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 June 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, $5 Par Value, 5,845,572 shares outstanding
as of August 13, 1998
1
<PAGE>
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997.................. 3
Consolidated Statements of Income - Six Months
Ended June 30, 1998 and 1997......................... 4
Consolidated Statements of Income - Three Months
Ended June 30, 1998 and 1997......................... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997.............. 5
Notes to Consolidated Financial Statements................ 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
Item 3.
Quantitative and Qualitative Disclosures
About Market Risk................................... 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings....................................... 12
Item 4.
Submission of Matters to a Vote of Shareholders......... 12
Item 6.(b)
Reports on Form 8-K..................................... 12
Signatures.................................................. 13
2
<PAGE>
<TABLE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
------------ -----------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Cash and due from banks ..................$ 36,500,066 $ 32,932,007
Federal Fund Sold ........................ 6,000,000
---------- ----------
Cash and cash equivalents......... 36,500,066 38,932,007
Interest bearing balances with banks ..... 817,610 14,972,568
Securities held-to-maturity (market
value-$75,521,919 and $60,555,766
at June 30, 1998 and December 31,
1997, respectively) ................... 74,678,847 59,893,375
Securities available-for-sale (amortized
cost-$225,151,600 and $187,836,120
June 30, 1998 and December 31, 1997,
respectively) ......................... 226,597,327 188,738,354
Loans, net of unearned income ............ 642,197,376 627,945,380
Allowance for loan losses ........... (9,418,558) (9,103,828)
----------- ------------
Net Loans ........................ 632,778,818 618,841,552
Premises and equipment ................... 24,379,885 23,492,657
Other assets ............................. 27,424,144 26,184,367
----------- ------------
Total Assets ..................$1,023,176,697 $ 971,054,880
============= ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 124,246,494 $ 120,828,654
Certificates of deposit exceeding
$100,000 ........................ 107,997,406 106,952,104
Interest bearing .................... 647,733,164 607,133,427
------------ ------------
Total Deposits ............ 879,977,064 834,914,185
Treasury tax and loan note account ..... 10,000,000 6,101,276
Borrowings ............................. 18,289,105 18,454,080
Other liabilities ...................... 12,900,381 13,434,422
------------ ------------
Total Liabilities ......... $ 921,166,550 $ 872,903,963
Shareholders' Equity
Common Stock, $5 par value-15,000,000
authorized, 5,859,472 shares
issued and outstanding at
June 30, 1998 and December 31, 1997,
respectively .......................... 29,297,360 29,297,360
Additional paid-in capital .............. 39,875,796 39,875,796
Unrealized gains on securities
available-for-sale, net of tax ........ 906,471 565,708
Retained earnings ....................... 31,930,520 28,412,053
------------ ------------
Total Shareholders' Equity .... 102,010,147 98,150,917
------------ ------------
Total Liabilities and
Shareholders' Equity ........ $1,023,176,697 $ 971,054,880
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest Income
Loans ................................ $ 29,310,356 $ 26,764,006 $ 14,768,854 $ 13,634,333
Securities:
Taxable ......................... 6,628,748 6,611,262 3,488,657 3,408,199
Tax-exempt ...................... 1,725,263 1,431,272 902,882 712,108
Other ................................ 566,611 359,996 188,878 153,205
------- ------- ----- -----
Total interest income ...... 38,230,978 35,166,536 19,349,271 17,907,845
Interest Expense
Time deposits exceeding $100,000 ..... 2,912,859 2,409,665 1,464,363 1,542,026
Other deposits ....................... 13,718,223 12,265,105 6,985,223 5,998,580
Borrowings .......................... 720,109 626,694 373,838 327,617
------- ------- ------ ------
Total interest expense ..... 17,351,191 15,301,464 8,823,424 7,868,223
---------- ---------- --------- ---------
Net interest income ........ 20,879,787 19,865,072 10,525,847 10,039,622
Provision for loan losses .................. 1,281,336 1,140,000 640,668 570,000
--------- --------- ------- -------
Net interest income after
provision for loan losses .. 19,598,451 18,725,072 9,885,179 9,469,622
Noninterest income:
Service charges on deposit accounts .. 3,498,697 3,287,673 1,801,429 1,689,317
Fees and commissions ................. 889,970 991,120 444,860 551,104
Trust revenue ........................ 360,022 299,400 180,022 149,700
Gains on sale of securities and loans. 427,257 77,711 197,218 (12,944)
Other ................................ 1,568,214 1,052,575 729,023 480,875
------- ------- ------- -------
Total noninterest income ... 6,744,160 5,708,479 3,352,552 2,858,052
Noninterest expenses:
Salaries and employee benefits ....... 10,156,709 9,446,115 5,055,130 4,790,495
Net occupancy ........................ 1,319,668 1,247,362 675,847 563,353
Equipment ............................ 960,634 858,117 463,618 413,055
Other ................................ 6,136,361 5,426,665 3,293,716 2,859,407
--------- --------- --------- ---------
Total noninterest expenses . 18,573,372 16,978,259 9,488,311 8,626,310
---------- ---------- --------- ---------
Income before income taxes ................. 7,769,239 7,455,292 3,749,420 3,701,364
Income taxes ............................... 2,199,946 2,223,737 1,034,852 1,070,975
--------- --------- --------- ---------
Net income ................. $ 5,569,293 $ 5,231,555 $ 2,714,568 $ 2,630,389
========== ========== ============ ============
Basic and diluted earnings per share ...... $ 0.95 $ 0.89 $ 0.46 $ 0.45
====== ====== ====== ======
Weighted average shares outstanding ....... 5,859,472 5,859,472 5,859,472 5,859,472
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED JUNE 30
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Operating Activities
Net Income ............................. $ 5,569,293 $ 5,231,555
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses .............. 1,281,336 1,140,000
Provision for depreciation and
amortization ...................... 1,277,998 1,165,995
Net amortization (accretion) of
securities premiums/discounts ..... 62,168 1,335,899
Gain on sale of loans .................. (407,144) (139,580)
Losses (gains) on sales/calls of
securities ........................ (20,113) 61,869
Increase (decrease) in other liabilities (534,041) 129,967
Deferred income taxes (credits)......... 208,913 (124,567)
Losses (gains) on sales of
premises and equipment ............ 83,660 106,712
Increase in other assets ............... (1,962,446) (485,867)
-------- --------
Net Cash Provided by Operating
Activities ................... 5,559,624 8,421,983
Investing Activities
Net (increase) decrease in balances
with other banks .................. 14,154,958 (4,968,078)
Proceeds from maturities/calls of
securities held-to-maturity ....... 1,943,940 1,772,594
Proceeds from maturities/calls of
securities available-for-sale ..... 32,045,636 37,377,232
Proceeds from sales of
securities available-for-sale ..... 5,078,456 31,311,869
Purchases of securities
held-to-maturity .................. (16,700,980) (2,782,000)
Purchases of securities
available-for-sale ................ (74,510,059) (91,825,004)
Net increase in loans .................. (53,038,324) (38,297,990)
Proceeds from sales of loans ........... 38,226,866 12,906,532
Proceeds from sales of premises
and equipment ..................... 266,716 153,406
Purchases of premises and equipment .... (2,204,576) (1,824,831)
---------- ----------
Net Cash Used in Investing
Activities ................... (54,737,367) (56,176,270)
Financing Activities
Net increase (decrease) in
noninterest-bearing deposits ...... 3,417,840 (354,898)
Net increase in other
interest-bearing deposits .......... 41,645,039 33,774,905
Net increase in treasury
tax and loan note account ......... 3,898,724 2,163,352
Increase (decrease) in borrowings ...... (164,975) 3,978,697
Cash dividends paid .................... (2,050,826) (1,640,803)
---------- ----------
Net Cash Provided by Financing
Activities ................... 46,745,802 37,921,253
---------- ----------
Decrease in Cash
and Cash Equivalents ......... (2,431,941) (9,833,034)
Cash and Cash Equivalents at
beginning of period ............... 38,932,007 46,874,641
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 36,500,066 $ 37,041,607
============ ============
Non-cash transactions:
Transfer of loans to other real
estate .............................. $ 555,517 $ 267,489
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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 six month periods ended June 30, 1998 and 1997, total comprehensive
income amounted to $5,910,056 and $5,045,836, respectively. For the quarters
ended June 30, 1998 and 1997, total comprehensive income amounted to
$2,914,384 and $3,349,281, 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.
