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, 1999
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: (662) 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 2000 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 6, 2000 was $149,302,615, based on 6,204,784 shares of
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of annual Proxy Statement dated March 15, 2000, relating to the annual
meeting of shareholders of The Peoples Holding Company, are incorporated by
reference into Part III.
<PAGE> 2
THE PEOPLES HOLDING COMPANY
Form 10-K
For the year ended December 31, 1999
CONTENTS
PART I
Item 1. Business ............................................... 3
Item 2. Properties ............................................. 14
Item 3. Legal Proceedings ...................................... 14
Item 4. Submission of Matters to a Vote of Security Holders .... 14
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters ..................... 15
Item 6. Selected Financial Data ................................ 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation ........ 17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk ......................................... 28
Item 8. Financial Statements and Supplementary Data ............ 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. 51
PART III
Item 10. Directors and Executive Officers of the Registrant ..... 51
Item 11. Executive Compensation ................................. 51
Item 12. Security Ownership of Certain Beneficial Owners
and Management ...................................... 51
Item 13. Certain Relationships and Related Transactions ......... 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................. 52
<PAGE> 3
PART I
This Annual Report (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 business
activities are conducted through the Bank and the Bank's wholly-owned
subsidiary, Reed-Johnson Insurance Agency, Inc. (Reed-Johnson). The Bank
accounts for substantially all of the assets and revenues of the Registrant. On
December 31, 1999, the Registrant had 41 banking offices in Tupelo, Aberdeen,
Amory, Batesville, Booneville, Calhoun City, Coffeeville, Corinth, Grenada,
Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Olive Branch,
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 subsidiary 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 and financial services is
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. Automated teller
machines located throughout our market area and our PC Banking product provide
24-hour banking services. Accounts receivable factoring is also available to
qualified businesses. 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. In addition to offering annuities and mutual funds, the acquisition
of Reed-Johnson has expanded the Registrant's product and delivery network to
include personal and business insurance coverages. Neither the Registrant nor
the Bank has any foreign activities.
<PAGE> 4
Competition
Vigorous competition exists in all major areas where the Registrant Company
conducts 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, finance companies, mortgage companies,
insurance companies, brokerage firms, and investment companies for available
loans and depository accounts. All of these institutions compete in the delivery
of services and products through availability, quality, and pricing. Within the
Registrant's market area, none of the competitors are dominant.
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.
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 Holding Company Act of 1956 was recently amended to permit "financial
bank holding companies" to engage in a broad range of financial activities. The
new legislation, the Gramm-Leach-Bliley Act, was enacted on November 12, 1999,
and became effective on March 11, 2000. The Act sets forth both requirements to
be met in order to engage in financial activities and defines those financial
activities. Presently, the Company is considering the implications of the Act,
but has no current plans to form a financial holding company.
<PAGE> 5
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, 1999, the maximum amount available for transfer from the Bank to
the Company in the form of cash dividends and loans was 20.27% of the Bank's
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.
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.
<PAGE> 6
Sources 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, 1999, the Registrant and its subsidiary employed 511 people on a
full-time equivalent 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.
Segment Reporting
The information under the caption "Note L - Segment Reporting" on pages 45
through 47 of the Registrant's 1999 Form 10-K is incorporated herein by
reference.
Acquisition of Certain Assets and Liabilities
The information under the caption "Note B - Business Combinations" on page 36
of the Registrant's 1999 Form 10-K is incorporated herein by reference.
Executive Officers of The Registrant
The principal executive officer of the Company and its subsidiary as of December
31, 1999, is as follows:
Name Age
John W. Smith 64
Position and Office:
Director and Executive Vice President of the Company from July 1983 until August
1993; Director and President of the Company since August 1993, and Vice Chairman
of the Board since April 1997.
Director and Executive Vice President of the Bank from 1978 and 1976,
respectively, until August 1993; Director, President, and Chief Executive
Officer of the Bank since August 1993, and Vice Chairman of the Board since
April 1997.
