<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
Commission File Number 1-13253
THE PEOPLES HOLDING COMPANY
-------------------------------------------------------
(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38801
----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 6,232,384 shares outstanding
as of August 13, 1999
1
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THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998................. 3
Condensed Consolidated Statements of Income - Three
Months and Six Months Ended June 30, 1999 and 1998.. 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998............. 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 10
Item 3.
Quantitative and Qualitative Disclosures
About Market Risk................................... 15
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings....................................... 15
Item 2.
Changes in Securities................................... 15
Item 4.
Submission of Matters to a Vote of Shareholders......... 15
Item 6.(b)
Reports on Form 8-K..................................... 15
Signatures.................................................. 16
2
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<TABLE>
<CAPTION>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Restated)
JUNE 30 DECEMBER 31
1999 1998
------------ -----------
(Unaudited) (Note 1)
<S> <C> <C>
Assets
Cash and due from banks .................. $ 38,270 $ 32,453
Federal funds sold ....................... 0 0
---------- ---------
Cash and cash equivalents ........... 38,270 32,453
Interest bearing balances with banks ..... 22,494 6,104
Securities held-to-maturity (market
value-$87,061 and $80,868 at
June 30, 1999 and December 31,
1998, respectively) ................... 85,474 79,176
Securities available-for-sale (amortized
cost-$203,532 and $213,138 at
June 30, 1999 and December 31,
1998, respectively) ................... 200,255 214,463
Loans, net of unearned income ............ 762,903 729,157
Allowance for loan losses ............. (10,615) (9,744)
---------- ---------
Net Loans ....................... 752,288 719,413
Premises and equipment ................... 27,966 26,805
Other assets ............................. 33,340 29,381
---------- ---------
Total Assets .................... $ 1,160,087 $ 1,107,795
========== =========
Liabilities
Deposits:
Noninterest-bearing ................... $ 139,061 $ 152,496
Certificates of deposit exceeding
$100,000 .......................... 126,317 129,347
Interest bearing ...................... 712,076 678,452
---------- ---------
Total Deposits .............. 977,454 960,295
Treasury tax and loan note account ....... 9,262 2,455
Borrowings ............................... 44,688 20,021
Other liabilities ........................ 14,465 14,814
---------- ---------
Total Liabilities ........... 1,045,869 997,585
Shareholders' Equity
Common Stock, $5 par value - 15,000,000
shares authorized, 6,232,384 and
6,191,854 shares issued and outstanding
at June 30, 1999 and December 31, 1998,
respectively ........................... 31,162 30,959
Additional paid-in capital ............... 44,365 43,290
Treasury Stock, at cost................... (155) 0
Accumulated other comprehensive income ... (2,055) 830
Retained earnings ........................ 40,901 35,131
---------- ---------
Total Shareholders' Equity ..... 114,218 110,210
---------- ---------
Total Liabilities and
Shareholders' Equity ......... $ 1,160,087 $ 1,107,795
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
(Restated) (Restated)
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest Income
Loans ................................ $ 32,977 $ 30,826 $ 16,815 $ 15,530
Securities:
Taxable ......................... 6,114 6,765 3,103 3,564
Tax-exempt ...................... 2,029 1,732 1,040 906
Other ................................ 420 566 44 185
------- ------- ------- -------
Total interest income ...... 41,540 39,889 21,002 20,185
Interest Expense
Time deposits exceeding $100,000 ..... 2,050 2,184 1,031 736
Other deposits ....................... 15,512 15,305 7,756 8,149
Borrowings .......................... 841 734 480 381
------- ------- ------- -------
Total interest expense ..... 18,403 18,223 9,267 9,266
---------- ---------- ---------- ----------
Net interest income ........ 23,137 21,666 11,735 10,919
Provision for loan losses .................. 2,021 1,289 1,275 644
--------- --------- --------- ---------
Net interest income after
provision for loan losses .. 21,116 20,377 10,460 10,275
Noninterest income:
Service charges on deposit accounts .. 4,002 3,557 2,069 1,829
Fees and commissions ................. 1,310 1,115 631 571
Trust revenue ........................ 420 360 210 180
Gains on sale of securities and loans. 4,158 427 3,962 197
