reflects scheduled repayments when the payment is due.
Weighted average yields on tax-exempt obligations have been computed on a
fully tax-equivalent basis assuming a federal tax rate of 34% and a Mississippi
state tax rate of 3.3%, which is net of federal tax benefit.
<PAGE>
The following table sets forth loans (excluding real estate mortgage loans,
consumer loans, and net receivables on leased equipment, which are included in
commercial, financial and agricultural loans in the consolidated financial
statements) outstanding as of December 31, 1996, which, based on remaining
scheduled repayments of principal, are due in the periods indicated; also,
amounts due after one year are classified according to their sensitivity to
changing interest rates.
[CAPTION]
Loans Maturing
--------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
-------- ---------- ----- -----
[S] [C] [C] [C] [C]
Commercial,
financial and
agricultural $ 72,439 $ 26,514 $ 8,636 $107,589
Real estate-
construction 19,852 799 20,651
-------- -------- -------- --------
$ 92,291 $ 27,313 $ 8,636 $128,240
======== ======== ======== ========
[CAPTION]
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate
---- ----
(In Thousands)
[S] [C] [C]
Due after 1 but within 5
years ................. $25,031 $ 2,282
Due after 5 years ....... 8,636
------- ------
$33,667 $ 2,282
======= =======
<PAGE>
Allowance for Loan Losses
Inherent in any lending activity is credit risk, that is, the risk of loss
should a borrower or trading counterparty default. The Company's credit risk is
monitored and managed by a Loan Committee and a Loss Management Committee.
Credit quality and policies are the primary responsibilities 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 credit losses from 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 losses, including losses on loans
assessed as impaired under SFAS No. 114, "Accounting by Creditors For
Impairement 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. The analysis includes the consideration of such
factors as the risk rating of individual credits, the size and diversity of the
loan portfolio, economic conditions, prior loss experience, and the results of
periodic credit reviews by internal loan review and the regulators. If the
allowance is deemed inadequate, management sets aside additional reserves by
increasing the charges against income.
[CAPTION]
The anticipated net charge-offs by loan category during 1997 include:
In Thousands
-------------
[S] [C]
Commercial, financial and agricultural $ 314
Real estate - construction ........... 58
Real estate - mortgage ............... 843
Consumer ............................. 385
------
TOTAL ................................ $1,600
======
<PAGE>
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 located in Tupelo, MS houses the electronic data
processing, proof, purchasing, statement rendering, and voice response
operations. In addition, the Bank operated thirty (30) full-service branches,
and eleven (11) limited-service branches all of which are located within a 100
mile radius of Tupelo, Mississippi. The Bank has two (2) full-service branches
in Southaven; 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, Pontotoc, Grenada, Olive Branch, and West Point; one (1)
full-service branch each at Aberdeen, Batesville, Calhoun City, Coffeeville,
Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Saltillo, Sardis,
Shannon, Verona, and Winona, Mississippi; one (1) limited-service branch each at
Plantersville, and Smithville, Mississippi and six (6) full-service branches and
one (1) limited-service branch in Tupelo, Mississippi.
The Registrant leases, on a long-term basis, five branch locations for
use in conducting banking activities. The aggregate annual rental for all leased
premises during the year ending December 31, 1996, did not exceed five percent
of the Bank's operating expenses.
It is anticipated that in the next five years, branch renovations and
construction will be completed at Aberdeen, Grenada, Hernando, Corinth and new
locations west and north of Tupelo, 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, 1996, which in the opinion of the Company could have a material adverse
effect upon the Company's business or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information under the captions "Market Value of Stock by Quarters" on
page 29 of the Registrant's 1996 Annual Report is incorporated herein by
reference.
At March 14, 1997, the total number of shareholders of the Company's common
stock was 2,503.
The Registrant's common stock trades on the Nasdaq Stock Market under
the symbol PHCO.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Information" on Page
28 of the Registrant's 1996 Annual Report is incorporated herein by reference.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information on pages 30 through 41 of the Registrant's 1996 Annual
Report are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
are included on pages 8 through 27 of the Registrant's 1996 Annual Report and
are incorporated herein by reference.
The information on Page 26 of the Registrant's 1996 Annual report
reflecting unaudited quarterly results of operations is incorporated herein by
reference.
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 17, 1997, which is incorporated herein by reference.
Information concerning executive officers of the Registrant and its subsidiary
appears on Page 5 under the caption "Executive Officers" of the Company's
definitive Proxy Statement, dated March 17, 1997, which is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Summary Compensation Table-Annual
Compensation" on Pages 5 through 9 of the Company's definitive Proxy Statement,
dated March 17, 1997, 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 17, 1997, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Transaction with Management: on Page 10 of
the Company's definitive Proxy Statement, dated March 17, 1997, is incorporated
herein by reference.
<PAGE>
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.
(11) Statement re: Computation of per share
earnings
(13) Annual Report to Shareholders for the
year ended December 31, 1996
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) No Form 8-K was filed during the quarter ended December
31, 1996.
(d) Financial Statement Schedules -- None.
<PAGE>
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 17, 1997 By /s/ John W. Smith
- ---------------------- -----------------------------
John W. Smith, 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.
John W. Smith,
President and Director
(Chief Executive Officer,
Principal Financial Officer and
Principal Accounting Officer) . /s/ John W. Smith
Robert C. Leake,
Chairman of the Board and
Director ...................... /s/ Robert C. Leake
William M. Beasley, Director .. /s/ William M. Beasley
George H. Booth, II, Director . /s/ George H. Booth, II
Dr. Walter L. Bourland,
Director ...................... /s/ Walter L. Bourland, M.D.
Frank B. Brooks, Director ..... /s/ Frank B. Brooks
Marshall H. Dickerson, Director /s/ Marshall H. Dickerson
A. M. Edwards, Jr., Director .. /s/ A. M. Edwards, Jr.
Eugene B. Gifford, Jr.,
Director ...................... /s/ Eugene B. Gifford, Jr.
David P. Searcy, Director ..... /s/ David P. Searcy
Jimmy S. Threldkeld, Director . /s/ Jimmy S. Threldkeld
J. Heywood Washburn, Director . /s/ J. Heywood Washburn
Robert H. Weaver, Director .... /s/ Robert H. Weaver
J. Larry Young, Director ...... /s/ J. Larry Young
<PAGE>
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 included in the Annual
Report of the registrant to its shareholders for the year ended December 31,
1996, are incorporated by reference in Item 8.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income--Years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flow--Years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements--December 31, 1996
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.
<PAGE>
Exhibit
Number Description Page
- ------ ----------- ----
11 Statement Re: Computation of
Per Share Earnings .......................... 18
13 Annual Report to Shareholders ............... 19
23 Consent of Independent Auditors ............. 57
<PAGE>
EXHIBIT 11
THE PEOPLES HOLDING COMPANY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
PRIMARY & FULLY DILUTED:
Average shares
outstanding 3,906,675 3,906,675 3,906,675
Net income $9,516,252 $9,203,910 $8,208,920
---------- ---------- ----------
Per share amount $2.44 $2.36 $2.10
===== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Consolidated Balance Sheets
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Assets
Cash and due from banks .......................................... $ 38,374,641 $ 46,918,819
Federal funds sold ............................................... 8,500,000 17,000,000
--------- ----------
Cash and Cash Equivalents ............. 46,874,641 63,918,819
Interest-bearing balances with banks ............................. 1,824,031 8,814,411
Securities held to maturity (market value - $52,334,931 and
$46,584,144 at December 31, 1996 and 1995, respectively) 52,051,251 45,837,145
Securities available for sale (amortized cost - $193,696,615 and
$166,530,900 at December 31, 1996 and 1995, respectively) 194,058,997 168,381,798
Loans
Commercial, financial and agricultural .................. 111,686,473 107,558,223
Real estate - construction .............................. 20,650,887 16,850,556
Real estate - mortgage .................................. 301,077,552 259,918,417
Consumer ................................................ 137,704,170 149,218,137
Unearned income ......................................... (8,366,577) (11,231,586)
---------- -----------
Total Loans, Net of Unearned Income ... 562,752,505 522,313,747
Allowance for loan losses ............................... (9,309,354) (8,815,130)
---------- ----------
Net Loans ............................. 553,443,151 513,498,617
Premises and equipment ........................................... 21,559,955 20,323,492
Other assets ..................................................... 23,277,326 20,925,126
---------- ----------
Total Assets .......................... $ 893,089,352 $ 841,699,408
============= =============
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing ..................................... $ 118,638,526 $ 116,894,919
Interest-bearing ........................................ 654,203,482 622,650,380
----------- -----------
Total Deposits ........................ 772,842,008 739,545,299
Treasury tax and loan note account ............................... 6,354,142 2,400,495
Borrowings ....................................................... 11,174,638 4,313,109
Other liabilities ................................................ 12,157,744 10,480,085
---------- ----------
Total Liabilities ..................... 802,528,532 756,738,988
Shareholders' Equity
Common stock, $5 par value- 7,500,000 shares authorized
3,906,675 and 2,604,760 shares issued and outstanding at
December 31, 1996 and 1995, respectively ........................ 19,533,375 13,023,800
Additional paid-in capital ....................................... 39,875,796 39,875,796
Unrealized gains on securities available for sale, net of tax .... 227,214 1,169,262
Retained earnings ................................................ 30,924,435 30,891,562
---------- ----------
Total Shareholders' Equity ............ 90,560,820 84,960,420
---------- ----------
Total Liabilities and Shareholders' Equity . $ 893,089,352 $ 841,699,408
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans .............................................. $ 50,580,549 $ 49,321,837 $ 40,065,226
Securities:
Taxable ................................... 12,205,952 10,097,721 10,088,324
Tax-exempt ................................ 2,764,782 2,580,554 2,407,565
Other .............................................. 873,630 1,008,809 508,338
------- --------- -------
Total Interest Income ... 66,424,913 63,008,921 53,069,453
Interest expense
Deposits ........................................... 27,747,241 25,234,441 18,487,040
Borrowings ......................................... 496,584 386,764 403,041
------- ------- -------
Total Interest Expense .. 28,243,825 25,621,205 18,890,081
---------- ---------- ----------
Net Interest Income ..... 38,181,088 37,387,716 34,179,372
Provision for loan losses ................................... 2,813,155 2,826,647 2,001,010
--------- --------- ---------
Net Interest Income After
Provision For Loan Losses 35,367,933 34,561,069 32,178,362
Noninterest income
Service charges on deposit accounts ................ 6,564,831 6,357,181 5,910,990
Fees and commissions ............................... 1,396,941 1,215,810 1,265,031
Trust revenue ...................................... 643,302 584,273 549,925
Securities gains (losses) .......................... 110,278 (507,344) 2,701
Other .............................................. 2,315,154 3,089,856 2,100,036
--------- --------- ---------
Total Noninterest Income 11,030,506 10,739,776 9,828,683
Noninterest expense
Salaries and employee benefits ..................... 18,218,221 18,055,318 16,617,611
Net occupancy ...................................... 2,269,122 2,178,314 2,150,588
Equipment .......................................... 1,594,525 1,460,488 1,149,827
Other .............................................. 10,748,255 10,472,018 11,259,195
---------- ---------- ----------
