UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 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, 5,859,472 shares outstanding
as of May 12, 1998
1
<PAGE>
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997...............3
Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997......................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 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
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................11
Item 6.(b) Reports on Form 8-K..............................11
Signatures..................................................11
2
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THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31
1998 1997
------------ -----------
(Unaudited) (Note 1)
Assets
Cash and due from banks ................ $ 38,276,988 $ 32,932,007
Federal funds sold ..................... 14,000,000 6,000,000
---------- ----------
Cash and cash equivalents ......... 52,276,988 38,932,007
Interest bearing balances with banks 13,337,005 14,972,568
Securities held-to-maturity (market
value-$65,928,847 and $60,555,766
at March 31, 1998 and December 31,
1997, respectively) ................. 65,223,876 59,893,375
Securities available-for-sale (amortized
cost-$216,708,174 and $187,836,120 at
March 31, 1998 and December 31, 1997,
respectively) ....................... 217,835,216 188,738,354
Loans, net of unearned income ......... 628,181,893 627,945,380
Allowance for loan losses ........... (9,145,895) (9,103,828)
----------- ------------
Net Loans ........................ 619,035,998 618,841,552
Premises and equipment ................. 24,083,237 23,492,657
Other assets ........................... 26,095,935 26,184,367
----------- ------------
Total Assets .................. $ 1,017,888,255 $ 971,054,880
============= ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 121,317,519 $ 120,828,654
Certificates of deposit exceeding
$100,000 ........................ 108,150,650 106,952,104
Interest bearing .................... 649,473,954 607,133,427
------------ ------------
Total Deposits ............ 878,942,123 834,914,185
Treasury tax and loan note account ..... 7,415,868 6,101,276
Borrowings ................. ........... 17,876,724 18,454,080
Other liabilities ...................... 13,532,379 13,434,422
------------ ------------
Total Liabilities ......... $ 917,767,094 $ 872,903,963
Shareholders' Equity
Common Stock, $5 par value-7,500,000
shares authorized, 5,859,472 shares
issued and outstanding at March 31, 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........ 706,655 565,708
Retained earnings ...................... 30,241,350 28,412,053
------------ ------------
Total Shareholders' Equity ... 100,121,161 98,150,917
------------ ------------
Total Liabilities and
Shareholders' Equity ....... $ 1,017,888,255 $ 971,054,880
============= ============
See Notes to Consolidated Financial Statements
3
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
1998 1997
---- ----
(Unaudited)
Interest Income
Loans ................................ $ 14,541,502 $ 13,129,673
Securities:
Taxable ......................... 3,140,091 3,203,063
Tax-exempt ...................... 822,381 719,164
Other ................................ 377,733 206,791
------- -------
Total interest income ...... 18,881,707 17,258,691
Interest Expense
Time deposits exceeding $100,000 ..... 1,448,496 867,639
Other deposits ....................... 6,733,000 6,266,525
Borrowings ........................... 346,271 299,077
------ ------
Total interest expense ..... 8,527,767 7,433,241
--------- ---------
Net interest income ........ 10,353,940 9,825,450
Provision for loan losses .................. 640,668 570,000
------- -------
Net interest income after
provision for loan losses .. 9,713,272 9,255,450
Noninterest income:
Service charges on deposit accounts... 1,697,268 1,598,356
Fees and commission .................. 445,110 440,016
Trust revenue ........................ 180,000 149,700
Gains on sale of securities and loans. 230,039 90,655
Other ................................ 839,191 571,700
------- -------
Total noninterest income ... 3,391,608 2,850,427
Noninterest expense:
Salaries and employee benefits ....... 5,101,579 4,655,620
Net occupancy ........................ 643,821 684,009
Equipment ............................ 497,016 445,062
Other ................................ 2,842,645 2,567,258
--------- ---------
Total noninterest expense... $ 9,085,061 $ 8,351,949
--------- ---------
Income before income taxes ................. 4,019,819 3,753,928
Income taxes ............................... 1,165,094 1,152,762
--------- ---------
Net income ................. $ 2,854,725 $ 2,601,166
========= =========
Basic and diluted earnings per share ....... $ .49 $ .44
===== =====
Weighted average shares outstanding ........ 5,859,472 5,859,472
========= =========
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
1998 1997
---- ----
(Unaudited)
Operating Activities
Net income ............................ $ 2,854,725 $ 2,601,166
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses ............. 640,668 570,000
Provision for depreciation and
amortization ..................... 635,034 618,633
Net amortization (accretion) of
securities premiums/discounts .... 43,054 166,494
Gains on sales/calls of
securities ....................... (230,039) (90,655)
Increase in other liabilities ......... 97,957 938,418
Deferred income taxes (credits)........ 164,136 (98,387)
