UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
Commission File Number 1-13253
THE PEOPLES HOLDING COMPANY
-------------------------------------------------------
(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38801
----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 5,844,472 shares outstanding
as of November 12, 1998
1
<PAGE>
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997............. 3
Consolidated Statements of Income - Nine Months
Ended September 30, 1998 and 1997.................... 4
Consolidated Statements of Income - Three Months
Ended September 30, 1998 and 1997.................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997........ 5
Notes to Consolidated Financial Statements................ 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
Item 3.
Quantitative and Qualitative Disclosures
About Market Risk................................... 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings....................................... 12
Item 6.(b)
Reports on Form 8-K..................................... 12
Signatures.................................................. 12
2
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
------------ -----------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Cash and due from banks ................ $ 33,954 $ 32,932
Federal Fund Sold ...................... 0 6,000
---------- ---------
33,954 38,932
Interest bearing balances with banks ... 288 14,973
Securities held-to-maturity (market
value-$76,704 and $60,556 at
September 30, 1998 and December 31,
1997, respectively) ................. 74,663 59,893
Securities available-for-sale (amortized
cost-$224,758 and $187,836 at
September 30, 1998 and December 31,
1997, respectively) ................. 229,394 188,738
Loans .................................. 661,625 627,946
Allowance for loan losses ........... (9,637) (9,104)
---------- ---------
Net Loans ..................... 651,988 618,842
Premises and equipment ................. 25,178 23,493
Other assets ........................... 26,401 26,184
---------- ---------
Total Assets .................. $ 1,041,866 $ 971,055
========== =========
Liabilities
Deposits:
Noninterest-bearing ................. $ 122,552 $ 120,829
Certificates of deposit exceeding
$100,000 ........................ 115,656 106,952
Interest bearing .................... 651,851 607,133
---------- ---------
Total Deposits ............ 890,059 834,914
Treasury tax and loan note account ..... 8,444 6,101
Borrowings ............................. 23,680 18,454
Other liabilities ...................... 14,303 13,435
---------- ---------
Total Liabilities ......... 936,486 872,904
Shareholders' Equity
Common Stock, $5 par value-15,000,000
authorized, 5,844,472 and 5,859,472
shares issued and outstanding at
September 30, 1998 and
December 31, 1997, respectively ....... 29,222 29,297
Additional paid-in capital .............. 39,876 39,876
Unrealized gains on securities
available-for-sale, net of tax ........ 2,906 566
Retained earnings ....................... 33,376 28,412
---------- ---------
Total Shareholders' Equity .... 105,380 98,151
---------- ---------
Total Liabilities and
Shareholders' Equity ........ $ 1,041,866 $ 971,055
========== =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
NINE MONTHS ENDED SEPTEMBER 30 THREE MONTHS ENDED SEPTEMBER 30
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest Income
Loans ................................ $ 44,550 $ 40,994 $ 15,239 $ 14,230
Securities:
Taxable ......................... 10,051 9,943 3,423 3,332
Tax-exempt ...................... 2,676 2,170 951 739
Other ................................ 687 430 120 70
------- ------- ------- -------
Total interest income ...... 57,964 53,537 19,733 18,371
Interest Expense
Time deposits exceeding $100,000 ..... 4,433 3,735 1,520 1,325
Other deposits ....................... 20,957 18,770 7,239 6,505
Borrowings .......................... 1,094 952 374 326
------- ------- ------- -------
Total interest expense ..... 26,484 23,457 9,133 8,156
---------- ---------- ---------- ----------
Net interest income ........ 31,480 30,080 10,600 10,215
Provision for loan losses .................. 1,922 1,710 640 570
--------- --------- --------- ---------
Net interest income after
provision for loan losses .. 29,558 28,370 9,960 9,645
Noninterest income:
Service charges on deposit accounts .. 5,290 4,992 1,792 1,704
Fees and commissions ................. 1,801 1,590 911 599
Trust revenue ........................ 540 449 180 150
Gains on sale of securities and loans. 709 155 282 77
Other ................................ 1,999 1,582 430 529
------- ------- ------- -------
Total noninterest income ... 10,339 8,768 3,595 3,059
