UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1997
Commission file number 1-13253
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:
(Title of Class) Name of each exchange on which registered
- ------------------------------ -----------------------------------------
Common Stock, $5.00 Par Value American Stock Exchange
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_____
Disclosure of delinquent filings pursuant to Item 405 of Regulation S-K
will be contained in the registrant's proxy statement for its 1998 annual
meeting of shareholders, which statement is incorporated by reference in Part
III of this Form 10-K. Yes____ No__X__
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 23, 1998 was $208,743,690.
On March 23, 1998, there were 5,859,472 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Shareholders' Report are incorporated by reference
into Parts I and II of this report.
Portions of annual Proxy Statement dated March 23, 1998, 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, 1997
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, 1997, 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 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 primary 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.
During 1997, the Company acquired Financial Investment Alternatives (FIA).
FIA had been owned by Richard Leahy, a marketing firm, whose parent company was
Lincoln National. The Company paid book value, approximately $1,000, for FIA.
The subsidiary's primary business is the selling of annuities and mutual funds.
<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, 1997.
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, 1997, the Registrant and its subsidiary had total assets of
approximately $971,055,000 and, as such, ranked sixth in Mississippi. The
Registrant receives a large part of its competition from BanCorp South, the
Tupelo branch operation of Deposit Guaranty National Bank, Trustmark National
Bank, and Union Planters Bank of Memphis, Tennessee. On December 31, 1997,
BanCorp South, Deposit Guaranty National Bank, Trustmark National Bank, and
Union Planters had total assets of approximately $4,181,000,000,
$6,772,000,000, $5,545,000,000, and $18,105,000,000, 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 transactions 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.
Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 removed territorial restrictions for interstate bank mergers, effective
May 1, 1997. Out-of-state bank holding companies may establish a bank in
Mississippi only by acquiring a Mississippi bank or Mississippi bank holding
company .
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 earned surplus in
excess of three times the Bank's capital stock.
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, 1997, 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 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, 1997, the Registrant and its subsidiary employed 589 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. During 1997, the Company purchased approximately
$11,032,000 in loans and $15,232,000 in deposits.
Executive Officers of The Registrant
The principal executive officer of the Company and its subsidiary as of
December 31, 1997, is as follows:
Name Age
---- ---
John W. Smith 62
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.
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.
1997 COMPARED TO 1996
INCREASE(DECREASE) DUE TO
-------------------------
VOLUME RATE NET (1)
------ ---- -------
(In Thousands)
Earning assets:
Loans, net of
unearned income ................ $ 5,336 $ (160) $ 5,176
Securities
U. S. government
securities and agencies ...... (232) 3 (229)
Obligations of states and
political subdivisions ....... 372 (75) 297
Mortgage-backed securities ..... 1,151 (25) 1,126
Other securities ............... (29) 6 (23)
Other ............................ (343) 12 (331)
-------- -------- --------
Total earning assets ............. $ 6,255 $ (239) $ 6,016
-------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposit accounts ............... $ (1,059) $ 49 $ (1,010)
Savings accounts ................. 1,036 482 1,518
Time deposits .................... 1,939 345 2,284
Other ............................ 651 116 767
-------- -------- --------
Total interest-bearing
liabilities .................... $ 2,567 $ 992 $ 3,559
-------- -------- --------
Change in net interest
income ......................... $ 3,688 $ (1,231) $ 2,457
======== ======== ========
(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>
1996 COMPARED TO 1995
INCREASE(DECREASE) DUE TO
-------------------------
VOLUME RATE NET (1)
------ ---- -------
(In Thousands)
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>
INVESTMENT PORTFOLIO
The following table sets forth the amortized cost of securities at the
dates indicated:
December 31
-----------
1997 1996 1995
--------- -------- --------
(In Thousands)
U.S. Government and
Agency Securities .... $ 110,684 $ 125,087 $ 99,842
Obligations of State and
Political Subdivisions 59,893 52,051 45,837
Other Securities ....... 77,153 68,610 66,688
------ ------ ------
$ 247,730 $ 245,748 $212,367
========= ========= ========
The following table sets forth the maturity distribution in thousands and
weighted average yield by maturity of securities at December 31, 1997:
<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 ... $ 7,490 5.62% $ 88,848 6.43% $ 14,346 6.67% $
Obligations of
States and
Political
Subdivisions . 3,071 9.08% 11,448 8.97% 33,555 7.73% 11,819 7.32%
Other Securities 19,228 6.43% 52,183 6.38% 5,742 6.72%
------ ------ ----- ------
Total .......... $29,789 $152,479 $ 53,643 $ 11,819
====== ======= ====== ======
</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 35% 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, 1997, 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.
Loans Maturing
--------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
-------- ---------- ----- -----
Commercial,
financial and
agricultural $ 75,443 $ 31,781 $ 13,188 $120,412
Real estate-
construction 22,285 2,041 39 24,365
-------- -------- -------- --------
$ 97,728 $ 33,822 $ 13,227 $144,777
======== ======== ======== ========
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate
---- ----
(In Thousands)
Due after 1 but within 5
years ................. $31,082 $ 2,740
Due after 5 years ....... 13,227
------- ------
$44,309 $ 2,740
======= =======
<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.
<PAGE>
The following table shows the maturity of time deposits over $100,000.
Less than 3 Months $ 46,449,447
3 Months- 6 Months 24,285,177
6 Months-12 Months 28,731,180
Over 12 Months 16,734,492
------------
$ 116,200,296
=============
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, Mississippi 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. 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, 1997, 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 Hernando, Corinth and a new location
west 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, 1997, 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 1997.
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 25 of the Registrant's 1997 Annual Report is incorporated herein by
reference.
At March 20, 1998, the total number of shareholders of the Company's common
stock was 2,333.
The Registrant's common stock trades on the American Stock Exchange under
the symbol PHC.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Information" on Page
24 of the Registrant's 1997 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 26 through 37 of the Registrant's 1997 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 4 through 23 of the Registrant's 1997 Annual Report and
are incorporated herein by reference.
The information on Page 22 of the Registrant's 1997 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 5 of the Company's definitive Proxy Statement,
dated March 23, 1998, which is incorporated herein by reference.
Information concerning executive officers of the Registrant and its subsidiary
appears on Page 6 under the caption "Executive Officers" of the Company's
definitive Proxy Statement, dated March 23, 1998, which is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Summary Compensation Table-Annual
Compensation" on Pages 7 through 10 of the Company's definitive Proxy Statement,
dated March 23, 1998, 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 3 of the Company's definitive Proxy Statement, dated March 23, 1998, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Transactions with Management: on Page 13 of
the Company's definitive Proxy Statement, dated March 23, 1998, 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.
(13) Annual Report to Shareholders for the
year ended December 31, 1997
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) No Form 8-K was filed during the quarter ended December
31, 1997.
(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 23, 1998 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) ..... /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
Frank B. Brooks, Director ..... /s/ Frank B. Brooks
John M. Creekmore, Director ... /s/ John M. Creekmore
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.