Other ................................ 1,646 1,364 676 615
------- ------- ------- -------
Total noninterest income ... 11,536 6,823 7,548 3,392
Noninterest expenses:
Salaries and employee benefits ....... 10,599 10,435 5,522 5,198
Net occupancy ........................ 1,477 1,344 704 689
Equipment ............................ 1,137 997 591 480
Other ................................ 7,437 6,349 3,506 3,401
--------- --------- --------- ---------
Total noninterest expenses . 20,650 19,125 10,323 9,768
---------- ---------- ---------- ----------
Income before income taxes ................. 12,002 8,075 7,685 3,899
Income taxes ............................... 3,630 2,310 2,528 1,089
--------- --------- --------- ---------
Net income ................. $ 8,372 $ 5,765 $ 5,157 $ 2,810
========== ========== ========== ==========
Basic and diluted earnings per share ...... $ 1.35 $ 0.93 $ 0.83 $ 0.45
====== ====== ====== ======
Weighted average shares outstanding ....... 6,193,430 6,206,854 6,194,988 6,206,854
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
SIX MONTHS ENDED JUNE 30
(Restated)
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Operating Activities
Net Cash Provided by Operating
Activities .................... $ 5,639 $ 5,902
Investing Activities
Net (increase) decrease in balances
with other banks ................... (15,943) 13,894
Proceeds from maturities/calls of
securities held-to-maturity ........ 3,687 1,944
Proceeds from maturities/calls of
securities available-for-sale ...... 68,589 32,046
Proceeds from sales of
securities available-for-sale ...... 4,108 5,078
Purchases of securities
held-to-maturity ................... (9,958) (17,185)
Purchases of securities
available-for-sale ................. (63,134) (74,510)
Net increase in loans ................... (57,104) (54,004)
Proceeds from sales of loans ............ 26,330 38,227
Proceeds from sales of premises
and equipment ...................... 232 267
Purchases of premises and equipment ..... (2,506) (2,287)
---------- ----------
Net Cash Used in Investing
Activities .................... (45,699) (56,530)
Financing Activities
Net increase (decrease) in
noninterest-bearing deposits ........ (13,435) 3,691
Net increase in
interest-bearing deposits ........... 30,593 42,893
Net increase in treasury tax
and loan note account and federal
funds purchased .......... .......... 29,808 3,899
Net increase (decrease) in borrowings ... 1,667 (190)
Acquisition of treasury stock ........... (155) 0
Cash dividends paid ..................... (2,601) (2,176)
---------- ----------
Net Cash Provided by Financing
Activities ................... 45,877 48,117
---------- ----------
Increase (Decrease) in Cash
and Cash Equivalents ......... 5,817 (2,511)
Cash and Cash Equivalents at
beginning of period ............... 32,453 39,349
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 38,270 $ 36,838
========== ==========
Non-cash transactions:
Transfer of loans to other real
estate .............................. $ 369 $ 556
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
(in thousands, except share data)
Note 1 Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
For further information, refer to the consolidated financial statements and
footnotes thereto included in The Peoples Holding Company and Subsidiary's
(collectively, the Company) annual report on Form 10-K for the year ended
December 31, 1998.
The historical financial information presented in this Form 10-Q has been
restated to include the results of Inter-City Federal Bank for Savings (Inter-
City). Inter-City was acquired in a pooling-of-interests transaction on
March 26, 1999. In accordance with the pooling-of-interests method of
accounting, no adjustments have been made to the historical carrying amounts of
assets and liabilities of Inter-City. However, the financial information has
been restated to include the results of Inter-City for all stated periods prior
to the combination.
Note 2 Mergers and Acquisitions
On June 24, 1999, the Company purchased Reed-Johnson Insurance Agency, Inc.
(Reed-Johnson) with the issuance of 40,530 shares of the Company's common stock.
Located in Tupelo, Mississippi, Reed-Johnson is an independent insurance agency
representing property and casualty companies and providing personal and
business coverages. Reed-Johnson will retain its name and staff and will
operate as a wholly owned subsidiary of The Peoples Bank and Trust Company.
The transaction has been accounted for under the purchase method of accounting.
On March 26, 1999, the Company exchanged 347,382 shares of common stock for all
of the outstanding shares of Inter-City, which is located in Louisville,
Mississippi. The transaction has been accounted for under the pooling-of-
interests method of accounting.