All of the Registrant's officers are appointed annually by the appropriate Board
of Directors to serve at the discretion of the Board.
All prior period amounts have been restated to reflect the business combination
accounted for as a pooling-of-interests, and, accordingly, the financial
position, results of operations and cash flows are presented as though the
companies were combined for all historical periods.
<PAGE> 7
Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential (In Thousands)
<TABLE>
<CAPTION>
1999
-------------------------------------------------
Tax Equivalent Average Balance Yields/
Income or Expense Sheet Amount Rates
----------------- ----------------- -----------
<S> <C> <C> <C>
Earning Assets
Loans, net of unearned income
Commercial .......................................... $ 32,541 $ 382,089 8.52%
Consumer ............................................ 18,940 210,706 8.99%
Other loans ......................................... 15,727 172,404 9.12%
----------------- -----------------
Total Loans, Net .............................. 67,208 765,199 8.78%
Other .................................................. 401 8,328 4.82%
Taxable securities
U. S. Government securities ......................... 3,128 52,200 5.99%
U. S. Government agencies ........................... 3,040 48,772 6.23%
Mortgage-backed securities .......................... 6,008 98,525 6.10%
Other securities .................................... 266 3,671 7.25%
----------------- -----------------
Total Taxable Securities ...................... 12,442 203,168 6.12%
Tax-exempt securities
Obligations of states and political subdivisions .... 6,612 82,901 7.98%
----------------- -----------------
Total Securities .............................. 19,054 286,069 6.66%
----------------- -----------------
Total Earning Assets .................. 86,663 1,059,596 8.18%
Cash and due from banks ................................... 38,659
Other assets, less allowance for loan losses .............. 48,356
-----------------
Total Assets ...................... $ 1,146,611
=================
Interest-Bearing Liabilities
Interest-bearing demand deposit accounts ............... 1,856 $ 56,752 3.27%
Savings and money market accounts ...................... 8,584 283,647 3.03%
Time deposits .......................................... 25,037 503,348 4.97%
----------------- -----------------
Total Interest-Bearing Deposits ................... 35,477 843,747 4.20%
Total Other Interest-Bearing Liabilities .......... 1,865 32,029 5.82%
----------------- -----------------
Total Interest-Bearing Liabilities ...... 37,342 875,776 4.26%
Noninterest-bearing sources
Noninterest-bearing deposits ........................... 144,451
Other liabilities ...................................... 14,340
Shareholders' equity ................................... 112,044
-----------------
Total Liabilities and Shareholders' Equity .... $ 1,146,611
=================
Net interest income/net interest margin ................... $ 49,321 4.65%
=================
</TABLE>
The average balances of non-accruing loans are included in this table. Weighted
average yields on tax-exempt loans and securities 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> 8
Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential (continued)
<TABLE>
<CAPTION>
1998
-------------------------------------------------
Tax Equivalent Average Balance Yields/
Income or Expense Sheet Amount Rates
----------------- ----------------- -----------
<S> <C> <C> <C>
Earning Assets
Loans, net of unearned income
Commercial .......................................... $ 28,749 $ 315,445 9.11%
Consumer ............................................ 18,524 197,272 9.39%
Other loans ......................................... 16,255 168,846 9.63%
----------------- -----------------
Total Loans, Net .............................. 63,528 681,563 9.32%
Other .................................................. 968 18,486 5.24%
Taxable securities
U. S. Government securities ......................... 3,892 62,367 6.24%
U. S. Government agencies ........................... 3,174 51,162 6.20%
Mortgage-backed securities .......................... 6,418 101,892 6.30%
Other securities .................................... 262 3,274 8.00%
----------------- -----------------
Total Taxable Securities ...................... 13,746 218,695 6.29%
Tax-exempt securities
Obligations of states and political subdivisions .... 5,730 70,396 8.14%
----------------- -----------------
Total Securities .............................. 19,476 289,091 6.74%