C. Larry Michael, Director .... /s/ C. Larry Michael
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,
1997, are incorporated by reference in Item 8.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Income--Years ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows--Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements--December 31, 1997
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
- ------ ----------- ----
13 Annual Report to Shareholders ............... 18
23 Consent of Independent Auditors ............. 53
Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
-----------
1997 1996
---- ----
<S> <C> <C>
Assets
Cash and due from banks ............................................. $ 32,932,007 $ 38,374,641
Federal funds sold .................................................. 6,000,000 8,500,000
--------- ---------
Cash and Cash Equivalents ................ 38,932,007 46,874,641
Interest-bearing balances with banks ................................ 14,972,568 1,824,031
Securities held to maturity (market value - $60,555,766 and
$52,334,931 at December 31, 1997 and 1996, respectively) ... 59,893,375 52,051,251
Securities available for sale (amortized cost - $187,836,120 and
$193,696,615 at December 31, 1997 and 1996, respectively) .. 188,738,354 194,058,997
Loans
Commercial, financial, and agricultural .................... 120,411,789 111,686,473
Real estate - construction ................................. 24,365,187 20,650,887
Real estate - mortgage ..................................... 344,212,179 301,077,552
Consumer ................................................... 148,471,736 137,704,170
Unearned income ............................................ (9,515,511) (8,366,577)
---------- ----------
Total Loans, Net of Unearned Income ...... 627,945,380 562,752,505
Allowance for loan losses .................................. (9,103,828) (9,309,354)
---------- ----------
Net Loans ................................ 618,841,552 553,443,151
Premises and equipment, net ......................................... 23,492,657 21,559,955
Other assets ........................................................ 26,184,367 23,277,326
---------- ----------
Total Assets ............................. $ 971,054,880 $ 893,089,352
============= =============
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing ........................................ $ 120,828,654 $ 118,638,526
Interest-bearing ........................................... 714,085,531 654,203,482
----------- -----------
Total Deposits ........................... 834,914,185 772,842,008
Treasury tax and loan note account .................................. 6,101,276 6,354,142
Borrowings .......................................................... 18,454,080 11,174,638
Other liabilities ................................................... 13,434,422 12,157,744
----------- -----------
Total Liabilities ........................ 872,903,963 802,528,532
Shareholders' Equity
Common stock, $5 par value, 5,859,47200 shares authorized
and 5,859,472(1) shares issued and outstanding at
December 31, 1997 and 1996, respectively ................... 29,297,360 19,533,375
Additional paid-in capital .......................................... 39,875,796 39,875,796
Unrealized gains on securities available for sale, net of tax ....... 565,708 227,214
Retained earnings ................................................... 28,412,053 30,924,435
----------- -----------
Total Shareholders' Equity ............... 98,150,917 90,560,820
----------- -----------
Total Liabilities and Shareholders' Equity $ 971,054,880 $ 893,089,352
============= =============
</TABLE>
(1)After giving effect to the stock dividend payable to shareholders of record
on January 1, 1998. See notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Income
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Loans .............................................. $ 55,650,248 $ 50,580,549 $ 49,321,837
Securities:
Taxable ................................... 13,056,713 12,205,952 10,097,721
Tax-exempt ................................ 2,951,042 2,764,782 2,580,554
Other .............................................. 542,769 873,630 1,008,809
---------- ---------- ----------
Total Interest Income ... 72,200,772 66,424,913 63,008,921
Interest expense
Deposits ........................................... 30,539,899 27,747,241 25,234,441
Borrowings ......................................... 1,263,599 496,584 386,764
---------- ---------- ----------
Total Interest Expense .. 31,803,498 28,243,825 25,621,205
---------- ---------- ----------
Net Interest Income ..... 40,397,274 38,181,088 37,387,716
Provision for loan losses ................................... 2,279,999 2,813,155 2,826,647
---------- ---------- ----------
Net Interest Income After
Provision For Loan Losses 38,117,275 35,367,933 34,561,069
Noninterest income
Service charges on deposit accounts ................ 6,767,810 6,564,831 6,357,181
Fees and commissions ............................... 1,447,221 1,396,941 1,215,810
Trust revenue ...................................... 718,936 643,302 584,273
Securities gains (losses) .......................... (40,990) 110,278 (507,344)
Other .............................................. 3,126,538 2,315,154 3,089,856
---------- ---------- ----------
Total Noninterest Income 12,019,515 11,030,506 10,739,776
Noninterest expense
Salaries and employee benefits ..................... 19,533,212 18,218,221 18,055,318
Net occupancy ...................................... 2,599,021 2,269,122 2,178,314
Equipment .......................................... 1,780,138 1,594,525 1,460,488
Other .............................................. 11,096,352 10,748,255 10,472,018
---------- ---------- ----------
Total Noninterest Expense 35,008,723 32,830,123 32,166,138
---------- ---------- ----------
Income before income taxes .................................. 15,128,067 13,568,316 13,134,707
Income taxes ................................................ 4,487,831 4,052,064 3,930,797
---------- ---------- ----------
Net Income .............. $ 10,640,236 $ 9,516,252 $ 9,203,910
============ ============ ============
Basic and diluted earnings per share ........................ $ 1.82 $ 1.62 $ 1.57
============ ============ ============
Weighted average shares outstanding ......................... 5,859,472 5,859,472 5,859,472
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements Of Shareholders' Equity
<TABLE>
<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, 1995 ............. 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 -
$.46 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 gains on
securities available for sale,
net of tax ...................... (942,048) (942,048)
Net income for 1996 ................ 9,516,252 9,516,252
Stock split effected in the form
of a stock dividend ............. 1,301,915 6,509,575 (6,509,575)
Payment of fractional
shares for stock dividend ...... (24,183) (24,183)
Cash dividends:
$.50 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
Change in unrealized gains on
securities available for sale,
net of tax ...................... 338,494 338,494
Net income for 1997 ................ 10,640,236 10,640,236
Stock split effected in the form
of a stock dividend ............. 1,952,797 9,763,985 (9,763,985)
Payment of fractional
shares for stock dividend ..... (28,892) (28,892)
Cash dividends:
$.57 per share ....... (3,359,741) (3,359,741)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ........... 5,859,472 $ 29,297,360 $ 39,875,796 $ 565,708 $28,412,053 $ 98,150,917
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net income ................................................................ $ 10,640,236 $ 9,516,252 $ 9,203,910
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ............................... 2,279,999 2,813,155 2,826,647
Provision for depreciation and amortization ............. 2,330,332 2,178,791 1,868,370
Net amortization of securities
premiums/discounts ................................... 341,872 70,807 131,421
Gain on sale of loans ................................... (322,974) (585,304)
(Gains) losses on sales/calls of securities ............. 40,990 (110,278) 507,344
Increase in other liabilities ........................... 1,276,678 1,677,659 1,192,858
Deferred income tax credits ............................. (243,132) (179,376) (459,499)
(Gains) losses on sales of premises and equipment ....... 233,374 (16,222) 129,726
Increase in other assets ................................ (2,299,840) (986,023) (461,230)
----------- ----------- -----------
Net Cash Provided By Operating Activities ...... 14,277,535 14,964,765 14,354,243
----------- ----------- -----------
Investing Activities
Net (increase) decrease in balances with other banks ...................... (13,148,537) 6,990,380 (8,625,862)
Proceeds from sales of securities available for sale ...................... 48,987,655 32,600,278 28,989,992
Proceeds from maturities/calls of securities
held to maturity ................................................. 4,244,691 2,996,556 2,495,029
Proceeds from maturities/calls of securities
available for sale ............................................... 71,321,679 54,504,983 65,464,778
Purchases of securities held to maturity .................................. (12,552,000) (9,424,079) (5,270,000)
Purchases of securities available for sale ................................ (114,366,516) (114,018,090) (89,190,035)
Net increase in loans ..................................................... (101,773,280) (43,981,837) (36,849,924)
Proceeds from sale of loans ............................................... 33,290,229 12,690,078
Proceeds from sales of premises and equipment ............................. 61,745 122,049 169,850
Purchases of premises and equipment ....................................... (3,995,955) (2,937,264) (5,119,632)
----------- ----------- -----------
Net Cash Used In Investing Activities .......... (87,930,289) (73,147,024) (35,245,726)
----------- ----------- -----------
Financing Activities
Net increase (decrease) in noninterest-bearing deposits ................... 2,190,128 1,743,607 (1,816,953)
Net increase in interest-bearing deposits ................................. 59,882,049 31,553,102 45,082,543
Net increase (decrease) in treasury tax and loan note account ............. (252,866) 3,953,647 (714,688)
Net increase (decrease) in borrowings ..................................... 7,279,442 6,861,529 (337,379)
Cash dividends paid ....................................................... (3,359,741) (2,949,621) (2,676,398)
Cash paid on fractional shares for stock dividend ......................... (28,892) (24,183)
----------- ----------- -----------
Net Cash Provided By Financing Activities ...... 65,710,120 41,138,081 39,537,125
----------- ----------- -----------
Increase (Decrease) In Cash and Cash Equivalents (7,942,634) (17,044,178) 18,645,642
Cash and Cash Equivalents at Beginning of Year ..................................... 46,874,641 63,918,819 45,273,177
----------- ----------- -----------
Cash and Cash Equivalents at End of Year ....... $ 38,932,007 $ 46,874,641 $ 63,918,819
============= ============= =============
Non-Cash Transactions
Transfer of loans to other real estate .................................... $ 1,127,625 $ 1,224,148 $ 2,284,916
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Notes To Consolidated Financial Statements December 31, 1997
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). The accounting and reporting policies of the Company conform
to generally accepted accounting principles and general practices within the
financial services industry.
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.
Securities: 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 or interest 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. This
method is not materially different from the results which would be obtained had
the Company implemented Statement of Financial Accounting Standards (SFAS) 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.
The allowance for loan losses related to loans that are identified for
evaluation in accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which was amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," is
based on discounted cash flows using the loan's initial effective interest rate
or fair value of the collateral for certain collateral-dependent 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.
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.
<PAGE>
Other Real Estate: Other real estate of $774,265 and $622,406 at December 31,
1997 and 1996, 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. 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 $150,050, $409,590, and $95,267 for the years ending
December 31, 1997, 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 the straight-line method over 13
to 15 years. Goodwill was $5,885,806 and $4,250,139 at December 31, 1997 and
1996, respectively. Total amortization of intangible assets was $562,198 for
year ending December 31, 1997, and $583,817 for years ending December 31, 1996
and 1995, respectively.
Mortgage Servicing Rights: Beginning in 1996, the Company adopted the provisions
of SFAS No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB
Statement No. 65." SFAS 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. SFAS No. 122 was amended by SFAS No. 125, mentioned below. 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.
Other Accounting Pronouncements: During the first quarter of 1996, the Company
adopted the provisions of SFAS 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. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of.
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS 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 adoption of this Statement did not have a
material effect on the Company's consolidated financial condition or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The Statement was developed in response to financial statement users' concerns
about the increasing number of items that bypass the income statement, such as
changes in value of available-for-sale securities, and the effort required to
analyze them. Because this Statement addresses how supplemental financial
information is disclosed in annual and interim reports, the adoption will have
no material impact on the consolidated financial statements. SFAS No. 130 will
become effective in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the
reporting of financial information from operating segments, using the management
approach, in annual and interim financial statements. This Statement requires
that financial information be reported on the basis that it is reported
internally for evaluating segment performance and deciding how to allocate
resources to segments. Because this Statement addresses how supplemental
financial information is disclosed in annual and interim reports, the adoption
will have no material impact on the consolidated financial statements. SFAS No.