Note 4 Subsequent Events
Subsequent to the second quarter of fiscal 1998, the Company repurchased shares
of its common stock in the open market. As of August 13, 1998, the Company had
repurchased 13,900 shares of the Company's stock at an average price of $36.20
per share for an aggregate amount of $503,198.
6
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q may contain or incorporate by reference statements which may
constitute "forward-looking statements' within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21 of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that
any such forward-looking statements are not guarantees for future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
- -------------------
Total assets of The Peoples Holding Company grew from $971,054,880 on December
31, 1997, to $1,023,176,697 on June 30, 1998, or 5.37% for the six month period.
Total securities increased from $248,631,729 on December 31, 1997, to
$301,276,174 on June 30, 1998, with the majority of growth in State, County, and
Municipal Bonds and Mortgage-backed securities. Loans, net of unearned income,
increased $14,251,996 or 2.27%.
Total deposits for the first six months of 1998 grew from $834,914,185 on
December 31, 1997 to $879,977,064 on June 30, 1998, or an increase of 5.40%,
with the majority of growth in time deposits.
The equity capital to total assets ratio was 9.97% and 10.11% for June 30, 1998
and December 31, 1997, respectively. The decrease is mainly due to the
significant growth in assets funded primarily by deposits. Capital grew 3.93%
from December 31, 1997 to June 30, 1998 due to record earnings.
Results of Operations
- ---------------------
The Company's net income for the six month period ending June 30, 1998, was
$5,569,293 representing an increase of $337,738 or 6.46% over net income
for the six month period ending June 30, 1997 which totaled $5,231,555. The
increase in net income for the six month period came from usual and
customary deposit gathering and lending operations. Net income was
$2,714,568 and $2,630,389 for the second quarter ending June 30, 1998 and
1997, respectively. The annualized returns on average assets for the six
month period ending June 30, 1998 and 1997, was 1.12% and 1.14%,
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. The net interest income for the six month periods ending June 30,
1998 and 1997, was $20,879,787 and $19,865,072, respectively. The net interest
income was $10,525,847 and $10,039,622 for the three month periods ending June
30, 1998 and 1997, respectively. Earning assets averaged $928.4 million for the
six month period ending June 30, 1998, compared to $846.7 million for the same
period in 1997. The increase in average earning assets is mainly in the
securities portfolio as a result of increased deposit funding. Reduced customer
demand and the competitive rate environment have slowed average loan growth
over the first two quarters of 1998. The net interest margin was 4.79% and
4.94% for the six month periods ending June 30, 1998 and 1997, respectively. The
net interest margin was 4.77% and 4.94% for the quarters ending June 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 present
and potential 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 $1,281,336 and $1,140,000 for the six month periods ending
June 30, 1998 and 1997, respectively. The provision for loan losses totaled
$640,668 and $570,000 for the quarters ending June 30, 1998 and 1997,
respectively. The allowance for loan losses as a percentage of net loans
outstanding was 1.47% and 1.45% as of June 30, 1998 and December 31, 1997,
respectively. Net charge-offs to average loans was .14% and .20% for the six
month periods ending June 30, 1998 and 1997, respectively. Net charge-offs to
average loans was .05% and .10% for the quarters ending June 30, 1998 and 1997,
respectively.
Noninterest income, excluding gains from the sales of securities and loans,
was $6,316,903 for the six month period ending June 30, 1998, compared to
$5,630,768 for the same period in 1997, or a increase of 12.19%. Service
charges increased $211,024 due to the growth in deposits over that period. The
increase in other noninterest income for the six months ending June 30, 1998,
compared to the same period in 1997, was attributable to an increase in debit
card and merchant activity and mortgage loan servicing. The recent
introduction of skip payment fees and loan document preparation fees has also
boosted noninterest income. Noninterest income, excluding gains from the sales
of securities and loans, for the quarter ending June 30, 1998 increased
$284,338 or 9.90% compared to the same period in 1997 due in part to the
aforementioned items.
Noninterest expenses were $18,573,372 for six month period ending June 30, 1998,
compared to $16,978,259 for the same period 1997, or an increase of 9.40%.