Noninterest expenses:
Salaries and employee benefits ....... 15,256 14,588 5,099 5,141
Net occupancy ........................ 2,047 1,866 728 618
Equipment ............................ 1,450 1,329 489 471
Other ................................ 9,271 8,295 3,135 2,869
--------- --------- -------- --------
Total noninterest expenses . 28,024 26,078 9,451 9,099
---------- ---------- --------- ---------
Income before income taxes ................. 11,873 11,060 4,104 3,605
Income taxes ............................... 3,370 3,281 1,170 1,058
--------- --------- --------- ---------
Net income ................. $ 8,503 $ 7,779 $ 2,934 $ 2,547
========== ========== ========== ==========
Basic and diluted earnings per share ...... $ 1.45 $ 1.33 $ .50 $ .43
====== ====== ====== ======
Weighted average shares outstanding ....... 5,856,782 5,859,472 5,851,488 5,859,472
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
NINE MONTHS ENDED SEPTEMBER 30
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Operating Activities
Net Income .............................. $ 8,503 $ 7,779
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses ............... 1,922 1,710
Provision for depreciation and
amortization ....................... 1,935 1,727
Net amortization (accretion) of
securities premiums/discounts ...... 83 689
Losses (gains) on sale of loans ......... 649 (195)
Losses (gains) on sales/calls of
securities ......................... 60 41
Increase (decrease) in other liabilities. 868 885
Deferred income taxes (credits).......... 207 (57)
Losses (gains) on sales of
premises and equipment ............. (131) 155
Increase in other assets ................ (1,899) (18)
-------- --------
Net Cash Provided by Operating
Activities .................... 12,197 12,716
Investing Activities
Net (increase) decrease in balances
with other banks ................... 14,685 1,628
Proceeds from maturities/calls of
securities held-to-maturity ........ 3,940 3,169
Proceeds from maturities/calls of
securities available-for-sale ...... 47,655 47,238
Proceeds from sales of
securities available-for-sale ...... 16,242 48,988
Purchases of securities
held-to-maturity ................... (18,668) (6,512)
Purchases of securities
available-for-sale ................. (101,006) (108,840)
Net increase in loans ................... (90,468) (72,803)
Proceeds from sales of loans ............ 54,375 22,960
Proceeds from sales of premises
and equipment ...................... 530 120
Purchases of premises and equipment ..... (3,559) (2,335)
---------- ----------
Net Cash Used in Investing
Activities .................... (76,274) (66,387)
Financing Activities
Net increase (decrease) in
noninterest-bearing deposits ....... 1,724 (3,528)
Net increase (decrease) in
interest-bearing deposits ........... 53,421 22,853
Net increase (decrease) in treasury
tax and loan note account .......... 2,343 3,489
Net increase (decrease) in borrowings ... 5,226 24,233
Acquistion of treasury stock ............ (541) 0
Cash dividends paid ..................... (3,074) (2,500)
---------- ----------
Net Cash Provided by Financing
Activities ................... 59,099 44,547
---------- ----------
Decrease in Cash
and Cash Equivalents ......... (4,978) (9,124)
Cash and Cash Equivalents at
beginning of period ............... 38,932 46,875
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 33,954 $ 37,751
============ ============
Non-cash transactions:
Transfer of loans to other real
estate .............................. $ 1,159 $ 828
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
(in thousands, except share data)
Note 1 Basis of Presentation:
The consolidated balance sheet at December 31, 1997, has been derived from the
audited financial statements at that date. The accompanying unaudited
consolidated financial statements reflect all adjustments (consisting only of
normally recurring accruals) which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. The
statements should be read in conjunction with the notes to consolidated
financial statements included in the Registrant's annual report for the year
ended December 31, 1997. Certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been omitted in accordance with
the rules of the Securities and Exchange Commission.
Note 2 Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on
the Company's net income or shareholders' equity. SFAS No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS No. 130.
For the nine month periods ended September 30, 1998 and 1997, total
comprehensive income amounted to $10,843 and $7,966, respectively. For
the quarters ended September 30, 1998 and 1997, total comprehensive income
amounted to $4,933 and $2,920, respectively.