131 will become effective in 1998.
Income Taxes: Income taxes are accounted for under the liability method. 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.
<PAGE>
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: In February 1997, the FASB issued SFAS No. 128, "Earnings
Per Share." Statement No. 128 simplifies the calculation of earnings per share
(EPS) standards, and is effective for both interim and annual periods ending
after December 15, 1997. Earnings per share is based on the weighted average
number of shares outstanding during each year adjusted retroactively for all
stock dividends. In December 1997, the Company declared a three-for-two stock
split effected in the form of a fifty percent stock dividend to shareholders of
record on January 1, 1998. Previously reported per share amounts have been
restated for this stock dividend. All earnings per share amounts for all periods
presented have been restated to conform to SFAS No. 128 requirements.
Statements of Cash Flows: Cash equivalents include cash and due from banks and
federal funds sold. Generally, federal funds are purchased and sold for one-day
periods. During 1997, 1996, and 1995, cash paid for interest was $31,348,894,
$27,950,528, and $24,254,488, respectively. During 1997, 1996, and 1995, cash
paid for income taxes was $5,090,739, $3,244,535, and $4,455,448, respectively.
Reclassifications: Certain reclassifications have been made to the 1996 and 1995
consolidated financial statements to conform with the 1997 presentation.
Note B - Acquisitions
Effective October 1997, the Company purchased approximately $11,036,000 of
selected assets and assumed approximately $15,232,000 of deposit liabilities
from one branch office of Magnolia Federal Bank for Savings located in Grenada,
Mississippi. Goodwill of approximately $2,123,000 was recorded in connection
with this acquisition.
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 consolidated
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
-----------------------------------------------------------------
1997 1996
------------------------------ -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks .......... $ 32,932,007 $ 32,932,007 $ 38,374,641 $ 38,374,641
Federal funds sold ............... 6,000,000 6,000,000 8,500,000 8,500,000
Interest-bearing balances
with banks .............. 14,972,568 14,972,568 1,824,031 1,824,031
Securities ....................... 248,631,729 249,294,120 246,110,248 246,393,928
Loans net of unearned income ..... 627,945,380 629,981,000 562,752,505 565,252,000
Allowance for loan losses (9,103,828) (9,103,828) (9,309,354) (9,309,354)
----------- ----------- ----------- -----------
Net loans ........................ 618,841,552 620,877,172 553,443,151 555,942,646
Financial liabilities
Deposits ......................... 834,914,185 834,438,185 772,842,008 771,759,484
Treasury tax and loan note account 6,101,276 6,101,276 6,354,142 6,354,142
Borrowings ....................... 18,454,080 18,447,000 11,174,638 10,927,000
Off-balance sheet
Standby letters of credit ........ 11,703,017 11,715,738 9,450,429 9,165,903
Commitments to extend credit ..... 162,751,474 164,556,994 127,257,000 127,918,790
</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, 1997, was approximately $12,953,000.
Note E - Securities
The amortized cost and estimated market values of securities held to maturity
and available for sale at December 31, 1997, 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..... $ 59,893,375 $ 985,552 $ (323,161) $ 60,555,766
============= ============= ============= =============
Securities Available For Sale
------------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
------------- ---------------- ----------------- --------------
U.S. Treasury securities ........... $ 70,634,451 $ 351,741 $ (11,134) $ 70,975,058
Obligations of other U.S. Government
agencies and corporations . 40,049,109 116,328 (35,969) 40,129,468
Mortgage-backed securities ......... 74,265,395 572,156 (90,888) 74,746,663
Preferred stock .................... 2,887,165 2,887,165
----------- ----------- ----------- -----------
$ 187,836,120 $ 1,040,225 $ (137,991) $ 188,738,354
============= ============= ============= =============
</TABLE>
<PAGE>
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
============= ============= ============= =============
Securities Available For Sale
------------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
------------- ---------------- ----------------- --------------
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>
The amortized cost and estimated market value of securities held to maturity and
available for sale at December 31, 1997, 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.
Estimated
Amortized Market
Securities Held to Maturity Cost Value
- --------------------------- ------------- -------------
Due in one year or less ................. $ 3,071,018 $ 3,097,127
Due after one year through five years ... 11,448,418 11,650,701
Due after five years through ten years .. 33,555,847 33,996,337
Due after ten years ..................... 11,818,092 11,811,601
----------- -----------
$ 59,893,375 $ 60,555,766
============= =============
Estimated
Amortized Market
Securities Available for Sale Cost Value
- ----------------------------- ------------- -------------
Due in one year or less ................. $ 7,490,121 $ 7,467,343
Due after one year through five years ... 88,848,180 89,263,059
Due after five years through ten years .. 14,345,259 14,374,124
----------- -----------
110,683,560 111,104,526
Mortgage-backed securities .............. 74,265,395 74,746,663
Preferred stock ......................... 2,887,165 2,887,165
----------- -----------
$ 187,836,120 $ 188,738,354
============= =============
<PAGE>
At December 31, 1997 and 1996, securities with an amortized cost of
approximately $157,285,000 and $140,895,000, respectively, were pledged to
secure government, public, and trust deposits.
Note F - Deposits
Deposit accounts are summarized as follows:
December 31
--------------------------
1997 1996
--------------------------
Noninterest-bearing ...................... $120,828,654 $118,638,526
Interest-bearing DDA ..................... 70,907,118 50,313,113
Savings accounts ......................... 44,770,644 43,798,995
Money Market accounts .................... 139,583,898 141,138,850
Certificates of deposit exceeding $100,000 106,952,104 89,435,562
Other time deposits ...................... 351,871,767 329,516,962
----------- -----------
Total ........................... $834,914,185 $772,842,008
============ ============
At December 31, 1997, the approximate scheduled maturities of time deposits are
as follows:
(In Thousands)
1998 ............................ $ 361,345
1999 ............................ 54,132
2000 ............................ 24,617
2001 ............................ 13,672
2002 and thereafter ............. 5,058
---------
Total ........................... $ 458,824
===========
Note G - Borrowings
Borrowings primarily consist of balances due to the Federal Home Loan Bank of
$18,451,547 and $11,168,601 at December 31, 1997 and 1996, respectively.
During 1997, the Company obtained the following advances, totaling $9,400,000,
with corresponding interest rates and maturity dates from the Federal Home Loan
Bank. All advances are secured by one-to-four family first mortgages equal to
the amount of outstanding aggregate advances.
Advance Amount Interest Rate Maturity Date
-------------- ------------- ----------------
$ 5,000,000 6.44% February 1, 2007
400,000 6.44% August 3, 2009
500,000 6.34% November 1, 2007
3,500,000 6.46% January 1, 2018
----------
$ 9,400,000
===========
During 1996, the Company obtained two advances from the Federal Home Loan Bank
totaling $8,092,000. These 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.
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, 1997:
1998 ......................... $ 2,347,965
1999 ......................... 2,169,150
2000 ......................... 1,419,618
2001 ......................... 4,334,363
2002 ......................... 3,460,751
Thereafter ................... 4,719,700
-----------
Total ........................ $ 18,451,547
============
<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 $2,806,735 and $4,362,612 at
December 31, 1997 and 1996, respectively. During 1997, $2,486,325 of new loans
were made and payments received totaled $4,042,202. Total deposits for these
related parties at December 31, 1997, were approximately $1,795,000.