Total Noninterest Expense 32,830,123 32,166,138 31,177,221
Income before income taxes .................................. 13,568,316 13,134,707 10,829,824
Income taxes ................................................ 4,052,064 3,930,797 2,620,904
--------- --------- ---------
Net Income .............. $ 9,516,252 $ 9,203,910 $ 8,208,920
============ ============ ============
Earnings per share .......................................... $ 2.44 $ 2.36 $ 2.10
============ ============ ============
Weighted average shares outstanding ......................... 3,906,675 3,906,675 3,906,675
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements Of Shareholders' Equity
<CAPTION>
Common Stock Additional Unrealized
Paid-in Gains and Retained
Shares Amount Capital (Losses) Earnings Total
------ ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ................ 2,509,055 $ 12,545,275 $ 29,875,796 $ $ 29,017,109 $ 71,438,180
Change in unrealized losses on
securities available for sale,
net of tax ..................... (3,529,765) (3,529,765)
Net income for 1994 ..................... 8,208,920 8,208,920
4% stock dividend ....................... 95,705 478,525 (478,525)
Payment of fractional shares
for stock dividend and
pooling of interests ........... (40,578) (40,578)
Cash dividends -
$.60 per share ................. (2,342,876) (2,342,876)
------------------------------------------------------------------------------------
Balance at December 31, 1994 .............. 2,604,760 13,023,800 29,875,796 (3,529,765) 34,364,050 73,733,881
Change in unrealized gains on
securities available for sale,
net of tax ..................... 4,699,027 4,699,027
Transfer of capital ..................... 10,000,000 (10,000,000)
Net income for 1995 ..................... 9,203,910 9,203,910
Cash dividends -
$.69 per share ................. (2,676,398) (2,676,398)
------------------------------------------------------------------------------------
Balance at December 31, 1995 .............. 2,604,760 13,023,800 39,875,796 1,169,262 30,891,562 84,960,420
Change in unrealized losses on
securities available for sale,
net of tax ..................... (942,048) (942,048)
Net income for 1996 ..................... 9,516,252 9,516,252
50% stock dividend ...................... 1,301,915 6,509,575 (6,509,575)
Payment of fractional
shares for stock dividend ...... (24,183) (24,183)
Cash dividends:
$.76 per share ................. (2,949,621) (2,949,621)
------------------------------------------------------------------------------------
Balance at December 31, 1996 .............. 3,906,675 $ 19,533,375 $ 39,875,796 $ 227,214 $ 30,924,435 $ 90,560,820
====================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income .......................................................... $ 9,516,252 $ 9,203,910 $ 8,208,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ........................................ 2,813,155 2,826,647 2,001,010
Provision for depreciation and amortization ...................... 2,178,791 1,868,370 1,774,975
Net amortization of securities
premiums/discounts ............................................. 70,807 131,421 1,180,503
Gain on sale of loans ............................................ (585,304)
(Gains) losses on sales/calls of securities ...................... (110,278) 507,344 (2,701)
Increase in other liabilities .................................... 1,677,659 1,192,858 720,883
Deferred income tax credits ...................................... (179,376) (459,499) (800,550)
(Gains) losses on sales of premises and equipment ................ 16,222) 129,726 21,735
Increase in other assets ......................................... (986,023) (461,230) (819,410)
-------- -------- --------
Net Cash Provided By Operating Activities 14,964,765 14,354,243 12,285,365
Investing Activities
Net (increase) decrease in balances with other banks ................ 6,990,380 (8,625,862) (110,662)
Proceeds from sales of securities held to maturity .................. 489,287
Proceeds from sales of securities available for sale ................ 32,600,278 28,989,992 10,746,669
Proceeds from maturities/calls of securities
held to maturity ........................................... 2,996,556 2,495,029 3,983,937
Proceeds from maturities/calls of securities
available for sale ......................................... 54,504,983 65,464,778 55,120,283
Purchases of securities held to maturity ............................ (9,424,079) (5,270,000) (7,304,699)
Purchases of securities available for sale .......................... (114,018,090) (89,190,035) (51,199,932)
Net increase in loans ............................................... (43,981,837) (36,849,924) (63,240,026)
Proceeds from sale of loans ......................................... 12,690,078
Proceeds from sales of premises and equipment ....................... 122,049 169,850 80,692
Purchases of premises and equipment ................................. (2,937,264) (5,119,632) (2,190,754)
---------- ---------- ----------
Net Cash Used In Investing Activities .... (73,147,024) (35,245,726) (53,625,205)
Financing Activities
Net increase (decrease) in noninterest-bearing deposits ............. 1,743,607 (1,816,953) 19,014,257
Net increase in interest-bearing deposits ........................... 31,553,102 45,082,543 21,720,393
Net increase (decrease) in treasury tax and loan note account ....... 3,953,647 (714,688) (995,078)
Net increase (decrease) in borrowings ............................... 6,861,529 (337,379) 4,892,591
Issuance of common stock by pooled
Company reflected in pooling-of-interests adjustment ....... 105,926
Cash dividends paid ................................................. (2,949,621) (2,676,398) (2,342,876)
Cash paid on fractional shares for stock dividend
and pooling of interests ................................... (24,183) (40,578)
------- ---------- -------
Net Cash Provided By Financing Activities 41,138,081 39,537,125 42,354,635
---------- ---------- ----------
Increase (Decrease) In Cash and Cash Equivalents (17,044,178) 18,645,642 1,014,795
Cash and Cash Equivalents at Beginning of Year ......................... 63,918,819 45,273,177 44,258,382
---------- ---------- ----------
Cash and Cash Equivalents at End of Year ...... $ 46,874,641 $ 63,918,819 $ 45,273,177
============= ============= =============
Non-Cash Transactions
Transfer of loans to other real estate .............................. $ 1,224,148 $ 2,284,916 $ 862,682
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements December 31, 1996
Note A - Significant Accounting Policies
The Peoples Holding Company (the Company) is a one-bank holding company,
offering a diversified range of banking services to retail and commercial
customers, primarily in North Mississippi, through The Peoples Bank & Trust
Company (the Bank).
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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles 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.
Change in Method of Accounting for Securities: The Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," on January 1, 1994. As a
result, securities have been classified as either held to maturity, trading, or
available for sale.
Securities are classified as held to maturity when purchased if management has
the positive 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 is included in interest income from securities. Interest and
dividends are 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.
Revenue Recognition: Interest on loans is accrued and credited to operations
based upon the principal amount outstanding. Generally, the accrual of income is
discontinued when the full collection of principal is in doubt, or when the
payment of principal or interest has become contractually 90 days past due
unless the obligation is both well secured and in the process of collection. The
Company recognizes loan origination and commitment fees in the period the loan
or commitment is granted to reflect reimbursement of the related costs
associated with originating those loans and commitments which are not materially
different from the results which would be obtained with implementation of
Statement of Financial Accounting Standards No. 91, "Accounting for
Non-refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases."
Allowance for Loan Losses: The allowance for loan losses is established through
provisions for loan losses charged against income. Loans deemed uncollectible
are charged against the allowance for loan losses, and any subsequent recoveries
are credited to the allowance.
Beginning in 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," which was
amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures." Under these new standards, the allowance
for loan losses related to loans that are identified for evaluation in
accordance with Statement No. 114 is based on discounted cash flows using the
loanOs initial effective interest rate or fair value of the collateral for
certain collateral-dependent loans. The adoption of these new standards did not
have a significant effect on the allowance for loan losses or the method of
income recognition for impaired loans.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb inherent losses in the loan portfolio. Management's
determination of the allowance is based on an evaluation of the portfolio, past
experience, current economic conditions, volume, growth, and composition of the
loan portfolio, and other relevant factors. This evaluation is inherently
subjective, as it requires material estimates that may be susceptible to
significant change.
<PAGE>
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 $622,406 and $1,357,051 at December 31,
1996 and 1995, 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 at the date
acquired. Losses arising from the acquisition of properties are charged against
the allowance for loan losses. The net cost of holding other real estate and
losses on the sale of properties totaled $409,590 and $95,267 in 1996 and 1995,
respectively.
Unamortized Cost in Excess of Fair Value of Net Assets Acquired: Goodwill,
included in other assets, represents unamortized cost in excess of fair value of
net assets acquired and is being amortized on a straight-line method over 13 to
15 years. Goodwill was $4,250,139 and $4,759,183 at December 31, 1996 and 1995,
respectively. Total amortization of intangible assets was $583,817 for years
ending December 31, 1996 and 1995, respectively, and $514,579 for the year
ending December 31, 1994.
Mortgage Servicing Rights Effective January 1, 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." Statement
No. 122 requires capitalization of purchased as well as 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. The implementation of Statement No. 122 did not have a
material effect on the Company's consolidated financial condition or results of
operations.
Other Accounting Pronouncements: During the first quarter of 1996, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The implementation of
Statement No. 121 did not have a material effect on the Company's consolidated
financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which provides new accounting and reporting
standards for sales, securitization, and servicing of receivables and other
financial assets and extinguishments of liabilities. The provisions of the
Statement are to be applied to transactions occurring after December 31, 1996,
even for transfers of assets pursuant to securitization transactions that
previously were established. The Company does not believe that the adoption of
this Statement will have a material effect on its consolidated financial
condition or results of operations.
Income Taxes: Income taxes are accounted for under the liability method as
required by Statement of Financial Accounting Standard No. 109, "Accounting for
Income Taxes." 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.
Earnings Per Share: Earnings per share is based on the weighted average number
of shares outstanding during each year adjusted retroactively for all stock
dividends. Previously reported per share amounts have been restated for the
effect of the acquisition of New South Capital Corporation accounted for as a
pooling of interests in 1994, and for the three-for-two stock split effected in
the form of a fifty percent stock dividend issued in 1996.
<PAGE>
Note B - Mergers and Acquisitions
Effective December 31, 1994, the Company acquired New South Capital Corporation
and its wholly-owned subsidiary, New South Bank, of Batesville, Mississippi, in
a transaction accounted for as a pooling of interests. In exchange for all of
the outstanding common stock of New South Capital Corporation, the Company
issued 91,226 shares of its common stock. The accompanying consolidated
financial statements for periods prior to the acquisition have been restated to
reflect the accounts and operations of the pooled company.
Note C - 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.
Federal Funds Sold: The carrying amount reported in the balance
sheet for federal funds sold 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.
Deposit Liabilities: The fair values disclosed for demand deposits, both
interest-bearing and noninterest-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: The fair value was determined by replacing the current rate
with a market rate and applying that to the standby letters of credit and
commitments.