Note 3 Other Accounting Pronouncements
In February 1998, SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits," was issued, superseding the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," and SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997, and therefore the Company will adopt the new requirements
in its 1998 annual report. SFAS No. 132 suggests a parallel format for
presenting information about pensions and other postretirement benefits, but
the information disclosed is not substantially different than what is required
under current guidance. The adoption of this statement will not have an
impact on the Company's consolidated financial condition or results of
operations.
6
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(in thousands, except share data)
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements' within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21 of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that
any such forward-looking statements are not guarantees for future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
- -------------------
Total assets of The Peoples Holding Company grew from $971,055 on December 31,
1997, to $1,041,866 on September 30, 1998, or 7.29% for the nine month
period. Total securities increased from $248,631 on December 31, 1997, to
$304,057 on September 30, 1998, with the majority of growth in State, County,
and Municipal Bonds and Mortgage-backed securities. Loans, net of unearned
income, increased $33,679 or 5.36%. Approximately $19,427 of the increase in
loans was in the third quarter of 1998.
Total deposits for the first nine months of 1998 grew from $834,914 on
December 31, 1997 to $890,059 on September 30, 1998, or an increase of
6.60%, with the majority of growth in public fund checking and time deposits.
The equity capital to total assets ratio was 10.11% for September 30, 1998
and December 31, 1997. Capital grew 7.37% from December 31, 1997 to
September 30, 1998 due to record earnings. In addition, the Company continued
paying higher dividends in 1998 compared to 1997.
Results of Operations
- ---------------------
The Company's net income for the nine month period ending September 30, 1998,
was $8,503 representing an increase of $724 or 9.31% over net income
for the nine month period ending September 30, 1997 which totaled $7,779.
The majority of the increase in net income for the nine month period in 1998
compared to 1997 came from usual and customary deposit gathering and lending
operations. Net income was $2,934 and $2,547 for the third quarter ending
September 30, 1998 and 1997, respectively. The annualized return on average
assets for the nine month periods ending September 30, 1998 and 1997, was 1.12%
and 1.13%, respectively.
7
<PAGE>
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary items of concern in managing net interest income are the
mix and maturity balance between interest-sensitive assets and related
liabilities. Net interest income for the nine month periods ending September 30,
1998 and 1997 was $31,480 and $30,080, respectively. Net interest income
was $10,600 and $10,215 for the three month periods ending September 30,
1998 and 1997, respectively. Earning assets averaged $937.0 million for the nine
month period ending September 30, 1998, compared to $853.1 million for the same
period in 1997. Net interest margin was 4.77% and 4.91% for the nine month
periods ending September 30, 1998 and 1997, respectively. The decrease in net
interest margin is due in part to the increase of the investment portfolio as a
percentage of the earning asset mix in 1998. Investments by nature of the
associated risk carry lower yields than loans.
The provision for loan losses charged to operating expense is an amount which,
in the judgement of management, is necessary to maintain the allowance for loan
losses at a level that is adequate to meet the inherent risks of losses on the
Company's current portfolio of loans. The appropriate level of the allowance is
based on a quarterly analysis of the loan portfolio including consideration of
such factors as the risk rating of individual credits, size and diversity of the
portfolio, economic conditions, prior loss experience, and the results of
periodic credit reviews by internal loan review and regulators. The provision
for loan losses totaled $1,922 and $1,710 for the nine month periods ending
September 30, 1998 and 1997, respectively. The provision for loan losses
totaled $640 and $570 for the quarters ending September 30, 1998 and 1997,
respectively. The allowance for loan losses as a percentage of loans
outstanding was 1.46% and 1.45% as of September 30, 1998 and December 31, 1997,
respectively. Net charge-offs to average loans was .21% and .25% for the nine
month periods ending September 30, 1998 and 1997, respectively. Net charge-
offs to average loans was .07% and .05% for the quarters ending September 30,
1998 and 1997, respectively.