Note I - Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year .................. $ 9,309,354 $ 8,815,130 $ 8,182,801
Charge-offs ................................... (3,043,631) (2,592,719) (2,438,312)
Recoveries .................................... 558,106 273,788 243,994
---------- ---------- ----------
Net Charge-offs ...................... (2,485,525) (2,318,931) (2,194,318)
Provision for loan losses ..................... 2,279,999 2,813,155 2,826,647
---------- ---------- ----------
Balance at End of Year $ 9,103,828 $ 9,309,354 $ 8,815,130
=========== =========== ===========
</TABLE>
Impaired loans recognized in conformity with SFAS No. 114, as amended by
SFAS No. 118, were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Impaired loans with a related
allowance for loan losses .................. $ 2,486,432 $ 2,945,766 $ 1,545,960
Impaired loans without a specific
allowance for loan losses .................. 890,779 1,057,699 1,328,209
--------- --------- ---------
Total impaired loans .......................... $ 3,377,211 $ 4,003,465 $ 2,874,169
=========== =========== ===========
Specific allowance for loan losses
for impaired loans ......................... $ 778,298 $ 733,660 $ 572,281
Average recorded investment in impaired loans . $ 3,690,000 $ 3,439,000 $ 2,500,000
Interest income recognized using the
accrual basis of income recognition ........ $ 236,676 $ 335,785 $ 159,104
Interest income recognized using the
cash basis of income recognition ........... 18,633 70,108 44,233
--------- --------- ---------
Total interest income recognized
on impaired loans .................... $ 255,309 $ 405,893 $ 203,337
=========== =========== ===========
</TABLE>
<PAGE>
Note J - Nonaccrual and Past Due Loans
Nonaccrual and past due loans were as follows:
December 31
----------------------------
1997 1996
------------ ------------
Nonaccrual loans outstanding ................... $ 1,070,380 $ 1,654,650
Accruing loans past due 90 days
or more outstanding ......................... 3,466,099 2,747,244
At December 31, 1997 and 1996, 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:
December 31
----------------------------
1997 1996
------------ ------------
Land ....................................... $ 5,185,199 $ 3,801,414
Premises ................................... 19,422,698 18,641,997
Equipment, furniture, and fixtures ......... 13,879,871 13,220,979
Construction in progress ................... 1,009,488 842,360
----------- -----------
39,497,256 36,506,750
Accumulated depreciation and amortization .. (16,004,599) (14,946,795)
----------- -----------
$ 23,492,657 $ 21,559,955
============ ============
Depreciation expense ....................... $ 1,768,134 $ 1,594,525
============ ============
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 recognized as the deferred tax assets were determined to
be realizable in future years. This determination was based on the CompanyOs
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, 1997 and 1996, are as
follows:
(In Thousands)
----------------------
1997 1996
----------------------
Deferred tax assets
Allowance for loan losses ............... $ 3,396 $ 3,474
Deferred compensation ................... 1,298 1,181
Other ................................... 267 203
------ ------
Total deferred tax assets ............ 4,961 4,858
------ ------
Deferred tax liabilities
Depreciation ............................ 1,245 1,244
Net unrealized gains on securities
available for sale ................... 337 135
Other ................................... 793 934
------ ------
Total deferred tax liabilities ....... 2,375 2,313
------ ------
Net deferred tax assets at end of year $ 2,586 $ 2,545
========= =========
<PAGE>
Significant components of the provision for income taxes (credits) are as
follows:
1997 1996 1995
----------- ----------- -----------
Current
Federal ................ $ 4,311,449 $ 3,902,276 $ 3,981,791
State .................. 419,514 329,164 408,505
---------- ---------- ----------
4,730,963 4,231,440 4,390,296
---------- ---------- ----------
Deferred
Federal ................ (210,541) (155,331) (397,904)
State .................. (32,591) (24,045) (61,595)
---------- ---------- ----------
(243,132) (179,376) (459,499)
---------- ---------- ----------
$ 4,487,831 $ 4,052,064 $ 3,930,797
=========== =========== ===========
The reconciliation of income taxes (credits) computed at the United States
federal statutory tax rates to the provision for income taxes is:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate ............ $ 5,294,823 35.0% $ 4,748,911 35.0% $ 4,597,147 35.0%
Tax-exempt interest income ......... (1,200,501) (7.9%) (1,046,562) (7.7%) (965,064) (7.3%)
State income tax, net of federal
deduction ....................... 251,500 1.7% 198,327 1.5% 225,492 1.7%
Amortization of intangible assets .. 57,990 0.4% 70,996 0.5% 70,146 0.5%
Dividends received deduction ....... (11,297) (0.1%) (15,941) (0.1%) (23,152) (0.2%)
Other items - net .................. 95,316 0.6% 96,333 0.7% 26,228 0.2%
---------- ------ ---------- ------ ---------- ------
$ 4,487,831 29.7% $ 4,052,064 29.9% $ 3,930,797 29.9%
=========== ====== =========== ====== =========== ======
</TABLE>
Income taxes provided on gains (losses) on the sales of securities were
approximately $(14,000), $37,000, and $(189,000) for the years ended December
31, 1997, 1996, and 1995, 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, 1997, the unrestricted
surplus was approximately $82,090,000.
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, 1997, the maximum amount available for transfer from the Bank to
the Company in the form of loans was 11% of consolidated net assets. There were
no loans outstanding from the Bank to the Company at December 31, 1997.
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 SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits." 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 year ended December 31, 1996. The
SFAS No. 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 SFAS
No. 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
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated
benefits, all of which are vested at
December 31, 1997 and 1996 .............................. $(11,236,839) $ (9,600,413)
============ ============
Plan assets at fair value .................................. $ 12,095,863 $ 10,946,421
Projected benefit obligation ............................... (11,236,839) (9,600,413)
----------- -----------
Plan assets in excess of projected benefit obligation ... 859,024 1,346,008
Prior service cost not yet recognized in net periodic cost . 349,600
Unrecognized net loss from past experience
different from that assumed ............................. 177,870
----------- -----------
Prepaid pension cost ....................................... $ 1,386,494 $ 1,346,008
============ ============
</TABLE>
Net pension expense (income), as determined by consulting actuaries, included
the following components:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service costs-D benefits earned during the year . $ $ 543,211 $ 440,232
Interest cost on projected benefit obligation ... 788,562 917,668 794,954
Actual return on plan assets .................... (1,669,291) (401,706) (1,696,670)
Net amortization and deferral ................... 840,243 (440,174) 1,093,212
---------- ---------- ----------
Net pension expense(income) ..................... $ (40,486) $ 618,999 $ 631,728
=========== =========== ===========
</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 7.5% and 5.0%, respectively at December 31,
1997, and 8.0% and 5.0%, respectively at December 31, 1996. The expected
long-term rate of return on investments was 8.0% for 1997 and 9.25% for 1996 and
1995. Plan assets consist mainly of U. S. Treasury obligations and equity
securities. The actual return was 17.5%, 5.6%, and 20.8% for years ending 1997,
1996, and 1995, respectively.
Effective January 1, 1997, the Company adopted two defined contribution plans: a
money purchase pension plan and a 401(k) plan. The money purchase pension plan
is a noncontributory pension plan. The Company contributes 5% of compensation
for each participant annually into this plan. The Company contributed $650,976
to the money purchase pension plan in 1997. The 401(k) plan is a contributory
plan. Employees may contribute up to 10% of pre-tax earnings into this plan. In
addition, the Company provides 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
contributed $368,448 to the 401(k) plan in 1997.
The Company and its subsidiary also sponsor an employee stock ownership plan
covering substantially 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 $100,000, $325,000,
and $400,000 in 1997, 1996, and 1995, respectively.
<PAGE>
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 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions."
The following table presents the amounts recognized in the Company's
consolidated balance sheets, as determined by consulting actuaries:
December 31
-------------------------
1997 1996
----------- -----------
Accumulated postretirement benefit obligation
Retirees .................................... $ (105,648) $ (78,983)
Fully eligible active plan participants ..... (98,460) (205,452)
Other active plan participants .............. (238,314) (125,056)
--------- ---------
Accumulated postretirement benefit obligation .. (442,422) (409,491)
Unrecognized net gain ....................... (31,204) (41,587)
--------- ---------
Accrued postretirement benefit cost ...... $ (473,626) $ (451,078)
========== ==========
Net periodic postretirement benefit cost, as determined by consulting actuaries,
includes the following components:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost .................................. $ 24,852 $ 23,288 $ 20,600
Interest cost ................................. 31,772 27,086 19,600
Amortization of net gain from earlier periods . (47) (2,450) (2,100)
Special termination benefits cost ............. 43,823
-------- -------- --------
Net periodic postretirement benefit cost ... $ 56,577 $ 91,747 $ 38,100
========= ========= =========
</TABLE>
A curtailment resulted from special termination benefits offered in 1996, 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, 1997, and for the year then ended. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
7.5% and 8.0% at December 31, 1997 and 1996, respectively.
Note O - Other Noninterest Expenses
Components of other noninterest expenses which exceed 1% of total revenues were
as follows:
1997 1996 1995
----------- ----------- -----------
Noninterest Expense
Computer processing cost ........ $ 2,739,829 $ 2,388,267 $ 2,133,604
FDIC/state banking assessments .. 786,358 1,145,127
Stationery and supplies ......... 783,625
<PAGE>
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 managementOs credit assessment of the customer.
The Company's unfunded loan commitments (unfunded loans and unused lines of
credit) and standby letters of credit outstanding at December 31, 1997, were
approximately $162,751,000 and $11,703,000, respectively, compared to December
31, 1996, which were approximately $127,257,000 and $9,450,000, 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
BankOs 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, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios of 10%, 6%, and 5%, respectively. 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:
(In Thousands)
---------------------
Actual
---------------------
Amount Ratio
-------- -----
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)
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)
<PAGE>
Note R - The Peoples Holding Company (Parent Company Only)
Condensed Financial Information
Balance Sheets
<TABLE>
<CAPTION>
December 31
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash* .......................................... $ 58,909 $ 36,840
Interest-bearing balances with banks* .......... 86,454
Dividends receivable* .......................... 859,468 781,335
Investment in bank subsidiary* ................. 98,242,880 90,508,062
Other assets ................................... 165 165
----------- -----------
Total Assets ................................ $ 99,161,422 $ 91,412,856
============ ============
Liabilities and ShareholdersO Equity
Dividends payable .............................. $ 859,468 $ 781,335
Accrued interest payable and other liabilities . 151,037 70,701
Shareholders' equity ........................... 98,150,917 90,560,820
----------- -----------
Total Liabilities and Shareholders' Equity .. $ 99,161,422 $ 91,412,856
============ ============
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income
Dividends from bank subsidiary* ....... $ 3,359,741 $ 3,049,624 $ 2,776,398
Other dividends ....................... 46,109 41,126 59,025
Other income .......................... 1,113
Interest income from bank subsidiary* . 2,341 1,904 1,042
---------- ---------- ----------
3,409,304 3,092,654 2,836,465
Expenses
Other ................................. 251,389 177,129 213,408
---------- ---------- ----------
Income before income tax credits and
equity in undistributed net income of
bank subsidiary ....................... 3,157,915 2,915,525 2,623,057
Income tax credits ...................... (85,997) (61,171) (66,184)
---------- ---------- ----------
3,243,912 2,976,696 2,689,241
Equity in undistributed net
income of bank subsidiary* ............ 7,396,324 6,539,556 6,514,669
---------- ---------- ----------
Net Income $10,640,236 $ 9,516,252 $ 9,203,910
=========== =========== ===========
</TABLE>
*Eliminated in consolidation.