<PAGE>
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks .......... $ 38,374,641 $ 38,374,641 $ 46,918,819 $ 46,918,819
Federal funds sold ............... 8,500,000 8,500,000 17,000,000 17,000,000
Interest-bearing balances
with banks .............. 1,824,031 1,824,031 8,814,411 8,814,411
Securities ....................... 246,110,248 246,393,928 214,218,943 214,965,942
Loans net of unearned income ..... 562,752,505 565,252,000 522,313,747 523,965,382
Allowance for loan losses (9,309,354) (9,309,354) (8,815,130) (8,815,130)
---------- ---------- ---------- ----------
Net loans ........................ 553,443,151 555,942,646 513,498,617 515,150,252
Financial liabilities
Deposits ......................... 772,842,008 771,759,484 739,545,299 738,378,297
Treasury tax and loan note account 6,354,142 6,354,142 2,400,495 2,400,495
Borrowings ....................... 11,174,638 10,927,000 4,313,109 4,235,000
Off-balance sheet
Standby letters of credit ........ 9,450,429 9,165,903 5,003,644 4,914,683
Commitments to extend credit ..... 127,257,000 127,918,790 114,747,000 113,784,627
</TABLE>
Note D - Restrictions on Cash and Due From Banks
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of those balances for the year ended December
31, 1996, was approximately $14,974,000.
Note E - Securities
The amortized cost and estimated market values of securities held to maturity
and available for sale at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Securities Held to Maturity
---------------------------
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
---- ----- ------ -------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $52,051,251 $ 699,365 $ (415,685) $ 52,334,931
=========== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale
-----------------------------
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
---- ----- ------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 77,953,440 $ 171,339 $ (138,917) $ 77,985,862
Obligations of other U.S. Government
agencies and corporations . 47,133,089 153,717 (146,837) 47,139,969
Mortgage-backed securities ......... 65,887,321 609,182 (286,102) 66,210,401
Preferred stock .................... 2,722,765 2,722,765
--------- ---------- --------- ---------
$ 193,696,615 $ 934,238 $ (571,856) $ 194,058,997
============= ============= ============= =============
</TABLE>
<PAGE>
The amortized cost and estimated market values of securities held to maturity
and available for sale at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Securities Held to Maturity
---------------------------
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
---- ----- ------ -------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions .... $ 45,837,145 $ 1,034,250 $ (287,251) $ 46,584,144
============= =========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Securities Available For Sale
-----------------------------
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
---- ----- ------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ........... $ 70,797,698 $ 625,574 $ (86,933) $ 71,336,339
Obligations of other U.S. Government
agencies and corporations . 29,044,357 531,327 29,575,684
Mortgage-backed securities ......... 58,117,693 1,010,007 (229,077) 58,898,623
Preferred stock .................... 8,564,165 8,564,165
Other debt securities .............. 6,987 6,987
----- ------- --------- -----
$ 166,530,900 $ 2,166,908 $ (316,010) $ 168,381,798
============= ============= ============= =============
</TABLE>
The amortized cost and estimated market value of securities held to maturity and
available for sale at December 31, 1996, 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.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Securities Held to Maturity Cost Value
- --------------------------- ---- -----
<S> <C> <C>
Due in one year or less .............. $ 2,531,455 $ 2,635,031
Due after one year through five years 12,277,289 12,458,959
Due after five years through ten years 27,213,907 27,313,241
Due after ten years .................. 10,028,600 9,927,700
---------- ---------
$52,051,251 $52,334,931
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Estimated
Amortized Market
Securities Available for Sale Cost Value
- ----------------------------- ---- -----
<S> <C> <C>
Due in one year or less .............. $ 33,034,483 $ 33,012,270
Due after one year through five years 73,536,849 73,576,091
Due after five years through ten years 18,515,197 18,537,470
---------- ----------
125,086,529 125,125,831
Mortgage-backed securities ........... 65,887,321 66,210,401
Preferred Stock ...................... 2,722,765 2,722,765
--------- ---------
$193,696,615 $194,058,997
============ ============
</TABLE>
<PAGE>
At December 31, 1996 and 1995, securities with an amortized cost of
approximately $140,895,000and $118,022,000, respectively, were pledged to secure
government, public, and trust deposits.
Note F - Deposits
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Noninterest-bearing ...................... $118,638,526 $116,894,919
Interest-bearing DDA ..................... 140,328,649 139,569,338
Savings accounts ......................... 43,798,995 43,836,151
Money Market accounts .................... 51,123,314 59,969,451
Certificates of deposit exceeding $100,000 89,435,562 62,620,549
Other time deposits ...................... 329,516,962 316,654,891
----------- -----------
Total ........................... $772,842,008 $739,545,299
============ ============
</TABLE>
At December 31, 1996, the approximate scheduled maturities of time deposits are
as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
1997 $275,227
1998 107,219
1999 17,786
2000 16,945
2001 and thereafter 1,776
-----
Total $418,953
========
</TABLE>
Note G - Borrowings
Borrowings primarily consist of balances due to the Federal Home Loan Bank of
$11,168,601 and $4,287,833 at December 31, 1996 and 1995, respectively.
During 1996, the Company obtained two advances from the Federal Home Loan Bank
totaling $8,092,000. The advances were $3,092,000 and $5,000,000, with interest
rates of 6.41% and 6.20%, respectively. Maturity dates are May 1, 2006 and
November 8, 2001, respectively. All advances are secured by one-to-four family
first mortgages equal to the amount of outstanding aggregate advances.
During 1995, the Company obtained two advances from the Federal Home Loan Bank
totaling $632,000. The advances were $132,000 and $500,000, with interest rates
of 6.33% and 6.73%, respectively. Maturity dates are January 3, 2011, and
October 1, 2015, respectively.
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, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 1,801,518
1998 1,817,939
1999 1,596,381
2000 809,451
2001 3,683,131
Thereafter 1,460,181
---------
Total $11,168,601
===========
</TABLE>
<PAGE>
Note H - Loans to Related Parties
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 $2,162,790 and $2,501,811 at
December 31, 1996 and 1995, respectively. During 1996, $86,095 of new loans were
made and payments received totaled $425,116. Total deposits for these related
parties at December 31, 1996, were approximately $2,340,000.
Note I - Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year ...... $ 8,815,130 $ 8,182,801 $ 6,387,902
Charge-offs ....................... (2,592,719) (2,438,312) (1,095,363)
Recoveries ........................ 273,788 243,994 889,252
Net Charge-offs .......... (2,318,931) (2,194,318) (206,111)
Provision for loan losses ......... 2,813,155 2,826,647 2,001,010
--------- --------- ---------
Balance at End of Year .. $ 9,309,354 $ 8,815,130 $ 8,182,801
=========== =========== ===========
</TABLE>
Impaired loans recognized in conformity with FASB Statement No. 114, as amended
by FASB Statement No. 118, were as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Impaired loans with a related allowance for loan losses ... $2,945,766 $1,545,960
Impaired loans without a specific allowance for loan losses 1,057,699 1,328,209
--------- ---------
Total impaired loans ...................................... $4,003,465 $2,874,169
========== ==========
Specific allowance for loan losses for impaired loans .... $ 733,660 $ 572,281
Average recorded investment in impaired loans ............. $3,439,000 $2,500,000
Interest income recognized using the accrual basis
of income recognition ............................ $ 335,785 $ 159,104
Interest income recognized using the cash basis
of income recognition ............................ 70,108 44,233
------ ------
Total interest income recognized on impaired loans..... $ 405,893 $ 203,337
========== ==========
</TABLE>
<PAGE>
Note J - Nonaccrual and Past Due Loans
Nonaccrual and past due loans were as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Nonaccrual loans outstanding .. $1,654,650 $ 803,237
Accruing loans past due 90 days
or more outstanding .. 2,747,244 2,626,333
</TABLE>
At December 31, 1996 and 1995, there were no significant commitments to lend any
of these debtors additional funds.
Note K - Premises and Equipment
Premises and equipment accounts are summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Land .................................... $ 3,801,414 $ 3,140,667
Premises ................................ 18,641,997 16,522,457
Equipment, furniture, and fixtures ...... 13,220,979 11,086,609
Construction in progress ................ 842,360 3,657,196
------- ---------
36,506,750 34,406,929
Accumulated depreciation and amortization (14,946,795) (14,083,437)
----------- -----------
$ 21,559,955 $ 20,323,492
============ ============
Depreciation expense .................... $ 1,594,525 $ 1,277,530
============ ============
</TABLE>
Note L - 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 made since 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, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Provision for loan losses ........................... $3,474 $3,290
Deferred compensation ............................... 1,181 1,052
Other ............................................... 203 199
--- ---
Total deferred tax assets .................. 4,858 4,541
Deferred tax liabilities
Depreciation ........................................ 1,244 1,215
Net unrealized gains on securities available for sale 135 682
Other ............................................... 934 825
--- ---
Total deferred tax liabilities ............. 2,313 2,722
----- -----
Net deferred tax assets at end of year ..... $2,545 $1,819
====== ======
</TABLE>
<PAGE>
Significant components of the provision for income taxes (credits) attributable
to continuing operations are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 3,902,276 $ 3,981,791 $ 3,421,454
State . 329,164 408,505
------- ------- ---------
4,231,440 4,390,296 3,421,454
Deferred
Federal (155,331) (397,904) (800,550)
State . (24,045) (61,595)
------- ------- ---------
(179,376) (459,499) (800,550)
-------- -------- --------
$ 4,052,064 $ 3,930,797 $ 2,620,904
=========== =========== ===========
</TABLE>
The reconciliation of income taxes (credits) attributable to continuing
operations computed at the United States federal statutory tax rates to the
provision for income taxes is:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate ...... $ 4,748,911 35.0% $ 4,597,147 35.0% $ 3,790,438 35.0%
Tax-exempt interest income (1,046,562) (7.7%) (965,064) (7.3%) 910,676) (8.4%)
State income tax, net of federal
deduction .......... 198,327 1.5% 225,492 1.7%
Amortization of intangible 70,996 0.5% 70,146 0.5% 53,292 0.5%
Dividends received deduction (15,941) (0.1%) (23,152) (0.2%) (35,682) (0.3%)
Other items - net ...... 96,333 0.7% 26,228 0.2% (276,468) (2.6%)
------ --- ------ --- -------- ----
$ 4,052,064 29.9% $ 3,930,797 29.9% $ 2,620,904 24.2%
=========== ==== =========== ==== =========== ====
</TABLE>
Income taxes provided on gains (losses) on the sales of securities were
approximately $37,000, $(189,000), and $1,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
Note M - Restrictions on Bank Dividends, Loans, or Advances
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, 1996, the unrestricted
surplus was approximately $12,200,000.
Federal Reserve regulations also limit the amount the Bank may loan to the
Company unless such loans are collateralized by specified obligations. At
December 31, 1996, the maximum amount available for transfer from the Bank to
the Company in the form of loans was 11% of consolidated net assets.