Noninterest income, excluding gains from the sales of securities and loans,
was $9,630 for the nine month period ending September 30, 1998, compared
to $8,613 for the same period in 1997, or an increase of 11.81%. The
increase between 1998 and 1997 is mainly due to fees associated with
the increase in loans and deposits. Non-sufficient fund fees accounted for the
majority of the increase in service charges. The increase in fees and
commissions is a result of increases in Financial Investment Alternative
commissions and mortgage loan fees, while increases in merchant processing,
credit card revenue, and skip payment fees caused an increase in other income.
Noninterest income, excluding gains from the sales of securities and loans, for
the quarter ending September 30, 1998 increased $331 or 11.10% compared to the
same period in 1997 due in part to the aforementioned items.
Noninterest expenses were $28,024 for the nine month period ending September 30,
1998, compared to $26,078 for the same period in 1997, or an increase of
7.46%. Significant increases in noninterest expenses, comparing the nine months
ending September 30, 1998 to same period in 1997, include depreciation of new
premises and equipment, computer processing costs associated with loan and
deposit growth, and fees related to the Sheshunoff efficiency consulting
engagement. The remaining components of noninterest expenses reflect normal
increases for banking related expenses and general inflation in the cost of
services and supplies purchased by the Company. Noninterest expenses for the
quarter ending September 30, 1998 increased $352 or 3.87% compared to the same
period in 1997.
8
<PAGE>
Income tax expense was $3,370 for the nine month period ending September 30,
1998, compared to $3,281 for the same period in 1997. The increase is due to
increased profits for the nine month period ending September 30, 1998 compared
to 1997. The Company continues to invest in assets whose earnings are given
favorable tax treatment, which lowered the effective tax rate from 29.67% for
the nine months ending September 30, 1997 to 28.38% for the same period in 1998.
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software and operating systems will properly
recognize date sensitive information when the year changes to 2000. The Company
is following the guidelines and timetables established by the FDIC in regards to
becoming year 2000 compliant. Management has continued the process of working
with its software vendors to assure that the Company is prepared for the year
2000. While the Company believes its planning efforts are adequate to address
its year 2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be converted
on a timely basis and will not have a material effect on the Company.
Management does not believe that the Company will incur significant operating
expenses or be required to invest heavily in computer system improvements to be
year 2000 compliant.
The Company has targeted December 31, 1998 as the date to have all mission
critical renovated systems implemented. Testing was successfully completed for
our mission critical applications processed by our third party service provider
in October, 1998. There are five systems identified currently that are not
compliant. Three of these will be converted by the December 31, 1998 deadline.
The remaining two, which are not deemed mission critical, will not be addressed
until the first quarter of 1999. The Company currently has no contingency plans
in place in the event it does not complete all phases of the Year 2000 program.
The Company plans to evaluate the systems after December 31, 1998 to determine
what contingency plans are needed. Preliminary contingency plans include
testing backup generators in case of electricity failures, and ordering extra
cash from the Federal Reserve Bank to meet demands in case of a surge in
withdrawals in the month before the new year.
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is a key to assuring liquidity. Approximately 87% of the Company's
deposits are composed of accounts with balances less than $100,000. When
evaluating the movement of these funds even during times of large interest
rate changes, it is apparent that the Company continues to attract deposits
that can be used to meet cash flow needs. Management continues to monitor the
liquidity and potentially volatile liabilities ratios to ensure compliance
with Asset-Liability Committee targets. These targets are set to ensure that
the Company meets the liquidity requirements deemed necessary by management
and regulators.
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 may maintain a federal funds
position that provides day-to-day funds to meet liquidity needs and may also
obtain advances from the Federal Home Loan Bank (FHLB) or the treasury tax and
loan note account. Historically, the Company has not relied upon these sources
to meet long-term liquidity needs. Sources of funds derived from the FHLB are
used primarily to match mortgage loan originations in order to minimize
interest rate risk, but may be used to provide short-term funding.
9
<PAGE>
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). As of September 30, 1998, the Bank has met
all capital adequacy requirements to which it is subject.