The following tables present selected financial information, split between the
Company and Inter-City for the six months ended and three months ended June 30,
1999 and 1998, respectively.
6
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Six Months Ended
June 30
1999 1998
------------------
Revenue
The Peoples Holding Company............... $ 52,212 $ 44,975
Inter-City Federal Bank for Savings (1)... 864 1,737
------- -------
$ 53,076 $ 46,712
======= =======
Net Income
The Peoples Holding Company............... $ 8,501 $ 5,570
Inter-City Federal Bank for Savings (1)... (129) 195
------- -------
$ 8,372 $ 5,765
======= =======
(1) The 1999 amounts reflect the results of operations from January 1, 1999
through March 26, 1999. The results of operations from March 27, 1999 through
June 30, 1999 are included in The Peoples Holding Company amounts.
Three Months Ended
June 30
1999 1998
------------------
Revenue
The Peoples Holding Company............... $ 28,550 $ 22,702
Inter-City Federal Bank for Savings (1)... 0 875
------- -------
$ 28,550 $ 23,577
======= =======
Net Income
The Peoples Holding Company............... $ 5,157 $ 2,714
Inter-City Federal Bank for Savings (1)... 0 96
------- -------
$ 5,157 $ 2,810
======= =======
(1) The results of operations from April 1, 1999 through June 30, 1999 are
included in The Peoples Holding Company amounts.
Note 3 Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on
the Company's net income or shareholders' equity. SFAS No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income.
For the six month periods ended June 30, 1999 and 1998, total comprehensive
income amounted to $5,487 and $6,105, respectively. For the quarters ended
June 30, 1999 and 1998, total comprehensive income amounted to $2,901 and
$3,009, respectively.
7
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Note 4 Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established standards for the
reporting of financial information from operating segments in annual and
interim financial statements. SFAS No. 131 requires that financial information
be reported on the same basis that it is reported internally for evaluating
segment performance and allocating resources to segments. Because SFAS No. 131
addresses how supplemental financial information is disclosed in annual and
interim reports, its adoption had no impact on the financial condition or
operating results of the Company.
Segment information for the six months ended June 30, 1999 and 1998, is
presented below.
Six Months Ended June 30, 1999 Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 20,971 $ 2,129 $ 37 $ 23,137
Provision for loan loss .... 846 1,091 84 2,021
------- ------- ------- -------
Net interest income after
provision for loan loss .. 20,125 1,038 (47) 21,116
Non-interest income ........ 5,482 5,261 793 11,536
Non-interest expense ....... 12,387 2,377 5,886 20,650
------- ------- ------- -------
Income before income taxes . 13,220 3,922 (5,140) 12,002
Income taxes ............... 0 0 3,630 3,630
------- ------- ------- -------
Net income ................. $ 13,220 $ 3,922 $ (8,770) $ 8,372
======= ======= ======= =======
Intersegment revenue
(expense) ................ $ 273 $ (273) $ 0 $ 0
======= ======= ======= =======
Six Months Ended June 30, 1998 Specialized
Branches Products All Other Total
-------- ----------- --------- ---------
Net interest income ........ $ 19,890 $ 1,691 $ 85 $ 21,666
Provision for loan loss .... 889 327 73 1,289
------- ------- ------- -------
Net interest income after
provision for loan loss .. 19,001 1,364 12 20,377
Non-interest income ........ 4,859 1,460 504 6,823
Non-interest expense ....... 12,133 2,074 4,918 19,125
------- ------- ------- -------
Income before income taxes . 11,727 750 (4,402) 8,075
Income taxes ............... 0 0 2,310 2,310
------- ------- ------- -------
Net income ................. $ 11,727 $ 750 $ (6,712) $ 5,765
======= ======= ======= =======
Intersegment revenue
(expense) ................ $ 238 $ (238) $ 0 $ 0
======= ======= ======= =======
8
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Segment information for the three months ended June 30, 1999 and 1998, is
presented below.