Note N - Employee Benefit Plans
The Company and its Bank sponsor a defined benefit noncontributory pension plan,
The Peoples Bank & Trust Company Amended and Restated Pension Plan (the Plan),
generally covering all full-time employees completing a minimum of one thousand
hours of service during a twelve month period. The plan is not open to new
participants after December 31, 1996. Effective August 1, 1996, an early
retirement window was implemented. Effective December 31, 1996, future benefit
accruals were eliminated, and the benefits were frozen as of that date. The
curtailment and early retirement window were accounted for under the provisions
of Statement of Financial Accounting Standards No. 88, "EmployersO Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits" (FAS 88). The normal retirement benefit, one-twelfth of
which is payable monthly for life with 120 payments guaranteed, is determined as
the sum of (A) 1.4% of average earnings, plus (B) 0.6% of average earnings in
excess of covered compensation, times (C) years of service at retirement limited
to 25.
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.
<PAGE>
There were significant matters affecting comparability of net periodic pension
cost and other information for the current period with that for the prior
period. The FAS 88 cost for the early retirement window was $451,871. The
curtailment reduced the projected benefit obligation by $3,538,619. All
unrecognized gain/loss, transition assets, and prior service cost were
recognized. The FAS 88 impact for the curtailment was an increase to income of
$728,762.
The following table sets forth the Plan's funded status and amounts recognized
in the Company's consolidated balance sheets, as determined by consulting
actuaries:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of accumulated
benefits, including vested benefits of $9,600,413 and
$8,041,324 at December 31, 1996 and 1995, respectively .......... $ (9,600,413) $ (8,122,371)
============ ============
Plan assets at fair value ................................................ 10,946,421 $ 9,350,383
Projected benefit obligation ............................................. (9,600,413) (11,393,191)
---------- -----------
Plan assets in excess of (less than) projected benefit obligation 1,346,008 (2,042,808)
Unrecognized net asset ................................................... (354,426)
Prior service cost not yet recognized in net periodic cost ............... 708,483
Unrecognized net loss from past experience
different from that assumed ..................................... 1,853,592
----------- ---------
Prepaid pension cost ..................................................... $ 1,346,008 $ 164,841
============ ============
</TABLE>
Net pension expense, as determined by consulting actuaries, included the
following components:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service costs- benefits earned during the year. $ 543,211 $ 440,232 $ 456,660
Interest cost on projected benefit obligation . 917,668 794,954 748,988
Actual return on plan assets .................. (401,706) (1,696,670) 456,472
Net amortization and deferral ................. (440,174) 1,093,212 (1,051,402)
-------- --------- ----------
Net pension expense ........................... $ 618,999 $ 631,728 $ 610,718
=========== =========== ===========
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 5.0%, respectively, at December 31, 1996 and 1995. The
expected long-term rate of return on investments was 9.25% for 1996, 1995, and
1994. Plan assets consist mainly of U. S. Treasury obligations, equity
securities, and other fixed income securities. The actual return was 5.6%,
20.8%, and (6.7%) for years ending 1996, 1995, and 1994, respectively.
Effective January 1, 1997, the Company adopted two defined contribution pension
plans: a money purchase pension plan and a 401(k) plan. The money purchase
pension plan is a noncontributory pension plan in which the Company contributes
5% of compensation for each participant annually. The 401(k) plan is a
contributory plan in which employees may contribute up to 10% of pre-tax
earnings. In addition, the Company will provide for a matching contribution up
to 3% of compensation for each employee who has attained age 21 and completes a
year of service and is employed on the last day of the plan year.
The Company and its subsidiary also sponsor an employee stock ownership plan
covering essentially 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 $325,000, $400,000,
and $399,992 in 1996, 1995, and 1994, respectively.
In addition to providing retirement income benefits, the Company provides
certain health care 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 $5,000 in life insurance coverage paid entirely by the Company. The
Company has accounted for its obligation related to these plans in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions."
<PAGE>
The following table presents the amounts recognized in the Company's
consolidated balance sheets, as determined by consulting actuaries:
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees ................................... $ (78,983) $ (4,200)
Fully eligible active plan participants .... (205,452) (84,800)
Other active plan participants ............. (125,056) (189,600)
-------- --------
Accumulated postretirement benefit obligation (409,491) (278,600)
Unrecognized net gain ...................... (41,587) (84,100)
------- -------
Accrued postretirement benefit cost $(451,078) $(362,700)
========= =========
</TABLE>
Net periodic postretirement benefit cost, as determined by consulting actuaries,
includes the following components:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost ................................ $ 23,288 $ 20,600 $ 21,700
Interest cost ............................... 27,086 19,600 19,300
Amortization of net gain from earlier periods (2,450) (2,100)
Special termination benefits cost ........... 43,823
------ ------ ------
Net periodic postretirement benefit cost . $ 91,747 $ 38,100 $ 41,000
======== ======== ========
</TABLE>
A curtailment resulted from special termination benefits offered, in the form of
an early retirement window, to employees who would attain a certain age and
number of service years by December 31, 1996. The effect of the curtailment
decreased the unrecognized net gain by $56,696 and resulted in special
termination benefits expense of $43,823.
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. The health care cost trend rate assumption
has little effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would not
increase the accumulated postretirement benefit obligation nor the service and
interest cost components of net periodic postretirement benefit cost as of
December 31, 1996, and for the year then ended. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
8.0% at December 31, 1996 and 1995.
Note O - Other Noninterest Income and Expenses
Components of other noninterest income and expenses which exceed 1% of total
revenues were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Noninterest Income
Life Insurance proceeds ...... $ $ $ 673,494
Noninterest Expense
Computer processing cost ..... 2,388,267 2,133,604 1,963,510
FDIC/state banking assessments 786,358 1,145,127 1,851,883
Stationery and supplies ...... 783,625 640,603
Other fees ................... 650,105
</TABLE>
Note P - Financial Instruments with Off-Balance Sheet Risk and Concentrations of
Credit 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.
<PAGE>
The Company's unfunded loan commitments (unfunded loans and unused lines of
credit) and standby letters of credit outstanding at December 31, 1996, were
approximately $127,257,000 and $9,450,000, respectively, compared to December
31, 1995, which were approximately $114,747,000 and $5,003,000, respectively.
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 Q - 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, 1996,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, 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.
The Bank's actual capital amounts and applicable ratios are as follows:
<TABLE>
<CAPTION>
(In Thousands)
Actual
Amount Ratio
------ -----
<S> <C> <C>
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)
As of December 31, 1995
Total Capital .................... $ 85,200 16.1%
(to Risk Weighted Assets)
Tier I Capital ................... $ 78,600 14.9%
(to Risk Weighted Assets)
Tier I Capital ................... $ 78,600 9.7%
(to Average Assets)
</TABLE>
<PAGE>
Note R - The Peoples Holding Company (Parent Company Only)
Condensed Financial Information
<TABLE>
<CAPTION>
Balance Sheets
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
Assets
Cash* .......................................... $ 36,840 $ 31,807
Interest-bearing balances with banks* .......... 86,454 81,042
Dividends receivable* .......................... 781,335 683,752
Investment in bank subsidiary* ................. 90,508,062 84,910,554
Other assets ................................... 165 165
--- ---
Total Assets ................. $91,412,856 $85,707,320
=========== ===========
Liabilities and Shareholders' Equity
Dividends payable .............................. $ 781,335 $ 683,752
Accrued interest payable and other liabilities . 70,701 63,148
Shareholders' equity ........................... 90,560,820 84,960,420
---------- ----------
Total Liabilities and Shareholders' Equity.. $91,412,856 $85,707,320
=========== ===========
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Dividends from bank subsidiary* .. $ 3,049,624 $ 2,776,398 $ 2,342,876
Other dividends .................. 41,126 59,025 45,092
Interest income from
bank subsidiary* .............. 1,904 1,042
----- ----- ---------
3,092,654 2,836,465 2,387,968
Expenses
Other ............................ 177,129 213,408 184,936
------- ------- -------
177,129 213,408 184,936
------- ------- -------
Income before income tax credits
and equity in undistributed net
income of bank subsidiary ........ 2,915,525 2,623,057 2,203,032
Income tax credits ................. (61,171) (66,184) (57,700)
------- ------- -------
2,976,696 2,689,241 2,260,732
Equity in undistributed net
income of bank subsidiary* ....... 6,539,556 6,514,669 5,948,188
--------- --------- ---------
Net Income ..... $ 9,516,252 $ 9,203,910 $ 8,208,920
=========== =========== ===========
</TABLE>
*Eliminated in consolidation.
<PAGE>
<TABLE>
Statements of Cash Flows
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income ........................................ $ 9,516,252 $ 9,203,910 $ 8,208,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income
of bank subsidiary ..................... (6,539,556) (6,514,669) (5,948,188)
(Increase) decrease in dividends receivable (97,583) (80,504) 77,853
(Increase) decrease in other assets ....... 70,200 (70,200)
Increase in other liabilities ............. 105,136 105,444 64,355
------- ------- ------
Net Cash Provided By Operating Activities . 2,984,249 2,784,381 2,332,740
Investing Activities
Increase in investment in subsidiaries ............. (106,000)
Purchase of certificates of deposit ................ (5,412) (81,042)
------ ------- --------
Net Cash Used In Investing Activities ..... (5,412) (81,042) (106,000)
Financing Activities
Issuance of common stock
by pooled Company reflected in
pooling-of-interests adjustment ................. 105,926
Cash dividends ..................................... (2,949,621) (2,676,398) (2,342,876)
Payment of fractional shares on stock dividend ..... (24,183) (40,578)
------- ---------- -------
Net Cash Used In Financing Activities ..... (2,973,804) (2,676,398) (2,277,528)
---------- ---------- ----------
Increase (Decrease) In Cash ........................ 5,033 26,941 (50,788)
Cash At Beginning Of Year ............................ 31,807 4,866 55,654
------ ----- ------
Cash At End Of Year ................................ $ 36,840 $ 31,807 $ 4,866
=========== =========== ===========
</TABLE>
*Eliminated in consolidation.
<PAGE>
Note S - Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended
------------------
Mar 31 June 30 Sept 30 Dec 31
------ ------- ------- ------
1996
<S> <C> <C> <C> <C>
Interest income ..........$16,260,326 $16,486,406 $16,727,894 $16,950,287
Interest expense ......... 6,945,864 6,929,623 7,014,053 7,354,285
Net interest income ...... 9,314,462 9,556,783 9,713,841 9,596,002
Provision for loan losses 630,225 630,225 634,358 918,347
Noninterest income ....... 2,734,474 2,541,640 2,685,249 3,069,143
Noninterest expenses ..... 8,105,266 8,249,881 8,500,789 7,974,187
Income before income taxes 3,313,445 3,218,317 3,263,943 3,772,611
Income taxes ............. 1,005,977 955,447 985,198 1,105,442
Net income ............... 2,307,468 2,262,870 2,278,745 2,667,169
Earnings per share .......$ .59 $ .58 $ .59 $ .68
1995
Interest income ..........$14,712,503 $15,745,106 $16,192,532 $16,358,780
Interest expense ......... 5,606,144 6,318,404 6,608,905 7,087,752
Net interest income ...... 9,106,359 9,426,702 9,583,627 9,271,028
Provision for loan losses 600,000 600,000 922,306 704,341
Noninterest income ....... 2,073,756 2,433,872 3,606,929 2,625,219
Noninterest expenses ..... 7,933,907 7,660,481 8,459,717 8,112,033
Income before income taxes 2,646,208 3,600,093 3,808,533 3,079,873
Income taxes ............. 758,101 1,059,954 1,171,772 940,970
Net income ............... 1,888,107 2,540,139 2,636,761 2,138,903
Earnings per share .......$ .48 $ .65 $ .67 $ .55
</TABLE>
Note T - Contingent Liabilities
Various claims and lawsuits, incidental to the ordinary course of business, are
pending against the Company and its subsidiary. 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.