The components of noninterest expenses for the quarter ending and six
months ending June 30, 1998 and 1997, reflect normal increases for personnel
related expenses and general inflation in the cost of services and supplies
purchased by the Company as well as increases in depreciation and computer
processing costs. Noninterest expenses for the quarter ending June
30, 1998 increased $862,001 or 9.99% compared to the same period in 1997.
8
<PAGE>
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.
Income tax expense was $2,199,946 for the six month period ending June 30, 1998,
compared to $2,223,737 for the same period in 1997. Permanent differences
primarily from tax-free securities for the two periods in comparison offset the
additional amount of taxes related to the increase in income over the same
period causing taxes to decrease. The Company continues to invest in assets
whose earnings are given favorable tax treatment, which lowered the effective
tax rate from 29.83% to 28.32%, for the six month periods ended June 30, 1997 to
June 30, 1998, respectively.
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 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. 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 maintains a federal funds position
that provides day-to-day funds to meet liquidity needs and may also obtain
advances from the Federal Home Loan Bank (FHLB) or the treasury tax and loan
note account, in order to meet liquidity needs. 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.
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
9
<PAGE>
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 June 30, 1998, the Bank has met all
capital adequacy requirements to which it is subject.
As of June 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 June 30, 1998
Total Capital .................... $ 103,208 15.6%
(to Risk Weighted Assets)
Tier I Capital ................... $ 94,905 14.3%
(to Risk Weighted Assets)
Tier I Capital ................... $ 94,905 9.5%
(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 $ 17.41 and $16.75 at June 30, 1998 and December 31,
1997, respectively.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
10
<PAGE>
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 June 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 June 30, 1998.
Item 4. Submission of Matters to a Vote of Shareholders
The annual meeting of the shareholders of The Peoples Holding
Company was held on April 14, 1998, for the purpose of electing
five members to the board of directors for a three year term, to
approve a proposal to amend the articles of incorporation to
increase to 15,000,000 the authorized shares of common stock of
the Company, and to ratify the appointment of the independent
auditors. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934.
Election of Directors For Withheld Not Voting
THREE-YEAR TERM
John M. Creekmore 4,573,386 14,780 1,271,306
John W. Smith 4,572,058 16,108 1,271,306
Jimmy S. Threldkeld 4,572,294 15,872 1,271,306
Robert H. Weaver 4,573,386 14,780 1,271,306
J. Larry Young 4,557,105 31,061 1,271,306
For Against Abstain
Approve a proposal to
amend the articles of
incorporation to increase
to 15,000,000 the
authorized shares of
common stock of the
Company 4,517,177 24,162 1,318,133
For Against Abstain
Ratify appointment of
Ernst & Young LLP as
independent auditors
for 1998 4,579,085 331 1,280,750
Item 6(b) Reports on Form 8-K
Form 8-K was not filed during the quarter ending June 30, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: August 13, 1998 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 36,500
<INT-BEARING-DEPOSITS> 818
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 226,597
<INVESTMENTS-CARRYING> 74,679
<INVESTMENTS-MARKET> 75,522
<LOANS> 642,197
<ALLOWANCE> 9,419
<TOTAL-ASSETS> 1,023,177
<DEPOSITS> 879,977
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 12,900
<LONG-TERM> 18,289
0
0
<COMMON> 29,297
<OTHER-SE> 72,713
<TOTAL-LIABILITIES-AND-EQUITY> 1,023,177
<INTEREST-LOAN> 29,310
<INTEREST-INVEST> 8,354
<INTEREST-OTHER> 567
<INTEREST-TOTAL> 38,231
<INTEREST-DEPOSIT> 16,631
<INTEREST-EXPENSE> 17,351
<INTEREST-INCOME-NET> 20,880
<LOAN-LOSSES> 1,281
<SECURITIES-GAINS> 20
<EXPENSE-OTHER> 18,573
<INCOME-PRETAX> 7,769
<INCOME-PRE-EXTRAORDINARY> 7,769
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,569
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<YIELD-ACTUAL> 4.78
<LOANS-NON> 1,156
<LOANS-PAST> 1,981
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,104
<CHARGE-OFFS> 1,259
<RECOVERIES> 293
<ALLOWANCE-CLOSE> 9,419
<ALLOWANCE-DOMESTIC> 9,419
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,419
</TABLE>