Three Months Ended June 30, 1999
Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 10,572 $ 1,154 $ 9 $ 11,735
Provision for loan loss .... 391 845 39 1,275
------- ------- ------- -------
Net interest income after
provision for loan loss .. 10,181 309 (30) 10,460
Non-interest income ........ 2,782 4,462 304 7,548
Non-interest expense ....... 5,553 1,343 3,427 10,323
------- ------- ------- -------
Income before income taxes . 7,410 3,428 (3,153) 7,685
Income taxes ............... 0 0 2,528 2,528
------- ------- ------- -------
Net income ................. $ 7,410 $ 3,428 $ (5,681) $ 5,157
======= ======= ======= =======
Intersegment revenue
(expense) ................ $ 180 $ (180) $ 0 $ 0
======= ======= ======= =======
Three Months Ended June 30, 1998
Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 10,007 $ 843 $ 69 $ 10,919
Provision for loan loss .... 429 176 39 644
------- ------- ------- -------
Net interest income after
provision for loan loss .. 9,578 667 30 10,275
Non-interest income ........ 2,406 735 251 3,392
Non-interest expense ....... 6,048 1,094 2,626 9,768
------- ------- ------- -------
Income before income taxes . 5,936 308 (2,345) 3,899
Income taxes ............... 0 0 1,089 1,089
------- ------- ------- -------
Net income ................. $ 5,936 $ 308 $ (3,434) $ 2,810
======= ======= ======= =======
Intersegment revenue
(expense) ................ $ 124 $ (124) $ 0 $ 0
======= ======= ======= =======
Note 5 Subsequent Events
As of June 30, 1999, the Company had repurchased 5,000 shares of its common
stock in the open market during the year. Subsequent to that time, the Company
purchased an additional 4,500 shares of its common stock. As of August 12,
1999, the Company had repurchased a total of 9,500 shares of the Company's
stock during the year at an average price of $31.42 per share.
9
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THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(in thousands, except share data)
This Form 10-Q may contain, or incorporate by reference, statements which may
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E 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.
The historical financial information presented in this Form 10-Q has been
restated to include the results of Inter-City Federal Bank for Savings (Inter-
City). Inter-City was acquired in a pooling-of-interests transaction on
March 26, 1999. In accordance with the pooling-of-interests method of
accounting, no adjustments have been made to the historical carrying amounts of
assets and liabilities of Inter-City. However, the financial information has
been restated to include the results of Inter-City for all stated periods prior
to the combination.
Financial Condition
Total assets of The Peoples Holding Company grew from $1,107,795 on December 31,
1998, to $1,160,087 on June 30, 1999, or 4.72% for the six month period. Total
securities decreased from $293,639 on December 31, 1998, to $285,729 on
June 30, 1999. While U. S. Government Treasury and Agency securities and
mortgage-backed securities have declined within the portfolio, state, county,
and municipal securities have increased since the beginning of the year. This
change in the mix was used to enhance portfolio yields.
Total loans, net of unearned income, increased $33,746, or 4.63%, from the
beginning of the year despite the sale of approximately $18,000 of credit card
loans during the second quarter of 1999. Most of the loan growth has come from
commercial loan accounts.
Total deposits for the first half of 1999 grew from $960,295 on December 31,
1998 to $977,454 on June 30, 1999, or an increase of 1.79%, with the majority
of growth in public fund checking and time deposits. Short-term borrowings were
utilized during the second quarter to assist in funding loan demand.
Equity capital to total assets was 9.85% and 9.95% for June 30, 1999 and
December 31, 1998, respectively. Capital grew 3.64% from December 31, 1998 to
June 30, 1999. While capital was improved by earnings and the acquisition of
Reed-Johnson, the growth was curtailed due to the change in accumulated
comprehensive income relating to unrealized portfolio losses as interest rates
rose and the purchase of 5,000 shares of Company stock. Cash dividends for the
first two quarters of 1999 have been $.21 per share, an increase from $.19 per
share in December of 1998.
10
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Results of Operations
The Company's net income for the six month period ending June 30, 1999,
was $8,372, representing an increase of $2,607, or 45.22%, over net income
for the six month period ending June 30, 1998, which totaled $5,765. While
improvements in net income were generated from the usual and customary deposit
gathering and lending operations and improved efficiencies from the Sheshunoff
consulting engagement, the biggest impact was an after tax gain of $2,344
recognized on the sale of credit card loans. The sale of approximately $18,000
in credit card loans was the first step in liquidating the portfolio. The
Company also recognized an additional increase of $633 in its loan loss reserve
principally related to the remaining portion of the credit card portfolio.