<PAGE>
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, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995 , and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1994 the
Company changed its method of accounting for certain securities.
Memphis, Tennessee /s/ Ernst & Young LLP
January 16, 1997
<PAGE>
Selected Financial Information
(Not covered by the Accountants' Report)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
For the year ended December 31
<S> <C> <C> <C> <C> <C>
Interest Income ............... $ 66,424,913 $ 63,008,921 $ 53,069,453 $ 48,439,225 $ 51,270,958
Interest Expense .............. 28,243,825 25,621,205 18,890,081 16,963,155 20,676,034
Provision for Loan Losses ..... 2,813,155 2,826,647 2,001,010 2,865,530 4,401,001
Noninterest Income ............ 11,030,506 10,739,776 9,828,683 9,470,239 7,945,490
Noninterest Expense ........... 32,830,123 32,166,138 31,177,221 27,801,501 25,854,285
Income Before Taxes ........... 13,568,316 13,134,707 10,829,824 10,279,278 8,285,128
Income Taxes .................. 4,052,064 3,930,797 2,620,904 3,066,504 2,131,465
Cumulative Effect of Changes
in Accounting Principles ... 522,518
Net Income .................... 9,516,252 9,203,910 8,208,920 7,735,292 6,153,663
Per Common Share
Net Income .................... $ 2.44 $ 2.36 $ 2.10 $ 1.98 $ 1.58
Book Value at December 31 ..... 23.18 21.75 18.87 18.29 16.89
Market Value at December 31 ... 36.75 29.33 23.33 22.40 16.22
Cash Dividends Declared
and Paid ............. .76 .69 .60 .56 .54
Total at Year-End
Loans, Net of
Unearned Income ...... $562,752,505 $522,313,747 $502,047,831 $439,876,598 $ 408,894,458
Allowance for Loan Losses ..... 9,309,354 8,815,130 8,182,801 6,387,902 6,613,972
Securities .................... 246,110,248 214,218,943 210,148,446 228,509,922 190,523,135
Assets ........................ 893,089,352 841,699,408 787,066,488 739,311,816 680,656,022
Deposits ...................... 772,842,008 739,545,299 696,279,709 655,545,060 603,983,574
Borrowings .................... 11,174,638 4,313,109 4,650,488 259,797 292,674
Shareholders' Equity .......... 90,560,820 84,960,420 73,733,881 71,438,180 65,978,112
Selected Ratios
Return on Average
Total Assets ......... 1.10% 1.13% 1.05% 1.07% 0.90%
Shareholders' Equity . 10.88% 11.45% 11.24% 11.24% 9.57%
Average Shareholders' Equity
to Average Assets .... 10.07% 9.83% 9.34% 9.52% 9.38%
At December 31
Shareholders' Equity
to Assets ............ 10.14% 10.09% 9.37% 9.66% 9.69%
Tier 1 Leverage ............... 9.91% 9.67% 9.22% 9.52% 9.48%
Risk-Based Capital Ratios
Tier 1 ............... 15.10% 14.87% 14.86% 17.40% 14.70%
Total (8.00% Required) 16.35% 16.14% 16.12% 18.65% 15.95%
Allowance for Loan Losses
to Total Loans ....... 1.65% 1.69% 1.63% 1.45% 1.62%
Allowance for Loan Losses
to Nonperforming Loans 211.50% 257.03% 394.57% 137.15% 128.12%
Nonperforming Loans to
Total Loans .......... .78% .66% .42% 1.07% 1.27%
Dividend Payout ............... 31.25% 29.08% 29.03% 29.41% 34.18%
</TABLE>
<PAGE>
Market Value Of Stock By Quarters
The public market for The Peoples Holding Company common stock is limited. The
stock is currently listed on the National Association of Securities Dealers
Automated Quotations system (NASDAQ) and is traded in the local over-the-counter
market. Bid and offer prices have been reported daily by Morgan Keegan &
Company, Inc., J.J.B. Hilliard & W. L. Lyons, Inc. (Hilliard Lyons), and Sterne,
Agee, and Leach, Inc., market makers of the shares of The Peoples Holding
Company common stock. High and low prices are reflective of actual trades as
reported in the NASDAQ Stock Bulletin. Dividends per share and market values
have been adjusted to reflect the fifty percent stock dividend issued in 1996.
At December 31, 1996, there were approximately 2,500 shareholders of record.
<TABLE>
<CAPTION>
DIVIDENDS PRICES
PERIOD PER SHARE LOW HIGH
------ --------- --- ----
1996
<S> <C> <C> <C>
1st Quarter $.175 $ 32.67 $ 35.34
2nd Quarter .190 34.25 36.00
3rd Quarter .190 35.00 37.00
4th Quarter .200 35.50 38.00
1995
1st Quarter $.160 $ 24.17 $ 26.67
2nd Quarter .175 24.83 27.44
3rd Quarter .175 25.67 31.00
4th Quarter .175 28.50 32.00
</TABLE>
<PAGE>
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
Overview
The Peoples Holding Company (the Company) is a one-bank holding company
incorporated under the laws of the state of Mississippi. The Company was
incorporated in February 1904 and is the sixth largest bank holding company
located in the state. The Peoples Bank & Trust Company (the Bank) is a
wholly-owned subsidiary of the Company which operates forty-one branches located
in North and North Central Mississippi.
The Company's banking subsidiary provides a wide range of banking and financial
services to its customers. Those include lending services for commercial,
consumer, and real estate loans; depository services for checking, savings,
money market, IRA's and certificate of deposit accounts; and fiduciary services.
The Bank maintains credit card services and is the issuer of the Mississippi
State University and Delta State University affinity cards. In addition, the
Bank has a number of automated teller machines located throughout its market
area that provide 24-hour banking services along with 24-hour access to customer
account information through a voice response system.
The purpose of this discussion is to focus on important factors affecting the
Company's financial condition and results of operations. Reference should be
made to the consolidated financial statements (including the notes thereto) and
the selected financial data in this report for an understanding of the following
discussion and analysis. All applicable information has been restated to include
the pooling of interests consummated December 31, 1994, with New South Capital
Corporation (New South). All per share data is restated to reflect all stock
dividends declared through December 31, 1996.
The Company ended 1996 with assets totaling $893,089,352, up from the prior year
total of $841,699,408. This represented a 6.1% growth compared to 6.9% for 1995.
Earnings were up 3.4% from the previous year with net income surpassing
$9,500,000.
Effective December 31, 1994, the Company merged with New South Capital
Corporation (New South) and its wholly-owned subsidiary, New South Bank, in a
transaction accounted for as a pooling of interestss.
Financial Condition Review
The Company emphasizes the importance of employing a high percentage of its
assets in an earning capacity. Utilization of the Company's earning assets is a
major factor in generating profitability.
The Company employs the largest portion of its earning assets in loans. Loans,
net of unearned income, comprised 63.0% and 62.1% of the total assets at
December 31, 1996 and 1995, respectively. Overall loan growth was 7.74% for 1996
compared to 1995, with the most significant growth in real estate-construction
and real estate-mortgage loans, while consumer loans decreased slightly. The
increase in real estate loans was mainly due to the growth in the residential
market and the offering of new mortgage products. Total loans increased 4.0%
during 1995, proportionately in each loan category.
The table below sets forth loans outstanding, according to loan type, at the
date indicated.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural ......... $ 111,686,473 $ 107,558,223 $ 98,767,393 $ 106,293,337 $ 133,611,551
Real estate - construction .... 20,650,887 16,850,556 18,188,860 25,967,773 15,280,136
Real estate - mortgage ........ 301,077,552 259,918,417 253,153,672 220,363,067 191,861,073
Consumer ...................... 137,704,170 149,218,137 143,948,292 97,095,734 77,844,541
Unearned income ............... (8,366,577) (11,231,586) (12,010,336) (9,843,313) (9,702,843)
---------- ----------- ----------- ---------- ----------
Total loans, net of
unearned income ... $ 562,752,505 $ 522,313,747 $ 502,047,881 $439,876,598 $ 408,894,458
============= ============= ============= ============ =============
</TABLE>
<PAGE>
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. The types of securities purchased and the terms of
those securities depend on management's assessment of future economic
conditions.
The securities portfolio increased $31,891,305, or 14.89%, at December 31, 1996
compared to 1995. The most significant increase is in Obligations of other U.S.
Government agencies and corporations, which increased 59.38%. All other
investment categories increased slightly with the exception of preferred stock,
which decreased 68.2%. During 1996, the Company elected not to purchase
short-term equity securities.
The securities portfolio was up 1.9% at December 31, 1995, compared to December
31, 1994. The increase in the securities portfolio is due mainly to the effect
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which resulted in an increase in the net unrealized gain on
securities classified as available for sale at December 31, 1995, of $7,199,027.
The securities portfolio represented 27.6% and 25.5% of assets at December 31,
1996 and 1995, respectively.
Management continues to evaluate the Company's tax position in order to maximize
earnings from securities. The Company was not in an alternative minimum tax
position during 1996 or 1995. Note E of the Notes to the Consolidated Financial
Statements provides details of the securities portfolio.
Federal funds sold provide a significant source of liquidity. These funds
consist of day-to-day loans to correspondent banks. Federal funds sold totaled
$8,500,000 and $17,000,000 at December 31, 1996 and 1995, respectively. The
changes in these balances between periods are typical of fluctuations caused by
changes in deposits, loans, and securities.
Nonearning assets include cash and due from banks, premises and equipment, and
other assets. Cash and due from banks represented 4.3% and 5.6% of total assets
at December 31, 1996 and 1995, respectively. These funds are available for
meeting day-to-day cash requirements inclusive of reserves required to be held
by the Federal Reserve Bank. The balance in cash may fluctuate significantly
based on bank activity.
Premises and equipment were $21,559,955 and $20,323,492 at December 31, 1996 and
1995, respectively. The increase from 1996 compared to 1995 is due to additions
of equipment for the Technology Center which was constructed in 1995. The
Technology Center is designed to house the electronic data processing, proof,
purchasing, statement rendering, and voice response operations.
Other assets were $23,277,326 and $20,925,126 at December 31, 1996 and 1995,
respectively. The major accounts in this category are interest earned not
collected, prepaid expenses, intangible assets, deferred taxes, and other real
estate owned. Interest earned not collected totaled $9,112,058, up from
$8,321,434 at the end of 1995. Prepaid expenses were $1,761,528 and $425,417 at
December 31, 1996 and 1995, respectively. The increase in 1996 is due mainly to
the increase in prepaid pension cost, resulting from the curtailment of the
defined benefit pension plan.