<PAGE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net income ............................................. $ 10,640,236 $ 9,516,252 $ 9,203,910
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income
of bank subsidiary ................................ (7,396,324) (6,539,556) (6,514,669)
Increase in dividends receivable .................... (78,133) (97,583) (80,504)
Decrease in other assets ............................ 70,200
Increase in other liabilities ....................... 158,469 105,136 105,444
----------- ----------- -----------
Net Cash Provided By Operating Activities ........... 3,324,248 2,984,249 2,784,381
Investing Activities
Maturity (purchase) of certificates of deposit ......... 86,454 (5,412) (81,042)
----------- ----------- -----------
Net Cash Provided By (Used In) Investing Activities . 86,454 (5,412) (81,042)
Financing Activities
Cash dividends ......................................... (3,359,741) (2,949,621) (2,676,398)
Payment of fractional shares on stock dividend ......... (28,892) (24,183)
----------- ----------- -----------
Net Cash Used In Financing Activities ............... (3,388,633) (2,973,804) (2,676,398)
----------- ----------- -----------
Increase In Cash .................................... 22,069 5,033 26,941
Cash At Beginning Of Year .............................. 36,840 31,807 4,866
----------- ----------- -----------
Cash At End Of Year ................................. $ 58,909 $ 36,840 $ 31,807
============ ============ ============
</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, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
Mar 31 June 30 Sept 30 Dec 31
------------ ------------ ------------ ------------
1997
<S> <C> <C> <C> <C>
Interest income ...................... $ 17,258,691 $ 17,907,845 $ 18,370,441 $ 18,663,795
Interest expense ..................... 7,433,241 7,868,223 8,155,783 8,346,251
Net interest income .................. 9,825,450 10,039,622 10,214,658 10,317,544
Provision for loan losses ............ 570,000 570,000 569,999 570,000
Noninterest income ................... 2,850,427 2,858,052 3,059,405 3,251,631
Noninterest expense .................. 8,351,949 8,626,310 9,099,332 8,931,132
Income before income taxes ........... 3,753,928 3,701,364 3,604,732 4,068,043
Income taxes ......................... 1,152,762 1,070,975 1,057,456 1,206,638
Net income ........................... 2,601,166 2,630,389 2,547,276 2,861,405
Basic and diluted earnings per share . $ .44 $ .45 $ .44 $ .49
1996
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 expense .................. 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
Basic and diluted earnings per share . $ .39 $ .39 $ .39 $ .45
</TABLE>
The above per share amounts reflect the three-for-two stock split effected in
the form of a stock dividend to shareholders of record on January 1, 1998.
Note T - Contingent Liabilities
Various claims and lawsuits, incidental to the ordinary course of business, are
pending against the Company and the Bank. 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>
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, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996 , and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Memphis, Tennessee
January 22, 1998
<PAGE>
Selected Financial Information
(Not covered by Report of Independent Auditors)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
For the year ended December 31
<S> <C> <C> <C> <C> <C>
Interest Income ............. $ 72,200,772 $ 66,424,913 $ 63,008,921 $ 53,069,453 $ 48,439,225
Interest Expense ............ 31,803,498 28,243,825 25,621,205 18,890,081 16,963,155
Provision for Loan Losses ... 2,279,999 2,813,155 2,826,647 2,001,010 2,865,530
Noninterest Income .......... 12,019,515 11,030,506 10,739,776 9,828,683 9,470,239
Noninterest Expense ......... 35,008,723 32,830,123 32,166,138 31,177,221 27,801,501
Income Before Taxes ......... 15,128,067 13,568,316 13,134,707 10,829,824 10,279,278
Income Taxes ................ 4,487,831 4,052,064 3,930,797 2,620,904 3,066,504
Cumulative Effect of Changes
in Accounting Principles .. 522,518
Net Income .................. 10,640,236 9,516,252 9,203,910 8,208,920 7,735,292
Per Common Share(1)
Net Income .................. $ 1.82 $ 1.62 $ 1.57 $ 1.40 $ 1.32
Book Value at December 31 ... 16.75 15.46 14.50 12.58 12.19
Market Value at December 31 . 35.67 24.50 19.55 15.55 14.93
Cash Dividends Declared
and Paid .................. .57 .50 .46 .40 .37
Total at Year-End
Loans, Net of
Unearned Income ........... $ 627,945,380 $ 562,752,505 $ 522,313,747 $ 502,047,831 $ 439,876,598
Allowance for Loan Losses ... 9,103,828 9,309,354 8,815,130 8,182,801 6,387,902
Securities .................. 248,631,729 246,110,248 214,218,943 210,148,446 228,509,922
Assets ...................... 971,054,880 893,089,352 841,699,408 787,066,488 739,311,816
Deposits .................... 834,914,185 772,842,008 739,545,299 696,279,709 655,545,060
Borrowings .................. 18,454,080 11,174,638 4,313,109 4,650,488 259,797
Shareholders' Equity ........ 98,150,917 90,560,820 84,960,420 73,733,881 71,438,180
Selected Ratios
Return on Average
Total Assets .............. 1.14% 1.10% 1.13% 1.05% 1.07%
Shareholders' Equity ...... 11.25% 10.88% 11.45% 11.24% 11.24%
Average Shareholders' Equity
to Average Assets ......... 10.15% 10.07% 9.83% 9.34% 9.52%
At December 31
Shareholders' Equity
to Assets ............... 10.11% 10.14% 10.09% 9.37% 9.66%
Tier 1 Leverage ........... 9.86% 9.91% 9.67% 9.22% 9.52%
Risk-Based Capital Ratios
Tier 1 .................. 14.46% 15.10% 14.87% 14.86% 17.40%
Total (8.00% Required) .. 15.71% 16.35% 16.14% 16.12% 18.65%
Allowance for Loan Losses
to Total Loans .......... 1.45% 1.65% 1.69% 1.63% 1.45%
Allowance for Loan Losses
to Nonperforming Loans .. 200.68% 211.50% 257.03% 394.57% 137.15%
Nonperforming Loans to
Total Loans ............. .72% .78% .66% .42% 1.07%
Dividend Payout ........... 31.85% 31.25% 29.08% 29.03% 29.41%
</TABLE>
(1)Per common share amounts restated for SFAS No. 128 and the stock split.
<PAGE>
The public market for The Peoples Holding Company common stock is limited.
Effective August 18, 1997, the stock began trading on the American Stock
Exchange under the ticker symbol PHC. Previously, the stock was listed on the
National Association of Securities Dealers Automated Quotations system (NASDAQ)
and was traded in the local over-the-counter market. High and low prices for the
first and second quarter of 1997 and all of 1996 are reflective of actual trades
as reported in the NASDAQ Stock Bulletin. High and low prices for the third and
fourth quarters of 1997 are reflective of actual trades as reported by the
American Stock Exchange. Dividends per share and market prices have been
adjusted to reflect the fifty percent stock dividend issued in 1998. At December
31, 1997, there were approximately 2,400 shareholders of record.
DIVIDENDS PRICES
PERIOD PER SHARE LOW HIGH
---------------- --------- ------- -------
1997
1st Quarter .... $ .133 $ 23.66 $ 26.00
2nd Quarter .... .147 23.83 26.67
3rd Quarter .... .147 25.67 28.67
4th Quarter .... .147 27.50 37.00
1996
1st Quarter .... $ .117 $ 21.78 $ 23.56
2nd Quarter .... .127 22.83 24.00
3rd Quarter .... .127 23.33 24.67
4th Quarter .... .133 23.67 25.33
<PAGE>
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 41 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, the Delta State University, and the State of Mississippi
Department of Wildlife, Fisheries & Parks 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. During the last quarter of
1997, the Company acquired Financial Investment Alternatives, Inc. This
subsidiary offers annuities and mutual funds.
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 per share data is restated to reflect all stock
dividends declared through December 31, 1997.
The Company ended 1997 with assets totaling $971,054,880, up from the prior year
total of $893,089,352. This represented a 8.73% growth compared to 6.1% for
1996. Earnings were up 11.81% from the previous year with net income surpassing
$10,640,000.
Effective October 1997, the Company purchased approximately $11,036,000 of
assets and assumed approximately $15,232,000 of deposit liabilities from one
branch office of Magnolia Federal Bank for Savings located in Grenada,
Mississippi. Goodwill of approximately $2,123,000 was recorded regarding the
acquisition.
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 64.7% and 63.0% of the total assets at
December 31, 1997 and 1996, respectively. Overall loan growth in 1997 was
11.58%, with the most significant percentage growth in real estate-construction
and real estate-mortgage loans, while commercial and consumer loans increased
proportionately. 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 7.74% during 1996, with the most significant growth in real
estate-construction and real estate-mortgage loans.