Without the effects of the gain and the addition to the reserve, core earnings
of $6,414 for the six month period ending June 30, 1999, were up $649, or
11.26%, over the same period of 1998. Net income was $5,157 and $2,810 for the
quarters ending June 30, 1999 and 1998, respectively. The annualized return on
average assets for the six month periods ending June 30, 1999 and 1998, was
1.31% and 1.11%, respectively.
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary concerns in managing net interest income are the
mix and the maturities of rate-sensitive assets and liabilities. Net interest
margin was 4.69% and 4.76% for the six month periods ending June 30, 1999 and
1998, respectively. The decline in net interest margin is due in large part to
the current pricing environment. Despite the decrease in net interest margin,
our continued growth in volume has allowed net interest income to increase over
prior performance. As average earning assets increased from $968,460 for the
six month period ending June 30, 1998, to $1,051,694 for the same period in
1999, net interest income grew from $21,666 for the six month period ending
June 30, 1998, to $23,137 for the same period in 1999. For the three month
periods ending June 30, 1999 and 1998, net interest income was $11,735 and
$10,919, respectively.
The provision for loan losses charged to operating expense is an amount which,
in the judgement of management, is necessary to maintain the allowance for loan
losses at a level that is adequate to meet the inherent risks of losses on the
Company's current portfolio of loans. The appropriate level of the allowance is
based on a quarterly analysis of the loan portfolio including consideration of
such factors as the risk rating of individual credits, size and diversity of the
portfolio, economic conditions, prior loss experience, and the results of
periodic credit reviews by internal loan review and regulators. The provision
for loan losses totaled $2,021 and $1,289 for the six month periods ending
June 30, 1999 and 1998, respectively. For the quarters ending June 30, 1999
and 1998, the provision for loan losses totaled $1,275 and $644, respectively.
An additional $633 was charged to the provision for loan losses relating to the
remaining portion of the credit card portfolio. The allowance for loan losses
as a percentage of loans outstanding was 1.39% and 1.34% as of June 30, 1999 and
December 31, 1998, respectively. Net charge-offs to average loans was .16%
and .14% for the six month periods ending June 30, 1999 and 1998, respectively.
Including a pre-tax gain of $3,843 on the sale of credit cards, noninterest
income increased $4,713, or 69.08%, to $11,536 for the six month period ending
June 30, 1999, when compared to $6,823 for the same period in 1998. Excluding
gains from the sales of securities and loans, noninterest income was $7,378 for
the three month period ending June 30, 1999, compared to $6,396 for the same
period in 1998, or an increase of 15.35%. The increase between core noninterest
income for 1999 and 1998 is due to fees associated with the increases in
loans and deposits and the increased emphasis in sales of miscellaneous services
and products such as financial investment alternatives and cash management.
11
<PAGE>
While non-sufficient fund fees accounted for the majority of the increase in
service charges, other increases were the result of annuity sales, mortgage
loan fees, merchant processing, interchange fees, skip payment fees, and loan
document preparation fees. Noninterest income, excluding gains from the sales
of securities and loans, for the quarter ending June 30, 1999, increased $391,
or 12.24%, compared to the same period in 1998 due in part to the
aforementioned items.
Noninterest expenses were $20,650 for the six month period ending June 30,
1999, compared to $19,125 for the same period in 1998, or an increase of
7.97%. Significant increases in noninterest expenses between these periods
include depreciation of new premises and equipment, computer processing costs
associated with technology enhancements, fees related to the Sheshunoff
efficiency consulting engagement, and fees related to the Inter-City
acquisition. The remaining components of noninterest expenses reflect normal
increases for banking related expenses and general inflation in the cost of
services and supplies purchased by the Company. Noninterest expenses for the
quarter ending June 30, 1999, increased $555, or 5.68%, compared to the same
period in 1998.
Income tax expense was $3,630 for the six month period ending June 30,
1999, compared to $2,310 for the same period in 1998. A net tax adjustment of
$1,499 was charged as a result of the sale of credit cards. The Company also
continues to invest in assets whose earnings are given favorable tax treatment.
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, such as those of
our loan customers, will be converted on a timely basis which could have a
material effect on the Company. The Company has not incurred significant
operating expenses nor will it be required to invest heavily in computer system
improvements to be year 2000 compliant.