Intangible assets, resulting from bank acquisitions, totaled $4,250,139 and
$4,759,183 at December 31, 1996 and 1995, respectively. The majority of the
intangibles are being amortized over a period of 13 to 15 years. During 1996,
the Company capitalized $226,248 to implement FASB Statement No. 122,
"Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement No.
65." Mortgage servicing rights are amortized in proportion to, and over the
period of, estimated net servicing income.
The Company relies on deposits as its major source of funds. Noninterest-bearing
deposits were $118,638,526 and $116,894,919 at December 31, 1996 and 1995,
respectively. This represented 13.3%and 13.9% of total assets at December 31,
1996 and 1995, respectively. The increase of 1.5% for 1996 compared to 1995 is
due to most depositors utilizing interest-bearing products.
Interest-bearing deposits were $654,203,482 and $622,650,380 at December 31,
1996 and 1995, respectively, or a 5.1% increase over 1995. The largest growth
contributing to this increase came from certificates of deposit as a result of
the Company introducing new products.
<PAGE>
Interest-bearing deposits at December 31, 1995, increased 7.8% over 1994. The
increase is due to deposits obtained as a result of new certificate of deposit
products.
The Company maintains a note account with the Federal Reserve Bank for which tax
deposits are accepted. The account is secured through pledging of securities. On
December 31, 1996, the balance in the treasury tax and loan account was
$6,354,142, up from $2,400,495 at the end of 1995. This account fluctuates based
on the amount of securities pledged to secure the account and the frequency with
which the Federal Reserve Bank draws on those funds.
During 1996, the Company received advances from the Federal Home Loan Bank
(FHLB) totaling $8,092,000. The balance due to the FHLB at December 31, 1996 and
1995 was $11,168,601 and $4,287,833, respectively. These advances are the result
of asset/liability management decisions matching certain earning assets (first
mortgages and consumer loans) against these advances at positive rate spreads.
Other liabilities totaling $12,157,744 and $10,480,085 at December 31, 1996 and
1995, respectively, include accrued interest, accrued expenses, current taxes
payable, and dividends payable. Accrued interest payable totaled $4,449,007 and
$4,154,065 at December 31, 1996 and 1995, respectively.
Risk Management
The management of risk is an on-going process. 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 counterparty 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 inherent credit losses 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 FAS 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 charges against income.
The allowance for loan losses was $9,309,354 and $8,815,130 at December 31, 1996
and 1995, respectively. This represents a ratio of allowance to year-end loans
of 1.65% and 1.69%, respectively. Management deems this allowance adequate for
inherent loan losses.
The Company's net charge-offs for 1996 and 1995 were $2,318,931 and $2,194,318,
respectively. This represented a net charge-offs to average loans ratio of .44%
and .42% for the two years. Management continues to monitor loans and explore
diligent collection efforts.
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.
<PAGE>
The table below reflects the activity in the allowance for loan losses for the
years ended December 31:
<TABLE>
<CAPTION>
Allowance for Loan Losses
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year .... $ 8,815,130 $ 8,182,801 $ 6,387,902 $ 6,613,972 $ 5,762,429
Provision for Loan Losses ..... 2,813,155 2,826,647 2,001,010 2,865,530 4,401,001
Charge-Offs
Commercial, Financial,
and Agricultural .. 273,494 1,286,161 174,051 2,595,750 3,097,115
Real Estate - Mortgage 246,722 93,452 237,104
Consumer ............. 2,072,503 1,058,699 684,208 900,085 785,961
--------- --------- ------- ------- -------
Total Charge-Offs ............. 2,592,719 2,438,312 1,095,363 3,495,835 3,883,076
Recoveries
Commercial, Financial,
and Agricultural .. 53,867 101,116 562,303 150,087 119,217
Real Estate - Mortgage 48,594 6,631 148,866
Consumer ............. 171,327 136,247 178,083 254,148 214,401
Total Recoveries .............. 273,788 243,994 889,252 404,235 333,618
------- ------- ------- ------- -------
Net Charge-Offs ............... 2,318,931 2,194,318 206,111 3,091,600 3,549,458
--------- --------- ------- --------- ---------
Balance at End of Year .......... $ 9,309,354 $ 8,815,130 $ 8,182,801 $ 6,387,902 $ 6,613,972
============ ============ ============ ============ ============
Loan Loss Analysis
Loans - Average ............... $533,547,898 $516,784,193 $466,137,177 $425,157,580 $412,534,383
Loans - Year End .............. 562,752,505 522,313,747 502,047,881 439,876,598 408,894,458
Net Charge-offs ............... 2,318,931 2,194,318 206,111 3,091,600 3,549,458
Allowance for Loan Losses ..... 9,309,354 8,815,130 8,182,801 6,387,902 6,613,972
Ratios
Net Charge-offs to
Loans - Average ............. .43% .42% .04% .73% .86%
Allowance for Loan Losses ... 24.91% 24.89% 2.52% 48.40% 53.67%
Allowance for Loan Losses to
Loans - Year End .............. 1.65% 1.69% 1.63% 1.45% 1.62%
Nonperforming Loans ........... 211.49% 257.03% 394.57% 137.15% 128.12%
Nonperforming Loans to
Loans - Year End ..... .78% .66% .41% 1.06% 1.26%
Loans - Average ...... .83% .66% .44% 1.10% 1.25%
</TABLE>
<PAGE>
The following table shows the principal amounts of nonaccrual and restructured
loans at December 31 in the years indicated:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonperforming Loans
Nonaccruing ................ $1,654,650 $ 803,237 $ 877,409 $1,605,076 $ 931,084
Accruing Loans Past Due
90 Days Or More ... 2,747,244 2,626,333 1,196,464 3,052,371 4,231,404
-- --------- --------- --------- --------- ---------
Total Nonperforming
Loans .... 4,401,894 3,429,570 2,073,873 4,657,447 5,162,488
Restructured Loans
Balance Outstanding 223,850 243,230 259,945 278,416 3,139,551
------- ------- ------- ------- ---------
Total Nonperforming Loans
Including Restructured ..... $4,625,744 $3,672,800 $2,333,818 $4,935,863 $8,302,039
========== ========== ========== ========== ==========
</TABLE>
The following table presents the interest income on restructured loans, if these
loans had been current in accordance with their original terms, and the amount
of interest income on these loans that was included in income for the periods
indicated:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Amount Of Interest That
Would Have Been Recorded
At The Original Rate ... $ $ $ 3,498 $ 10,784 $ 284,267
Interest That Was Recognized
In Income .............. $ 16,477 $ 16,281 $ 20,529 $ 18,500 $ 255,557
--------- --------- --------- --------- ---------
Favorable (Unfavorable) Impact
On Gross Income ........ $ 16,477 $ 16,281 $ 17,031 $ 7,716 $ (28,710)
========= ========= ========= ========= =========
</TABLE>
Nonperforming loans totaled $4,401,894 and $3,429,570 at December 31, 1996 and
1995, respectively. These loans represented .83% and .66% of average loans for
1996 and 1995, respectively. The allowance for loan losses to nonperforming
loans was 211.49% and 257.03% for the two years. The increase in nonperforming
loans for 1996 is due to a significant loan that was placed on nonaccrual by
management. Loans that are considered to be nonperforming are closely monitored
by management and the Loss Management Committee.
Real estate acquired through the satisfaction of loan indebtedness is recorded
at the lower of cost or fair market value based on appraised value, less
estimated selling cost at date acquired. 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.
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.
Loans that have been restructured due to cash flow requirements totaled $223,850
and $243,230 at December 31, 1996 and 1995, respectively. The Company's loan
review staff monitors the performance of these loans.
Interest Rate Risk
The Company has an Asset/Liability Committee 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 Asset/Liability Committee'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. Rate sensitivity analysis is
performed on a monthly basis and shows the Company's gap position. A positive
gap exists when more rate-sensitive assets are repriced than rate-sensitive
liabilities within a defined period. A negative gap exists when more
rate-sensitive liabilities are repriced than rate-sensitive assets within a
defined period. The mismatches between rate-sensitive assets and rate-sensitive
liabilities are evaluated and segregated into monthly, quarterly, annually, two
years, three years, and five years and over pools. The Asset/Liability
Committee's target is to have a cumulative gap position at the six month period
of less than a positive 5%, and greater than a negative 30%.
According to the schedule on page 38, the Company will reprice approximately
$92,759,000 more rate-sensitive liabilities than assets during the first six
months of 1997, resulting in a negative gap of 10.4%. At December 31, 1997, the
Company will have repriced approximately $48,600,000 more of rate-sensitive
liabilities than rate-sensitive assets. This results in a cumulative one-year
negative gap of 5.4%.
The securities portfolio is one of the primary sources for positioning the
Company's interest rate risk exposure. The interest rate forecast, coupled with
the economic forecast, provides tools for management in making decisions about
future short- and long-term interest rates. From this information, decisions
will be made whether to invest short or long term. Consideration is also given
to liquidity needs before long-term investments are made. In addition to
evaluating the gap position, the Company performs interest rate shocks on its
securities portfolio to evaluate the effect of positive or negative changes in
interest rates. Rate shocks were performed at year end from negative 4% to
positive 4%. The effect of the interest rate shock was evaluated by management
in order to determine the future investment strategy of the Company.
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 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 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.
Repayments and maturities of loans provide a substantial source of liquidity.
The Company has approximately 70% of loans maturing within the next twelve
months.
Capital Resources
Total shareholders' equity of the Company was $90,560,820 and $84,960,420 at
December 31, 1996 and 1995, respectively. Shareholders' equity grew 6.6% during
1996 and 15.2% during 1995. The growth in capital for both years was
attributable to earnings less dividends declared. In 1996, the Company raised
dividends in the second quarter and the fourth quarter. In addition, the effect
of FASB Statement No. 115 decreased capital by $942,048 in 1996 and increased
capital by $4,699,027 in 1995 compared to 1994. Shareholders' equity as a
percentage of assets was 10.1% at December 31, 1996 and 1995.
<PAGE>
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 classification:
<TABLE>
<CAPTION>
Tier 1 Risk- Total Risk- Leverage
Capital Tiers Based Capital Based Capital Ratio
<S> <C> <C> <C>
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
</TABLE>
The Company met the guidelines for a well capitalized bank for both 1996 and
1995. At December 31, 1996, the total Tier 1 and total risk-based capital was
$85.6 million and $92.7 million, respectively. Risk-weighted assets were $569.3
and $528.0 million at December 31, 1996 and 1995, respectively. Tier 1 and total
risk-based capital at December 31, 1995, were $78.6 million and $85.2 million,
respectively. See Note Q of the Consolidated Financial Statements for capital
ratios.
In May 1996, the Company declared a fifty percent stock dividend to shareholders
of record April 30, 1996. Applicable per share and book value information have
been restated for the stock dividend. Cash dividends have increased each year
since 1990 (see selected financial information for the previous five years).