The table below sets forth loans outstanding, according to loan type, at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural ............ $ 120,411,789 $ 111,686,473 $ 107,558,223 $ 98,767,393 $ 106,293,337
Real estate - construction . 24,365,187 20,650,887 16,850,556 18,188,860 25,967,773
Real estate - mortgage ..... 344,212,179 301,077,552 259,918,417 253,153,672 220,363,067
Consumer ................... 148,471,736 137,704,170 149,218,137 143,948,292 97,095,734
Unearned income ............ (9,515,511) (8,366,577) (11,231,586) (12,010,336) (9,843,313)
------------ ------------ ------------ ------------ ------------
Total loans, net of
unearned income ....... $ 627,945,380 $ 562,752,505 $ 522,313,747 $ 502,047,881 $ 439,876,598
============= ============= ============= ============= =============
</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 $2,521,481 or 1.02%, at December 31, 1997,
compared to December 31, 1996. The most significant increase is in obligations
of states and political subdivisions, which increased 15.07%. Mortgage-backed
securities increased 12.89% in 1997 compared to 1996. All other investment
categories decreased slightly with the exception of preferred stock, which
increased $164,400 or 6.04% in 1997 compared to 1996.
The securities portfolio was up $31,891,305 or 14.89% at December 31, 1996,
compared to December 31, 1995. The most significant increase was 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 68.20%. The securities portfolio represented 25.61% and
27.56% of assets at December 31, 1997 and 1996, 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 1997 or 1996. 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
$6,000,000 and $8,500,000 at December 31, 1997 and 1996, respectively. The
changes in these balances between periods are typical of fluctuations in the
availability of funds 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 3.39% and 4.30% of total
assets at December 31, 1997 and 1996, respectively. These funds are available
for meeting day-to-day cash requirements inclusive of reserves required to be
held by the Federal Reserve Bank. During 1996, the Company implemented changes,
allowed by The Federal Reserve Bank regarding reserve requirements, thereby
increasing the utilization of earning assets. The balance in cash may fluctuate
significantly based on bank activity.
Net premises and equipment were $23,492,657 and $21,559,955 at December 31, 1997
and 1996, respectively. During 1997, the Company consolidated two aging branches
in Grenada to a new facility, consolidated the Water Valley branches into one
branch and constructed a new branch in Aberdeen. Another branch is nearing
completion in Tupelo. The consolidation and construction of new branches were
completed to improve services to the respective communities. 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 $26,184,367 and $23,277,326 at December 31, 1997 and 1996,
respectively. The major accounts in this category are interest earned not
collected, prepaid expenses, intangible assets, deferred taxes, cash surrender
value of insurance, and other real estate owned. Interest earned not collected
at December 31, 1997, totaled $8,990,338, down from $9,112,058 at the end of
1996. Prepaid expenses were $1,632,712 and $1,761,528 at December 31, 1997
and 1996, respectively.
Intangible assets, resulting from bank acquisitions, totaled $5,885,806 and
$4,250,139 at December 31, 1997 and 1996, respectively. These intangibles are
being amortized over a period of 13 to 15 years. The increase at December 31,
1997 compared to December 31, 1996, is due to the acquisition of one branch
office of Magnolia Federal Bank for Savings.
Capitalized mortgage servicing rights totaled $462,191 and $224,593 at December
31, 1997 and 1996, respectively. The increase corresponds to the increase in
residential mortgage loans. 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.
Cash surrender value of insurance equaled $4,593,024 and $3,772,620 at December
31, 1997 and 1996, respectively. The Company maintains life insurance policies
on key members of management and records the resulting cash surrender value.
<PAGE>
The Company relies on deposits as its major source of funds. Noninterest-bearing
deposits were $120,828,654 and $118,638,526 at December 31, 1997 and 1996,
respectively. This represented 12.44% and 13.28% of total assets at December 31,
1997 and 1996, respectively. The increase of 1.85% for 1997 compared to 1996,
and the increase of 1.50% for 1996 compared to 1995, is due to most depositors
utilizing interest-bearing products.
Interest-bearing deposits were $714,085,531 and $654,203,482 at December 31,
1997 and 1996, respectively, or a 9.15% increase over 1996. The largest growth
contributing to this increase came from interest-bearing demand deposit accounts
and certificates of deposits exceeding $100,000. The Magnolia Federal Bank for
Savings branch office acquisition accounted for an increase of approximately
$15,232,000 in 1997. The remaining growth in interest-bearing deposits is due to
internal growth.
Interest-bearing deposits at December 31, 1996, increased 5.1% over 1995. 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, 1997, the balance in the treasury tax and loan note account was
$6,101,276, down from $6,354,142 at the end of 1996. 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 1997, the Company received advances from the Federal Home Loan Bank
(FHLB) totaling $9,400,000. The balance due to the FHLB at December 31, 1997 and
1996 was $18,451,547 and $11,168,601, 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. Note G of the Notes to the Consolidated Financial Statements provides
details of the borrowings from the FHLB.
Other liabilities totaling $13,434,422 and $12,157,744 at December 31, 1997 and
1996, respectively, include accrued interest, accrued expenses, current taxes
payable, and dividends payable. Accrued interest payable totaled $4,901,966 and
$4,449,007 at December 31, 1997 and 1996, respectively. Accrued retirement plan
costs totaled $1,074,560 and $571,818 at December 31, 1997 and 1996,
respectively. The increase in the accrued retirement plan in 1997 compared to
1996 is mainly due to the establishment of the two defined contribution plans in
1997.
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 SFAS No. 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 $9,103,828 and $9,309,354 at December 31, 1997
and 1996, respectively. This represents a ratio of allowance to year-end loans
of 1.45% and 1.65%, respectively. Management deems this allowance adequate for
inherent loan losses.
<PAGE>
The Company's net charge-offs for 1997 and 1996 were $2,485,525 and $2,318,931,
respectively. This represented a net charge-offs to average loans ratio of .42%
and .43% for the years ending December 31, 1997 and 1996, respectively.
Management continues to monitor loans and utilize 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.
The table below reflects the activity in the allowance for loan losses for the
years ended December 31:
Allowance for Loan Losses
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year .... $ 9,309,354 $ 8,815,130 $ 8,182,801 $ 6,387,902 $ 6,613,972
Provision for Loan Losses .... 2,279,999 2,813,155 2,826,647 2,001,010 2,865,530
Charge-Offs
Commercial, Financial,
and Agricultural .......... 248,390 273,494 1,286,161 174,051 2,595,750
Real Estate - Construction . 228,392
Real Estate - Mortgage ..... 666,502 246,722 93,452 237,104
Consumer ................... 1,900,347 2,072,503 1,058,699 684,208 900,085
----------- ----------- ----------- ----------- -----------
Total Charge-Offs ............ 3,043,631 2,592,719 2,438,312 1,095,363 3,495,835
Recoveries
Commercial, Financial,
and Agricultural .......... 73,379 53,867 101,116 562,303 150,087
Real Estate - Construction . 67,475
Real Estate - Mortgage ..... 196,897 48,594 6,631 148,866
Consumer ................... 220,355 171,327 136,247 178,083 254,148
----------- ----------- ----------- ----------- -----------
Total Recoveries ............. 558,106 273,788 243,994 889,252 404,235
----------- ----------- ----------- ----------- -----------
Net Charge-Offs .............. 2,485,525 2,318,931 2,194,318 206,111 3,091,600
----------- ----------- ----------- ----------- -----------
Balance at End of Year .......... $ 9,103,828 $ 9,309,354 $ 8,815,130 $ 8,182,801 $ 6,387,902
============= ============= ============= ============= =============
Loan Loss Analysis
Loans - Average .............. $ 589,557,220 $ 533,547,898 $ 516,784,193 $ 466,137,177 $ 425,157,580
Loans - Year End ............. 627,945,380 562,752,505 522,313,747 502,047,881 439,876,598
Net Charge-offs .............. 2,485,525 2,318,931 2,194,318 206,111 3,091,600
Allowance for Loan Losses .... 9,103,828 9,309,354 8,815,130 8,182,801 6,387,902
Ratios
Net Charge-offs to
Loans - Average ............ .42% .43% .42% .04% .73%
Allowance for Loan Losses .. 27.30% 24.91% 24.89% 2.52% 48.40%
Allowance for Loan Losses to
Loans - Year End ........... 1.45% 1.65% 1.69% 1.63% 1.45%
Nonperforming Loans ........ 200.68% 211.49% 257.03% 394.57% 137.15%
Nonperforming Loans to
Loans - Year End ........... .72% .78% .66% .41% 1.06%
Loans - Average ............ .77% .83% .66% .44% 1.10%
</TABLE>
<PAGE>
The following table shows the principal amounts of nonaccrual and restructured
loans at December 31:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Nonperforming Loans
Nonaccruing .................. $ 1,070,380 $ 1,654,650 $ 803,237 $ 877,409 $ 1,605,076
Accruing Loans Past Due
90 Days Or More ............ 3,466,099 2,747,244 2,626,333 1,196,464 3,052,371
----------- ----------- ----------- ----------- -----------
Total Nonperforming
Loans ...................... 4,536,479 4,401,894 3,429,570 2,073,873 4,657,447
Restructured Loans
Balance Outstanding ........ 202,743 223,850 243,230 259,945 278,416
----------- ----------- ----------- ----------- -----------
Total Nonperforming Loans
Including Restructured ....... $ 4,739,222 $ 4,625,744 $ 3,672,800 $ 2,333,818 $ 4,935,863
============= ============= ============= ============= =============
</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>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Amount Of Interest That
Would Have Been Recorded
At The Original Rate ........ $ $ $ $ 3,498 $ 10,784
Interest That Was Recognized
In Income ................... $ 15,037 $ 16,477 $ 16,281 $ 20,529 $ 18,500
---------- ---------- ---------- ---------- ----------
Favorable Impact On
Gross Income ................ $ 15,037 $ 16,477 $ 16,281 $ 17,031 $ 7,716
============= ============= ============= ============= =============
</TABLE>
Nonperforming loans totaled $4,536,479 and $4,401,894 at December 31, 1997 and
1996, respectively. These loans represented .77% and .83% of average loans for
1997 and 1996, respectively. The allowance for loan losses to nonperforming
loans was 200.68% and 211.49% at December 31, 1997 and 1996, respectively. 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 costs. 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 $202,743
and $223,850 at December 31, 1997 and 1996, respectively. The Company's loan
review staff monitors the performance of these loans.