The Company successfully completed testing for its mission critical applications
processed by its third party service provider during the fourth quarter of 1998,
following the conversion to the expanded code for year 2000. Nearly all other
mission critical applications were successfully tested during the first quarter
of 1999 and testing for year 2000 compliance was substantially completed by
March 31, 1999. There are three systems still in process of being tested to
validate their year 2000 compatibility. Contingency plans for year 2000 issues
have been tested with revisions in progress. These contingency plans address
potential business interruptions related to the year 2000 as well as liquidity
and cash availability contingencies as the millennium approaches.
12
<PAGE>
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is a key to assuring liquidity. When evaluating the movement of these
funds even during times of large interest rate changes, it is apparent that the
Company continues to attract deposits that can be used to meet cash flow needs.
Management continues to monitor the liquidity and potentially volatile
liabilities ratios to ensure compliance with Asset-Liability Committee targets.
These targets are set to ensure that the Company meets the liquidity
requirements deemed necessary by management and regulators.
Another source available for meeting the Company's liquidity needs is
available-for-sale securities. The available-for-sale portfolio is composed of
securities with a readily available market that can be used to convert to cash
if the need arises. In addition, the Company maintains a federal funds
position that provides day-to-day funds to meet liquidity needs and may also
obtain advances from the Federal Home Loan Bank (FHLB) or the treasury tax and
loan note account. Historically, the Company has not relied upon these sources
to meet long-term liquidity needs. Sources of funds derived from the FHLB are
used primarily to match mortgage loan originations in order to minimize
interest rate risk, but may be used to provide short-term funding.
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum balances 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).
13
<PAGE>
As of June 30, 1999, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of
management, there are no conditions or events since the last notification that
have changed the institution's category. The Bank's actual capital amounts and
applicable ratios are as follows:
Actual
Amount Ratio
------ -----
(000)
As of June 30, 1999
Total Capital .................... $ 119,847 15.5%
(to Risk Weighted Assets)
Tier I Capital ................... $ 110,169 14.3%
(to Risk Weighted Assets)
Tier I Capital ................... $ 110,169 9.7%
(to Adjusted Average Assets)
As of December 31, 1998
Total Capital .................... $ 112,850 15.2%
(to Risk Weighted Assets)
Tier I Capital ................... $ 103,577 14.0%
(to Risk Weighted Assets)
Tier I Capital ................... $ 103,577 9.8%
(to Adjusted Average Assets)
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well
capitalized bank.
Book value per share was $18.44 and $17.80 at June 30, 1999 and December
31, 1998, respectively. Quarterly cash dividends were $.21 per share during
the first and second quarters of 1999, up from $.19 per share during the fourth
quarter of 1998. All per-share figures have been restated to reflect the 50%
stock dividend issued January 20, 1998.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
14
<PAGE>
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to our disclosure on quantitative and
qualitative disclosures about market risk since December 31, 1998. For
additional information, see the Company's Form 10-K for the year ended
December 31, 1998.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material proceedings against the Company
during the quarter ending June 30, 1999.
Item 2. Changes in Securities
On June 24, 1999, the Company purchased the business of
Reed-Johnson Insurance Agency, Inc. with the issuance of 40,530
shares of the Company's common stock. The transaction is being
accounted for under the purchase method of accounting, and
increased the outstanding shares of common stock of the Company
from 6,191,854 to 6,232,384.
Item 4. Submission of Matters to a Vote of Shareholders
The annual meeting of the shareholders of The Peoples Holding
Company was held on April 13, 1999, for the purpose of electing
four members to the board of directors for a three year term and
to ratify the appointment of the independent auditors. Proxies
for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
Election of Directors For Withheld Not Voting
THREE-YEAR TERM
William M. Beasley 3,882,485 56,751 1,905,236
Marshall H. Dickerson 3,876,219 63,017 1,905,236
Eugene B. Gifford, Jr. 3,883,820 55,416 1,905,236
H. Joe Trulove 3,884,225 55,011 1,905,236
For Against Abstain
Ratify appointment of
Ernst & Young LLP as
independent auditors
for 1999 3,907,248 83 1,937,141
Item 6(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the second quarter
of 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: August 13, 1999 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
16
<PAGE>
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