During 1996, the Company raised cash dividends during the second and fourth
quarters; in 1995, cash dividends were raised in the second quarter. Book value
per share was $23.18 and $21.75 at December 31, 1996 and 1995, respectively.
Management places significant emphasis on internal growth of capital. The
increase in capital for both years, excluding the effects of SFAS No. 115, was
internally generated due to a retention of earnings of 69.0% and 71.0% during
1996 and 1995, respectively.
Results of Operations
Net income for the Company was $9,516,252, $9,203,910, and $8,208,920 for 1996,
1995, and 1994, respectively. Net income increased $312,342, or 3.4%, over 1995.
Net income increased $994,990, or 12.1%, over 1994. Earnings per share was
$2.44, $2.36, and $2.10 for 1996, 1995, and 1994, respectively.
Return on average assets for 1996, 1995, and 1994 was 1.10%, 1.13%, and 1.05%,
respectively. The decrease in 1996 earnings compared to 1995 is due to several
factors. First, a one-time assessment by the Federal Deposit Insurance
Corporation (FDIC) totaling $239,868, to re-capitalize the Savings Association
Insurance Fund (SAIF) was recorded in 1996. The Company's net interest margin
declined in 1996 compared to 1995 from 5.27% to 5.05% due to a change in the
composition of interest-bearing assets and interest-bearing liabilities and the
interest rates associated with those changes. Also, during 1996, the Company
curtailed its defined benefit pension plan, introducing a defined contribution
plan and a 401(k) plan. The curtailment of the defined benefit plan, combined
with the impact of FASB Statement No. 122 resulted in income of $315,313 after
taxes. Management also strengthened the allowance for loan losses by increasing
the provision for loan losses, over the normal accrual, by $142,335 after taxes.
The result of the non-recurring transactions was an increase in after-tax income
of $172,978. But in 1995, the Company realized a reversal of a lender liability
lawsuit judgment of approximately $366,000 after taxes rendered against the Bank
in 1991 and recorded a gain on the sale of mortgage loans of approximately
$367,000 after taxes.
The increase in earnings for 1995 compared to 1994 was due to several factors: a
higher net interest margin; an increase of 10% in noninterest income over 1994,
which included the reversal of a lender liability lawsuit judgment of
approximately $575,000; and the gain on sale of mortgage loans, offset by an
increase of 3% in noninterest expenses.
Net interest income is the largest component of net income for the Company. It
is an effective measurement of how well management has balanced the interest
sensitive assets and liabilities and is the difference between the interest
earned on earning assets and the cost paid on interest-bearing liabilities. Net
interest income was $38,181,088, $37,387,716, and $34,179,372 for 1996, 1995,
and 1994, respectively. This increase over the three-year period was the result
of management's ability to maximize earnings through changes in interest rates
and increased volume in earnings assets.
<PAGE>
Loan interest income was $50,580,549, $49,321,837, and $40,065,226 for the years
ended December 31, 1996, 1995, and 1994, respectively. The increase in 1996 was
due to increase in volume over 1995, while the tax equivalent yield decreased
slightly from 9.58% in 1995 to 9.52% in 1996. The increase in 1995 over 1994 was
due to growth and repricing of loans which increased the yield from 8.60% to
9.58%.
Interest income from securities was $14,970,734, $12,678,275, and $12,495,889
for 1996, 1995, and 1994, respectively. The increase in interest income in 1996
compared to 1995 is due to an increase in the average balance of approximately
$31.8 million, while the tax equivalent yield on securities has increased in
1996 to 6.88% from 6.84% in 1995.
Interest income for 1995 increased 1.7% even though the average balance
decreased $21.5 million from 1994. The decrease in average balance and increase
in yield was due to management's strategy to sell lower yielding securities and
invest in securities yielding a higher rate. The tax equivalent yield on
securities for 1995 was 92 basis points higher than 1994, due in part to
managementOs decision to sell these securities.
The tax equivalent yield on average earning assets was 8.62%, 8.70%, and 7.64%
for 1996, 1995, and 1994, respectively.
The major source of funds for the Company is deposits. Deposits represented
86.5% and 87.9% of the total assets at December 31, 1996, and 1995,
respectively. Interest-bearing accounts funded 73.3% and 74.0% of the assets for
those two years. The cost of funds is reflected in interest expense.
Interest expense for deposits and borrowings was $28,243,825, $25,621,205, and
$18,890,081 for the years ended December 31, 1996, 1995, and 1994, respectively.
The increase in interest expenses for 1996 compared to 1995 is due to an
increase in the average balance of interest-bearing liabilities of approximately
$42.3 million and an increase in the cost of interest-bearing liabilities of 13
basis points.
The increase in interest expense for 1995 is due to an increase in the average
balance of interest-bearing deposits of approximately $24.0 million and an
increase in the interest cost of 98 basis points.
The net interest margin reflects the portion of the yield on earning assets that
remains after the accrual of all interest expense. Net interest margin on a tax
equivalent basis was 5.06%, 5.27%, and 4.99% for the years ending December 31,
1996, 1995, and 1994, respectively. The decrease in net interest margin for 1996
compared to 1995 is due to the Company paying higher rates on deposits in a
competitive environment. The increase in the net interest margin for 1995 is due
to management's repricing strategy and changes in product mix.
The provision for loan losses was $2,813,155, $2,826,647, and $2,001,010 for
1996, 1995, and 1994, respectively. The provision for loan losses for 1996 was
relatively stable compared to 1995 due to the adequacy of the allowance for loan
losses. The provision for loan losses for 1995 was up $825,637 from 1994, or
41%.
Noninterest income totaled $11,030,506, $10,739,776, and $9,828,683 for the
years ended December 31, 1996, 1995, and 1994, respectively. This represented
28.9%, 28.7%, and 28.8% of net interest income for the applicable year. Included
in noninterest income are service charges on deposit accounts, fees and
commissions, trust revenue, securities gains and losses, and other income.
Service charges increased $207,650, or 3.3%, in 1996 compared to 1995 due to
growth in noninterest-bearing accounts. Service charges were up $446,191, or
7.5%, in 1995 compared to 1994. This increase is due to deposit growth for 1995.
Fees and commissions were $1,396,941, $1,215,810, and $1,265,031 for 1996, 1995,
and 1994, respectively. Fees have remained stable over the years presented.
Securities gains in 1996 totaled $110, 278 compared to securities losses of
$507,344 for 1995 and gains in 1994 of $2,701. The losses in securities for 1995
were due to restructuring the portfolio, enabling the Company to reinvest funds
to achieve greater yields for 1995 and beyond.
<PAGE>
<TABLE>
<CAPTION>
Rate Sensitivity Balance Sheet December 31, 1996
3rd and
1st Qtr 2nd Qtr 4th Qtr 1-3 Years 3-5 Years 5 Years
(In Thousands) 1997 1997 1997 1998-1999 2000-2001 and over Total
- -------------- ---- ---- ---- --------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities
U.S. Government and
Agency Securities ...... $ 19,703 $ 2,215 $ 13,118 $ 80,587 $ 4,154 $ 5,310 $ 125,087
Other Securities ................ 6,333 5,081 12,526 35,777 3,595 5,298 68,610
Obligations of States and
Political Subdivisions . 1,407 1,528 2,374 7,921 12,913 25,908 52,051
Loans, Net of Unearned Income
Fixed ........................... 92,116 58,773 76,624 111,732 37,108 18,640 394,993
Variable ........................ 155,886 11,874 167,760
Federal Funds Sold ................ 8,500 8,500
Interest-Bearing Balances
with Banks .................. 1,824 1,824
Other Assets ...................... 74,037 74,037
-------------------------------------------------------------------------------------------
Total Assets ................ $ 285,769 $ 67,597 $ 116,516 $ 236,017 $ 57,770 $ 129,193 $ 892,862
===========================================================================================
Liabilities
Demand Deposit Accounts ........... $ $ $ $ $ $ 118,639 $ 118,639
Interest-bearing DDA .............. 140,329 140,329
Savings and Money Market
Accounts ....................... 94,922 94,922
Certificates of Deposit
under $100,000 ................ 59,335 67,413 50,749 91,442 11,617 27 280,583
Time Deposits
exceeding $100,000 ............ 30,862 28,697 13,204 13,353 3,205 115 89,436
Individual Retirement Accounts
under $100,000 ................ 8,604 8,797 7,566 20,210 3,085 671 48,933
Other Borrowed Funds .............. 6,757 409 838 3,612 4,069 1,844 17,529
Other Liabilities ................. 12,157 12,157
Realized Equity ................... 90,334 90,334
-------------------------------------------------------------------------------------------
Total Liabilities and Equity . $ 340,809 $ 105,316 $ 72,357 $ 128,617 $ 21,976 $ 223,787 $ 892,862
===========================================================================================
GAP ....................................$ (55,040) $ (37,719) $ 44,159 $ 107,400 $ 35,794 (94,594)
GAP / Total Assets ..................... (6.2%) (4.2%) 4.9% 12.0% 4.0% (10.6%)
Cumulative GAP .........................$ (55,040) $ (92,759) $ (48,600) $ 58,800 $ 94,594
Cumulative GAP / Total Assets .......... (6.2%) (10.4%) (5.4%) 6.6% 10.6%
</TABLE>
This analysis excludes the impact of SFAS No. 115 which resulted in an
unrealized gain on securities available for sale of $362,380, a deferred tax
liability of $135,166, and an increase in equity of $227,214.
<PAGE>
Other income was $2,315,154, $3,089,856, and $2,100,036 for 1996, 1995, and
1994, respectively. The decrease in other income for 1996 compared to 1995, as
well as the increase in 1995 compared to 1994, is due to a gain on the sale of
mortgage loans of approximately $585,000 in 1995, and the reversal of a lender
liability lawsuit judgment of approximately $575,000 in 1995.
Noninterest expenses include salaries and employee benefits, net occupancy,
equipment, income taxes, and other. The totals for these expenses for 1996,
1995, and 1994 were $36,882,187, $36,096,935, and $33,798,125, respectively.
Noninterest expenses for 1996 were up 2.2%. In 1995 and 1994, expenses were up
6.8% and 9.5%, respectively.
Salaries and employee benefits, representing a major portion of the Company's
operating expenses, have increased 0.9%, 8.7%, and 9.2% during 1996, 1995, and
1994, respectively. Management monitors these costs through the implementation
of a performance evaluation system. Jobs are graded according to levels of
difficulty using a point system which provides for salary adjustments through
specified ranges. Employee performance, in relation to goal achievement, is a
major factor contributing to the employee's salary increase. During 1996, the
Company offered an early retirement plan to employees who had attained a certain
number of years of service and age. The slight increase in salaries in 1996
compared to 1995 is reflective of these retirees. The increase in 1995 and 1994
is due to merit increases of approximately 4.5% and 4.2% in each year,
respectively, and increases in additional staffing due to acquisitions. Included
in salaries is an incentive plan adopted by the Board of Directors. The cash
incentive for 1996, 1995, and 1994 was $552,377, $685,912, and $158,111,
respectively, which also increased salaries and benefits in 1996, 1995, and
1994.