Losses on sales of premises
and equipment ................... 38,187 103,693
Increase in other assets .............. (61,167) (333,169)
-------- --------
Net Cash Provided by Operating
Activities .................. 4,182,555 4,476,193
Investing Activities
Net decrease (increase) in balances
with other banks ................. 1,635,563 (480,555)
Proceeds from maturities/calls of
securities held-to-maturity ...... 579,400 342,000
Proceeds from maturities/calls of
securities available-for-sale .... 12,444,774 28,706,824
Proceeds from sales of
securities available-for-sale .... 0 6,090,655
Purchases of securities
held-to-maturity ................. (5,895,046) (462,000)
Purchases of securities
available-for-sale ............... (41,374,737) (55,541,198)
Net increase in loans ................. (22,414,244) (14,421,919)
Proceeds from sale of loans ........... 21,555,019 5,512,496
Proceeds from sales of premises and
equipment ....................... 97,392 153,406
Purchases of premises and equipment ... (1,205,441) (1,135,786)
-------- --------
Net Cash Used in Investing
Activities .................. (34,577,320) (31,236,077)
Financing Activities
Net increase in
noninterest-bearing deposits ..... 488,865 4,578,491
Net increase in other interest-bearing
deposits ......................... 43,539,073 12,103,779
Net increase in treasury
tax and loan note account ........ 1,314,592 1,663,573
Increase (decrease) in borrowings ..... (577,356) 4,519,924
Cash dividends paid ................... (1,025,428) (781,335)
-------- --------
Net Cash Provided by Financing
Activities .................. 43,739,746 22,084,432
---------- ----------
Decrease in Cash
and Cash Equivalents ........ 13,344,981 (4,675,452)
---------- ----------
Cash and cash equivalents at
beginning of period ................... 38,932,007 46,874,641
---------- ----------
Cash and cash equivalents at end of period .. $ 52,276,988 $ 42,199,189
========== ==========
Non-cash transactions:
Transfer of loans to other real estate $ 254,150 $ 137,542
======= =======
See Notes to Consolidated Financial Statements
5
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THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The consolidated balance sheet at December 31, 1997 has been derived from the
audited consolidated financial statements at that date. The accompanying
unaudited consolidated financial statements reflect all adjustments (consisting
only of normally recurring accruals) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The statements should be read in conjunction with the summary of accounting
policies and notes to consolidated financial statements included in the
Registrant's annual report for the year ended December 31, 1997. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the rules of the Securities and Exchange Commission.
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.
During the first quarter of 1998 and 1997, total comprehensive income amounted
to $2,995,672 and $1,696,555.
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 Company does not anticipate that the adoption of
this statement will have a significant impact on its 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
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 $1,017,888,255 on March 31, 1998, or 4.82% for the three month
period. Total securities increased from $248,631,729 on December 31, 1997, to
$283,059,092 on March 31, 1998, with the majority of growth in Mortgage-backed
securities. Loans, net of unearned income, increased $236,513 or .04%.
Total deposits for the first three months of 1998 grew from $834,914,185 at
December 31, 1997 to $878,942,123 at March 31, 1998, or an increase of 5.27%,
with the majority of growth in public fund interest bearing demand deposits.
The equity capital to total assets ratio was 9.84% and 10.11% for March
31, 1998 and December 31, 1997, respectively. The decrease is mainly due to
the significant growth in assets funded primarily by deposits. Capital grew
2.01% from December 31, 1997 to March 31, 1998 due to record earnings.
Results of Operations-Quarter Ended March 31, 1998 compared to 1997
- -------------------------------------------------------------------
The Company's net income for the three month period ending March 31, 1998 was
$2,854,725 compared to $2,601,166 from the first quarter of 1997. The increase
in net income for the first quarter of 1998 compared to 1997 is the result of
customary and usual deposit gathering and lending operations. The first quarter
for 1998 and 1997 experienced the same annualized return of average assets of
1.16%.
7
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Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary items of concern in managing net interest income are the
mix and maturity balance between interest-sensitive assets and related
liabilities. Net interest income was $10,353,940 and $9,825,450 for the three
months ending March 31, 1998 and 1997, respectively. Earning assets averaged
$916.6 million for first quarter ending March 31, 1998 compared to $839.0
million for the same period in 1997. The net interest margin was 4.82% and 4.96%
for the three months ending March 31, 1998 and 1997, respectively. The decrease
in net interest margin is due to increases in the volume and rate of costing
liabilities and the subsequent investment of those funds into short-term assets
instead of higher yielding long-term assets. Although net interest margin
decreased, net interest income increased.