Interest Rate Risk
The Company has an Asset/Liability Committee (ALCO) 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 ALCO'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.
<PAGE>
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest rate risk exposure.
The Company's profitability is affected by fluctuations in interest rates. A
sudden and substantial change in interest rates may adversely impact the
Company's earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent, or on the same
basis. The Company 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 December 31, 1997.
Percentage Change In:
----------------------------
Change In Interest Rates Net Interest Net Portfolio
(In Basis Points) Income (1) Value (2)
- ------------------------- ------------ -------------
+400 .............. (5.4)% (7.0)%
+300 .............. (2.2)% (4.7)%
+200 .............. 0.9% (2.6)%
+100 .............. 0.3% (1.3)%
-100 .............. (1.0)% 0.8%
-200 .............. (2.3)% (2.1)%
-300 .............. (4.6)% (5.9)%
-400 .............. (5.3)% (13.0)%
(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.
The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while structuring the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk. The
results of the interest rate shock is within the limits set by the Board of
Directors.
The Company continually evaluates interest rate risk management opportunities,
including the possible use of derivative financial instruments. Management
believes that hedging instruments currently available are not cost-effective,
and therefore, has focused its efforts on increasing the CompanyOs yield-cost
spread through retail growth opportunities.
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.
Certain shortcomings are inherent in the method of analysis presented in the
computation of net interest income and NPV. Actual values may differ from those
projections presented, should market conditions vary from assumptions used in
the calculation of net interest income and the net portfolio value.
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.
<PAGE>
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 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 66% of loans maturing within the next twelve months.
Capital Resources
Total shareholders' equity of the Company was $98,150,917 and $90,560,820 at
December 31, 1997 and 1996, respectively. Shareholders' equity grew 8.38% during
1997 and 6.59% during 1996. The growth in capital for both years was
attributable to earnings less dividends declared. In 1997, the Company raised
dividends in the second quarter. In addition, the effect of SFAS No. 115
increased capital in 1997 by $338,494 and decreased capital by $942,048 in 1996.
Shareholders' equity as a percentage of assets was 10.11% and 10.14% at December
31, 1997 and 1996, respectively.
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:
Tier 1 Risk- Total Risk- Leverage
Capital Tiers Based Capital Based Capital Ratio
---------------------------------- ------------- ------------- ------------
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
The Company met the guidelines for a well capitalized bank for both 1997 and
1996. At December 31, 1997, the total Tier 1 and total risk-based capital was
$91.3 million and $99.2 million, respectively. Risk-weighted assets less excess
allowance for loan losses were $631.4 and $569.3 at December 31, 1997 and 1996,
respectively. Tier 1 and total risk-based capital at December 31, 1996, were
$85.6 million and $92.7 million, respectively. See Note Q of the Consolidated
Financial Statements for capital ratios.
In December 1997, the Company declared a fifty percent stock dividend to
shareholders of record on January 1, 1998. 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 1997, the Company raised cash dividends during the
second quarter; in 1996, cash dividends were raised in the second and fourth
quarters. Book value per share was $16.75 and $15.46 at December 31, 1997 and
1996, 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 68% and 69%
during 1997 and 1996, respectively.
Results of Operations
Net income for the Company was $10,640,236, $9,516,252, and $9,203,910, for
1997, 1996, and 1995, respectively. In 1997, net income increased $1,123,984, or
11.81%, over 1996. In 1996, net income increased $312,342, or 3.39%, over 1995.
Earnings per share were $1.82, $1.62, and $1.57, for the years ending December
31, 1997, 1996, and 1995, respectively.
Return on average assets for 1997, 1996, and 1995 was 1.14%, 1.10%, and 1.13%,
respectively. The increase in 1997 earnings compared to 1996 is the result of an
increase of $2,216,186, or 5.80%, in net interest income, a decrease in the
provision for loan losses of $533,156, or 18.95%, an increase in noninterest
income of $989,009, or 8.97%, coupled with an increase in noninterest expenses
of $2,178,600, or 6.64%. Net income for 1997 is the result of customary banking
services.
<PAGE>
The decrease in 1996 return on average assets 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.
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 $40,397,274, $38,181,088, and $37,387,716,
for the years ending December 31, 1997, 1996, and 1995, 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. Net interest income, on a tax equivalent basis, for the year
ending December 31, 1997, increased approximately $3,688,000 due to increases in
the volume of earning assets and costing liabilities and decreased approximately
$1,231,000 due to changes in interest rates. The Company experienced the most
significant volume increase in loans and time deposits. The most significant
interest rate changes involved savings and time deposits.
Loan interest income was $55,650,248, $50,580,549, and $49,321,837, for the
years ended December 31, 1997, 1996, and 1995, respectively. The increase in
1997 was due to increase in average volume over 1996 of approximately
$5,336,000, while the decrease in tax-equivalent yield from 9.49% in 1997
compared to 9.52% in 1996, resulted in a decrease of approximately $160,000 in
interest income.
The increase for loan interest income in 1996 over 1995 was due to growth in the
average loan balance of approximately $16,764,000, resulting in an increase in
interest income of approximately $1,580,000 and repricing of loans which lowered
interest income by approximately $315,000. The repricing of loans lowered the
tax-equivalent yield from 9.55% in 1995 to 9.52% in 1996.
Interest income from securities was $16,007,755, $14,970,734, and $12,678,275
for the years ending December 31, 1997, 1996, and 1995, respectively. The
increase in interest income in 1997 compared to 1996 is due to an increase in
the average balance of approximately $17.7 million, while the tax equivalent
yield on securities has decreased in 1997 to 6.85% from 6.88% in 1996. The
effect of the increase in average volume resulted in an increase in
tax-equivalent interest income of approximately $1,262,000 and the change in
yield decreased tax-equivalent interest income by approximately $91,000.
Interest income from securities for 1996 increased 18.08% due to the average
balance increasing $31.8 million from 1995. The tax equivalent yield on
securities for 1996 was 4 basis points higher than 1995.
The tax equivalent yield on average earning assets was 8.64%, 8.62%, and 8.70%,
for 1997, 1996, and 1995, respectively.
The major source of funds for the Company is deposits. Deposits represented
85.98% and 86.54% of the total assets at December 31, 1997, and 1996,
respectively. Interest-bearing accounts funded 73.54% and 73.25% of the assets
for those two years. The cost of funds is reflected in interest expense.
Interest expense for deposits and borrowings was $31,803,498, $28,243,825, and
$25,621,205, for the years ended December 31, 1997, 1996, and 1995,
respectively. The increase in interest expense in 1997 compared to 1996 is due
to an increase in the average balance of deposits of approximately $51.9
million, which increased interest expense by approximately $2,567,000. The
change in interest rate from 4.32% in 1996 to 4.51% in 1997, resulted in a
increase in interest expense of approximately $992,000.
<PAGE>
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 change in interest expense from 1996 compared to 1995 of
$2,622,620 is due to an increase of approximately $1,981,000 due to volume and
approximately $642,000 increase in interest expense due to interest rate change.
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 4.95%, 5.06%, and 5.27% for the years ending December 31,
1997, 1996, and 1995, respectively. The decrease in net interest margin since
1995 is due to management's decision to reprice products in response to
competition, while increasing net interest income through increased volume.
The provision for loan losses was $2,279,999, $2,813,155, and $2,826,647 for
1997, 1996, and 1995, respectively. The decrease in provision is in response to
stabilized net charge-offs and the adequacy of the allowance for loan losses.
The provision for loan losses for 1996 was relatively stable compared to 1995
due to the adequacy of the allowance for loan losses.
Noninterest income totaled $12,019,515, $11,030,506, and $10,739,776, for the
years ended December 31, 1997, 1996, and 1995, respectively. This represented
29.75%, 28.99%, and 28.73% 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 $202,979, or 3.09%, in 1997 compared to 1996 due to
the acquisition of approximately $15,232,000 in deposit accounts from Magnolia
Federal Bank for Savings. Service charges were up $207,650, or 3.27%, in 1996
compared to 1995. This increase is due to deposit growth for 1996.