As of September 30, 1998, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of
management, there are no conditions or events since the last notification that
have changed the institution's category. The Bank's actual capital amounts and
applicable ratios are as follows:
<TABLE>
<CAPTION>
Actual
Amount Ratio
------ -----
(000)
<S> <C> <C>
As of September 30, 1998
Total Capital .................... $ 104,795 15.4%
(to Risk Weighted Assets)
Tier I Capital ................... $ 96,275 14.2%
(to Risk Weighted Assets)
Tier I Capital ................... $ 96,275 9.4%
(to Adjusted Average Assets)
As of December 31, 1997
Total Capital .................... $ 99,223 15.7%
(to Risk Weighted Assets)
Tier I Capital ................... $ 91,315 14.5%
(to Risk Weighted Assets)
Tier I Capital ................... $ 91,315 9.9%
(to Adjusted Average Assets)
</TABLE>
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well
capitalized bank.
Book value per share was $18.03 and $16.75 at September 30, 1998 and December
31, 1997, respectively. Quarterly cash dividends were $.175 per share during
the third quarter of 1998, up from $.1467 per share during the third quarter of
1997. All per-share figures have been restated to reflect the 50% stock
dividend issued January 20, 1998.
10
<PAGE>
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
Effective July 14, 1998, the Company's board of directors approved a stock
repurchase program through which up to 5% or 292,973 shares of the Company's
5,859,472 outstanding shares may be repurchased. Currently, 15,000 shares of
common stock have been repurchased. The purpose of this program is to help
stabilize the level of capital at approximately 10% of total assets and enable
the Company to manage its capital position more efficiently.
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A sudden and substantial change in interest rates may adversely impact the
Company's earnings to the extent that the interest rates borne by the assets
and liabilities do not change at the same speed, to the same extent, or on the
same basis. The Company has an Asset/Liability Committee (ALCO) which monitors
the impact of changes in interest rates on its net interest income using
several tools. One measure of the Company's exposure to differential changes
in interest rates between assets and liabilities is shown in the Company's
Maturity and Rate Sensitivity Analysis (GAP Analysis). Another test measures
the impact on net interest income and on net portfolio value (NPV) of an
immediate change in interest rates in 100 basis point increments. Net Portfolio
value is defined as the net present value of assets, liabilities, and off-
balance sheet contracts. Following are the estimated impacts of immediate
changes in interest rates at the specified levels at September 30, 1998.
Percentage Change In:
-------------------------------
Change In Interest Rates Net Interest Net Portfolio
(In Basis Points) Income (1) Value (2)
- ------------------------ ------------ -------------
+400 ........................ (9.0)% (12.3)%
+300 ........................ (5.1)% (9.0)%
+200 ........................ (1.4)% (5.7)%
+100 ........................ 0.6% (2.7)%
-100 ........................ 0.0% 2.2%
-200 ........................ (1.9)% 0.8%
-300 ........................ (3.4)% (1.8)%
-400 ........................ (3.6)% (7.9)%
(1) The percentage change in this column represents net interest income for
12 months in a stable interest rate environment versus the net interest
income in the various rate scenarios.
(2) The percentage change in this column represents net portfolio value of the
Company in a stable interest rate environment versus the net portfolio
value in the various rate scenarios.
Under the assumptions used in the table above, immediate rate fluctuations
within plus or minus 200 basis points would have minimal effects on pre-tax
earnings. An adverse material impact on pre-tax earnings would not occur
unless rates experienced an immediate increase of 300 basis points or more,
which management feels is unlikely at this time. The results of the interest
rate shock are within the limits set by the Board of Directors.
The computation of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposits decay, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the ALCO could undertake in response to changes in interest rates.
11
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material proceedings against the Company
during the quarter ending September 30, 1998.
Item 6(b) Reports on Form 8-K
A report on Form 8-K was filed July 31, 1998 to report Item 5:
Other Events. The Company approved the hiring of Alex Sheshunoff
Management Consulting Services. The focus of their engagement
is to re-align work flows by better utilizing technology.
Approximately 130 jobs will be eliminated over a period of
approximately 9 months. Work should be completed by the end of
the first quarter of 1999. The economic impact will not be
apparent until 1999, but is expected to generate an additional
$3 to $4 million pre-tax.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: November 12, 1998 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
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