Net occupancy expense includes charges for repairs, janitorial, depreciation,
rental, and other expenses related to occupancy. Expenses for 1996, 1995, and
1994 were $2,269,122, $2,178,314, and $2,150,588, respectively. Net occupancy
expenses have remained stable over the three-year period.
Equipment expenses include computer equipment rental, repairs, and depreciation.
These expenses totaled $1,594,525, $1,460,488, and $1,149,827 for 1996, 1995,
and 1994, respectively. The increase in 1996 and 1995 is due to depreciation and
expenses incurred in completing the Technology Center.
Other expenses for 1996, 1995, and 1994 were $10,748,255, $10,472,018, and
$11,259,195, respectively. Other expenses in 1996 increased over 1995 mainly due
to a one-time assessment by the FDIC to re-capitalize the SAIF fund. This
assessment, as previously discussed, was $239,868. The decrease in 1995 is
mainly due to a reduction in the third quarter of the FDIC premium from $.23 to
$.04 per $100 of deposits. This significant reduction is afforded only to those
banks that are considered to be well capitalized as defined through regulation.
Income tax expense for 1996, 1995, and 1994 was $4,052,064, $3,930,797, and
$2,620,904, respectively. The increase in income taxes for 1996 and 1995
compared to 1994 is due to increased profits and the Company paying state of
Mississippi taxes after a net operating loss carryforward was depleted in the
first quarter of 1995. The effective tax rate was approximately 5% for state
income taxes. Effective tax rates were 29.9%, 29.9%, and 24.2% for 1996, 1995,
and 1994, respectively. Note L of the Notes to Consolidated Financial Statements
provides further details of the provision for income taxes.
Impact of Inflation and Changing Prices
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 CompanyOs rate sensitivity.
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: Jeffrey G. Huntington, Assistant Vice President, The Peoples Holding
Company, P. O. Box 709, Tupelo, MS 38802-0709.
<PAGE>
Three Year Statistical Summary
<TABLE>
<CAPTION>
1996
----------------------------------
Income Average
Or Balance Sheet Yields/
Expense Amounts Rates
<S> <C> <C> <C>
Earning assets
Loans, net of unearned income
Commercial ........................... $ 23,797,048 $259,223,178 9.23% TE
Consumer ............................. 18,387,480 187,520,391 9.81%
Other loans .......................... 8,396,021 86,804,329 9.74% TE
--------- ----------
Total Loans, Net ............. 50,580,549 533,547,898 9.52% TE
Other ................................ 873,630 16,492,352 5.30%
Taxable securities
U.S. Government securities .......... 4,843,727 83,009,995 6.03% TE
U.S. Government agencies ............ 3,013,416 45,725,003 6.68% TE
Mortgage-backed securities .......... 4,122,903 62,214,102 6.63%
Other securities .................... 225,906 3,177,515 7.87% TE
------- ---------
Total Taxable Securities ....... 12,205,952 194,126,615 6.41% TE
Tax-exempt securities
Obligations of states and
political subdivisions .......... 2,764,782 49,249,802 8.76% TE
--------- ----------
Total Securities ..... 14,970,734 243,376,417 6.88% TE
---------- -----------
Total Earning Assets ....... 66,424,913 793,416,667 8.62% TE
Cash and due from banks ............... 40,844,620
Other assets,
less allowance for loan losses ..... 34,459,380
----------
Total Assets ..... $868,720,667
============
Interest-bearing liabilities
Interest-bearing
demand deposit accounts .......... 4,730,974 $146,367,576 3.23%
Savings accounts .................... 2,367,360 101,790,316 2.33%
Time deposits ....................... 20,648,907 395,826,585 5.22%
---------- ----------- ----
Total Interest-Bearing Deposits ....... 27,747,241 643,984,477 4.31%
Total Other Interest-Bearing Liabilities 496,584 10,009,063 4.96%
------- ---------- ----
Total Interest-Bearing Liabilities ... 28,243,825 653,993,540 4.32%
Noninterest-bearing sources
Noninterest-bearing deposits ....... 116,633,921
ther liabilities ................... 10,598,454
Shareholders' equity ............... 87,494,752
----------
Total Liabilities and
Shareholders' Equity .......... $868,720,667
============
Net interest income/net interest margin . $ 38,181,088 5.06% TE
============
</TABLE>
TE - Ratios have been calculated on a tax equivalent basis.
<PAGE>
<TABLE>
<CAPTION>
1995
-------------------------------------
Income Average
Or Balance Sheet Yields/
Expense Amounts Rates
------- ------- -----
<S> <C> <C> <C>
Earning assets
Loans, net of unearned income
Commercial .......................... $ 22,195,292 $238,390,733 9.36%TE
Consumer ............................ 18,801,477 193,146,649 9.73%
Other loans ......................... 8,325,068 85,246,811 9.84%TE
--------- ----------
Total Loans, Net ....... 49,321,837 516,784,193 9.58%TE
Other .......................... 1,008,809 17,189,987 5.87%
Taxable securities
U.S. Government securities ......... 4,922,559 90,215,062 5.74%TE
U.S. Government agencies ........... 1,369,710 19,808,620 7.01%TE
Mortgage-backed securities ......... 3,547,259 53,937,225 6.58%
Other securities ................... 258,193 3,384,496 8.63%TE
------- ---------
Total Taxable Securities 10,097,721 167,345,403 6.22%TE
Tax-exempt securities
Obligations of states and
political subdivisions ......... 2,580,554 44,268,670 9.05%TE
--------- ----------
Total Securities .... 12,678,275 211,614,073 6.84%TE
---------- -----------
Total Earning Assets ...... 63,008,921 745,588,253 8.70%TE
Cash and due from banks .............. 42,604,018
Other assets,
less allowance for loan losses .... 29,741,159
----------
Total Assets .... $817,933,430
============
Interest-bearing liabilities
Interest-bearing
demand deposit accounts ......... 3,815,049 $140,218,166 2.72%
Savings accounts ................... 2,434,008 99,392,823 2.45%
Time deposits ...................... 18,985,385 365,213,540 5.20%
---------- ----------- ----
Total Interest-Bearing Deposits ...... 25,234,441 604,824,529 4.17%
Total Other Interest-Bearing Liabilities 386,764 6,881,101 5.62%
------- --------- ----
Total Interest-Bearing Liabilities ... 25,621,205 611,705,630 4.19%
Noninterest-bearing sources
Noninterest-bearing deposits ...... 115,846,458
Other liabilities ................. 9,977,481
Shareholders' equity .............. 80,403,861
----------
Total Liabilities and
Shareholders' Equity ......... $817,933,430
============
Net interest income/net interest margin . $37,387,716 5.27% TE
===========
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------
Income Average
Or Balance Sheet Yields/
Expense Amounts Rates
------- ------- -----
<S> <C> <C> <C>
Earning assets
Loans, net of unearned income
Commercial .......................... $ 17,834,966 $220,690,362 8.08% TE
Consumer ............................ 14,289,174 155,593,089 9.18%
Other loans ......................... 7,941,086 89,853,726 8.84% TE
--------- ----------
Total Loans, Net ............ 40,065,226 466,137,177 8.60% TE
Other ................................ 508,338 13,363,563 3.80%
Taxable securities
U.S. Government securities ........ 6,200,816 124,081,994 5.00%
U.S. Government agencies .......... 885,201 12,768,507 6.93%
Mortgage-backed securities ........ 2,828,152 51,220,241 5.52%
Other securities .................. 174,155 3,862,621 5.90% TE
------- ---------
Total Taxable Securities ..... 10,088,324 191,933,363 5.36% TE
Tax-exempt securities
Obligations of states and
political subdivisions .......... 2,407,565 41,159,567 8.86% TE
--------- ----------
Total Securities ............. 12,495,889 233,092,930 5.92% TE
---------- -----------
Total Earning Assets ......... 53,069,453 712,593,670 7.64% TE
Cash and due from banks ............... 43,446,045
Other assets,
less allowance for loan losses .... 25,604,012
----------
Total Assets .... $781,643,727
============
Interest-bearing liabilities
Interest-bearing
demand deposit accounts ......... 3,697,980 $161,066,313 2.30%
Savings accounts ................... 2,403,042 106,033,460 2.27%
Time deposits ...................... 12,386,018 313,749,274 3.95%
---------- -----------
Total Interest-Bearing Deposits ...... 18,487,040 580,849,047 3.18%
Total Other Interest-Bearing Liabilities 403,041 8,342,746 4.83%
------- ---------
Total Interest-Bearing Liabilities .. 18,890,081 589,191,793 3.21%
Noninterest-bearing sources
Noninterest-bearing deposits .... 111,663,641
Other liabilities ............... 7,746,773
Shareholders' equity ............ 73,041,520
----------
Total Liabilities and
Shareholders' Equity ............ $781,643,727
============
Net interest income/net interest margin $ 34,179,372 4.99% TE
============
</TABLE>
<PAGE>
EXHIBIT 23
THE PEOPLES HOLDING COMPANY
CONSENT OF INDEPENDENT AUDITORS
We consent to the incoporation by reference in this Annual Report (Form 10-K) of
The Peoples Holding Company of our report dated January 16, 1997, included in
the 1996 Annual Report to Shareholders of The Peoples Holding Company.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-20108) of our report dated January 16, 1997, with respect to
the consolidated financial statements of The Peoples Holding Company
incorporated herein by reference.
/s/ Ernst & Young LLP
Memphis, Tennessee
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 38375
<INT-BEARING-DEPOSITS> 1824
<FED-FUNDS-SOLD> 8500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52051
<INVESTMENTS-CARRYING> 193697
<INVESTMENTS-MARKET> 194059
<LOANS> 562753
<ALLOWANCE> 9309
<TOTAL-ASSETS> 893089
<DEPOSITS> 772842
<SHORT-TERM> 6354
<LIABILITIES-OTHER> 12158
<LONG-TERM> 11175
0
0
<COMMON> 19533
<OTHER-SE> 71028
<TOTAL-LIABILITIES-AND-EQUITY> 893089
<INTEREST-LOAN> 50581
<INTEREST-INVEST> 14971
<INTEREST-OTHER> 874
<INTEREST-TOTAL> 66425
<INTEREST-DEPOSIT> 27747
<INTEREST-EXPENSE> 28244
<INTEREST-INCOME-NET> 38181
<LOAN-LOSSES> 2813
<SECURITIES-GAINS> 110
<EXPENSE-OTHER> 32830
<INCOME-PRETAX> 13568
<INCOME-PRE-EXTRAORDINARY> 13568
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9516
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.44
<YIELD-ACTUAL> 5.06
<LOANS-NON> 1655
<LOANS-PAST> 2747
<LOANS-TROUBLED> 224
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8815
<CHARGE-OFFS> 2593
<RECOVERIES> 274
<ALLOWANCE-CLOSE> 9309
<ALLOWANCE-DOMESTIC> 9309
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9309
</TABLE>