The provision for loan losses is an amount which, in the judgement of
management, is necessary to maintain the allowance for loan losses at a level
that is adequate to absorb inherent losses on the Company's current portfolio of
loans. The appropriate level of the allowance is based on a quarterly analysis
of the loan portfolio including consideration of such factors as the risk rating
of individual credits, size and diversity of the portfolio, economic conditions,
prior loss experience, and the results of periodic credit reviews by internal
loan review and regulators. The provision for loan losses totaled $640,668 and
$570,000 for quarters ending March 31, 1998 and 1997, respectively. The
allowance for loan losses as a percentage of net loans outstanding was 1.46% and
1.45% as of March 31, 1998 and December 31, 1997. Net charge-offs to average
loans was .10% for each three month period ending March 31, 1998 and 1997.
Noninterest income, excluding gains from the sales of securities and loans,
was $3,161,569 for the quarter ending March 31, 1998, compared to $2,759,772 for
same period in 1997, or a increase of 14.56%. Service charges increased $98,912
due to the growth in deposits. The increase in other noninterest income was due
in part to increases in revenue from fees charged on credit card loans,
mortgage loans, and deposit accounts of the Company.
Noninterest expenses were $9,085,061 for the quarter ending March 31, 1998,
compared to $8,351,949 for the same period in 1997, or an increase of 8.78%.
Salaries and employee benefits increased 9.58% due to an increase in personnel
to support growth and new facilities. The increase in other noninterest
expenses of approximately $275,000 is due to increases in computer processing
costs, courier costs, and supply costs related to the growth in deposits.
Income tax expense was $1,165,094 for the three months ending March 31, 1998,
compared to $1,152,762 for the same period in 1997. The increase is due to
increased profits for the first quarter of 1998 compared to 1997. The Company
continues to invest in assets whose earnings are given favorable tax treatment.
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
8
<PAGE>
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is a key to assuring liquidity. The Company has worked toward lowering
its dependence on other public funds. This has added more stability to the
Company's core deposit base reducing the dependence on highly liquid assets.
Approximately 88% of the Company's deposits are composed of accounts with
balances less than $100,000. The Company maintains targets for both volatile
dependency and liquidity. At March 31, 1998, these targets were well within
the guidelines set by the Asset-Liability Committee.
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.
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). As of March 31, 1998, the Bank has met all
capital adequacy requirements to which it is subject.
As of March 31, 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.
9
<PAGE>
The Bank's actual capital amounts and applicable ratios are as follows:
Actual
Amount Ratio
------ -----
(000)
As of March 31, 1998
Total Capital .................... $101,319 15.6%
(to Risk Weighted Assets)
Tier I Capital ................... $ 93,215 14.4%
(to Risk Weighted Assets)
Tier I Capital ................... $ 93,215 9.4%
(to 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 Average Assets)
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well
capitalized bank.
Book value per share was $17.09 and $16.75 at March 31, 1998 and December 31,
1997, respectively. Quarterly cash dividends were raised to $.175 per share, up
from $.133 per share during the first quarter of 1997.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
10
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material proceedings pending at
March 31 1998, against the registrant or its subsidiary.
Item 6(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the first
quarter of 1998.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: May 12, 1998 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
11
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> MAR-31-1998
<CASH> 38277
<INT-BEARING-DEPOSITS> 13337
<FED-FUNDS-SOLD> 14000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 217835
<INVESTMENTS-CARRYING> 65224
<INVESTMENTS-MARKET> 65929
<LOANS> 628182
<ALLOWANCE> 9146
<TOTAL-ASSETS> 1017888
<DEPOSITS> 878942
<SHORT-TERM> 7416
<LIABILITIES-OTHER> 13532
<LONG-TERM> 17877
0
0
<COMMON> 29297
<OTHER-SE> 70824
<TOTAL-LIABILITIES-AND-EQUITY> 1017888
<INTEREST-LOAN> 14542
<INTEREST-INVEST> 3962
<INTEREST-OTHER> 378
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<INTEREST-DEPOSIT> 8181
<INTEREST-EXPENSE> 8528
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<EXPENSE-OTHER> 9085
<INCOME-PRETAX> 4020
<INCOME-PRE-EXTRAORDINARY> 4020
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<NET-INCOME> 2855
<EPS-PRIMARY> .49
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<LOANS-PAST> 2213
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