Fees and commissions were $1,447,221, $1,396,941, and $1,215,810 for 1997,
1996, and 1995, respectively. Fees have remained stable over the years
presented.
Securities losses in 1997 totaled $40,990 compared to securities gains of
$110,278 for 1996 and losses in 1995 of $507,344. The gains and losses in the
portfolio are a result of strategies implemented in the securities portfolio to
increase liquidity and future income.
Other income was $3,126,538, $2,315,154, and $3,089,856 for 1997, 1996, and
1995, respectively. The increase in 1997 compared to 1996 is due to an increase
in document preparation fees of approximately $454,000, an increase of
approximately $148,000 in merchant discount revenue, and an increase in fees of
approximately $70,000 related to credit card services.
The decrease in other income for 1996 compared to 1995, is mainly 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 noninterest expenses. The totals for these
expenses for the years ending December 31, 1997, 1996, and 1995 were
$39,496,554, $36,882,187, and $36,096,935, respectively. Noninterest expenses
for 1997 were up 7.09% compared to 1996. In 1996, noninterest expenses increased
2.18% compared to 1995.
Salaries and employee benefits, representing a major portion of the Company's
operating expenses, have increased 7.22%, 0.90%, and 8.65% during 1997, 1996,
and 1995, 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. The increase
in 1997 versus 1996 is due to additional staffing related to acquisitions and
internal growth of the Company. Also, employee benefit plan costs increased
approximately $617,000 related to implementation of a money purchase pension
plan and a 401(k) plan, whereby an employee can contribute up to 10% of salary,
and the Company will match up to 3% of the employee's contribution.
<PAGE>
During 1997, the Company adopted a Stakeholder performance compensation program,
wherein rewards reconcile directly with performance related to profit, growth,
quality and productivity. During 1996 and 1995, another incentive program was
utilized. The cash incentive for 1997, 1996, and 1995 was approximately
$775,000, $552,000, and $686,000, respectively, which also increased salaries
and benefits in 1997, 1996, and 1995.
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.
Net occupancy expense includes charges for repairs, janitorial, depreciation,
rental, and other expenses related to occupancy. Expenses for 1997, 1996, and
1995 were $2,599,021, $2,269,122, and $2,178,314, respectively. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," the Company recognized a loss of
approximately $226,000 related to the consolidation of branch offices in Grenada
and Water Valley and construction of a new branch in Aberdeen. The new branches
were constructed to improve service in these locations.
Equipment expenses include computer equipment rental, repairs, and depreciation.
These expenses totaled $1,780,138, $1,594,525, and $1,460,488 for 1997, 1996,
and 1995, respectively. The increase in 1997 and 1996 is due to depreciation and
expenses incurred in completing the Technology Center and new branches
previously mentioned.
Other expenses for 1997, 1996, and 1995 were $11,096,352, $10,748,255, and
$10,472,018, respectively. The increase in 1997 compared to 1996 is due to
normal increases in cost due to inflation and approximately $296,000 increase in
other fees. 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.
As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. The "year 2000" problem is pervasive and complex as
virtually every computer operation will be affected in some way by the rollover
of the two digit value to 00. The issue is whether computer systems will
properly recognize date sensitive information when the year changes to 2000.
Management is in 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 for 1997, 1996, and 1995 was $4,487,831, $4,052,064, and
$3,930,797, respectively. The increase in income taxes for 1997 and 1996
compared to 1995 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 29.7%, 29.9%, and 29.9% for 1997, 1996,
and 1995, 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 Company's 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: Stuart Johnson, Executive Vice President, The Peoples Bank & Trust
Company, P. O. Box 709, Tupelo, MS 38802-0709.
<PAGE>
<TABLE>
<CAPTION>
1997
---------------------------------------
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
---------------------------------------
<S> <C> <C> <C>
Earning assets
Loans, net of unearned income
Commercial .............................................. $ 25,943,762 $282,261,656 9.25% TE
Consumer ................................................ 17,657,841 183,863,151 9.60%
Other loans ............................................. 12,048,645 123,432,413 9.87% TE
----------- -----------
Total Loans, Net . 55,650,248 589,557,220 9.49% TE
Other ........................................................ 542,769 10,102,014 5.37%
Taxable securities
U.S. Government securities ................................ 4,522,330 76,992,738 6.07% TE
U.S. Government agencies .................................. 3,074,304 48,026,429 6.52% TE
Mortgage-backed securities ................................ 5,249,312 79,689,863 6.59%
Other securities .......................................... 210,767 2,821,961 8.06% TE
----------- -----------
Total Taxable Securities . 13,056,713 207,530,991 6.40% TE
Tax-exempt securities
Obligations of states and political subdivisions .......... 2,951,042 53,559,067 8.61% TE
----------- -----------
Total Securities . 16,007,755 261,090,058 6.85% TE
Total Earning Assets . 72,200,772 860,749,292 8.64% TE
Cash and due from banks ...................................... 34,137,241
Other assets, less allowance for loan losses ................. 37,270,688
-----------
Total Assets . $932,157,221
============
Interest-bearing liabilities
Interest-bearing demand deposit accounts .................. 1,855,171 $ 56,379,020 3.29%
Savings and money market accounts ......................... 5,751,653 196,011,244 2.93%
Time deposits ............................................. 22,933,075 432,264,069 5.31%
----------- -----------
Total Interest-Bearing Deposits . 30,539,899 684,654,333 4.46%
Total Other Interest-Bearing Liabilities . 1,263,599 21,257,682 5.94%
----------- -----------
Total Interest-Bearing Liabilities . 31,803,498 705,912,015 4.51%
Noninterest-bearing sources
Noninterest-bearing deposits .............................. 119,356,517
Other liabilities ......................................... 12,292,577
Shareholders' equity ...................................... 94,596,112
-----------
Total Liabilities and ShareholdersO Equity . $932,157,221
============
Net interest income/net interest margin ................... $ 40,397,274 4.95% TE
============
</TABLE>
TE - Ratios have been calculated on a tax equivalent basis.
<PAGE>
<TABLE>
<CAPTION>
1996
---------------------------------------
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
---------------------------------------
<S> <C> <C> <C>
Earning assets
Loans, net of unearned income
Commercial .............................................. $ 23,797,048 $259,223,178 9.23%TE
Consumer ................................................ 18,245,294 187,520,391 9.73%
Other loans ............................................. 8,538,207 86,804,329 9.91%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 .................. 2,865,108 $ 88,600,845 3.23%
Savings and money market accounts ......................... 4,233,226 159,557,047 2.65%
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
Other liabilities ......................................... 10,598,454
Shareholders' equity ...................................... 87,494,752
-----------
Total Liabilities and ShareholdersO Equity . $868,720,667
============
Net interest income/net interest margin ................... $ 38,181,088 5.06%TE
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995
---------------------------------------
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
---------------------------------------
<S> <C> <C> <C>
Earning assets
Loans, net of unearned income
Commercial .............................................. $ 22,195,292 $238,390,733 9.36%TE
Consumer ................................................ 18,645,037 193,146,649 9.65%
Other loans ............................................. 8,481,508 85,246,811 9.84%TE
----------- -----------
Total Loans, Net . 49,321,837 516,784,193 9.55%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 and money market accounts ......................... 2,434,007 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 ShareholdersO Equity . $817,933,430
============
Net interest income/net interest margin ................... $ 37,387,716 5.27%TE
============
</TABLE>
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 22, 1998, included in
the 1997 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 The Peoples Holding Company our report dated January
22, 1998, with respect to the consolidated financial statements of The Peoples
Holding Company incorporated by reference in this Annual Report (Form 10-K) for
the year ended December 31, 1997.
/s/ Ernst & Young LLP
Memphis, Tennessee
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,932
<INT-BEARING-DEPOSITS> 14,973
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 188,738
<INVESTMENTS-CARRYING> 59,893
<INVESTMENTS-MARKET> 60,556
<LOANS> 627,945
<ALLOWANCE> 9,104
<TOTAL-ASSETS> 971,055
<DEPOSITS> 834,914
<SHORT-TERM> 6,101
<LIABILITIES-OTHER> 13,434
<LONG-TERM> 18,454
0
0
<COMMON> 29,297
<OTHER-SE> 68,854
<TOTAL-LIABILITIES-AND-EQUITY> 971,055
<INTEREST-LOAN> 55,650
<INTEREST-INVEST> 16,008
<INTEREST-OTHER> 543
<INTEREST-TOTAL> 72,201
<INTEREST-DEPOSIT> 30,540
<INTEREST-EXPENSE> 31,803
<INTEREST-INCOME-NET> 40,397
<LOAN-LOSSES> 2,280
<SECURITIES-GAINS> (41)
<EXPENSE-OTHER> 35,009
<INCOME-PRETAX> 15,128
<INCOME-PRE-EXTRAORDINARY> 15,128
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,640
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 4.95
<LOANS-NON> 1,070
<LOANS-PAST> 3,466
<LOANS-TROUBLED> 203
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,309
<CHARGE-OFFS> 3,044
<RECOVERIES> 558
<ALLOWANCE-CLOSE> 9,104
<ALLOWANCE-DOMESTIC> 9,104
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,326
</TABLE>