----------------- -----------------
Total Earning Assets ..................... 83,972 989,140 8.49%
Cash and due from banks ................................... 34,612
Other assets, less allowance for loan losses .............. 44,788
-----------------
Total Assets .......................... $ 1,068,540
=================
Interest-Bearing Liabilities
Interest-bearing demand deposit accounts .............. 2,031 $ 59,834 3.39%
Savings and money market accounts ..................... 7,235 235,831 3.07%
Time deposits ......................................... 26,677 496,358 5.37%
----------------- -----------------
Total Interest-Bearing Deposits ................... 35,943 792,023 4.54%
Total Other Interest-Bearing Liabilities .......... 1,491 24,820 6.01%
----------------- -----------------
Total Interest-Bearing Liabilities ...... 37,434 816,843 4.58%
Noninterest-bearing sources
Noninterest-bearing deposits ........................... 130,769
Other liabilities ...................................... 13,286
Shareholders' equity ................................... 107,642
-----------------
Total Liabilities and Shareholders' Equity .... $ 1,068,540
=================
Net interest income/net interest margin ................... $ 46,538 4.70%
================
</TABLE>
The average balances of non-accruing loans are included in this table. Weighted
average yields on tax-exempt loans and securities 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> 9
Table 1 - Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential (continued)
<TABLE>
<CAPTION>
1997
-------------------------------------------------
Tax Equivalent Average Balance Yields/
Income or Expense Sheet Amount Rates
----------------- ----------------- -----------
<S> <C> <C> <C>
Earning Assets
Loans, net of unearned income
Commercial .......................................... $ 26,139 $ 282,834 9.24%
Consumer ............................................ 18,467 192,356 9.60%
Other loans ......................................... 14,211 146,526 9.70%
----------------- -----------------
Total Loans, Net .............................. 58,817 621,716 9.46%
Other .................................................. 695 12,829 5.42%
Taxable securities
U. S. Government securities ......................... 4,676 76,993 6.07%
U. S. Government agencies ........................... 3,205 49,921 6.42%
Mortgage-backed securities .......................... 5,256 79,754 6.59%
Other securities .................................... 243 3,087 7.87%
----------------- -----------------
Total Taxable Securities ...................... 13,380 209,755 6.38%
Tax-exempt securities
Obligations of states and political subdivisions .... 4,611 53,559 8.61%
----------------- -----------------
Total Securities .............................. 17,991 263,314 6.83%
----------------- -----------------
Total Earning Assets .................... 77,503 897,859 8.63%
Cash and due from banks ................................... 34,405
Other assets, less allowance for loan losses .............. 37,948
-----------------
Total Assets ......................... $ 970,212
=================
Interest-Bearing Liabilities
Interest-bearing demand deposit accounts .............. 2,020 $ 59,856 3.37%
Savings and money market accounts ..................... 5,784 196,907 2.94%
Time deposits ......................................... 24,329 457,722 5.32%
----------------- -----------------
Total Interest-Bearing Deposits .................. 32,133 714,485 4.50%
Total Other Interest-Bearing Liabilities .......... 1,295 21,789 5.94%
----------------- -----------------
Total Interest-Bearing Liabilities ...... 33,428 736,274 4.54%
Noninterest-bearing sources
Noninterest-bearing deposits ........................... 121,949
Other liabilities ...................................... 12,588
Shareholders' equity ................................... 99,401
-----------------
Total Liabilities and Shareholders' Equity .... $ 970,212
=================
Net interest income/net interest margin ........ $ 44,075 4.91%
=================
</TABLE>
The average balances of non-accruing loans are included in this table. Weighted
average yields on tax-exempt loans and securities 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> 10
Table 2 - Volume/Rate Analysis
(In Thousands)
The following table sets forth for The Peoples Holding Company, for the years
ended December 31 as indicated, a summary of the changes in interest earned and
interest paid resulting from changes in volume and rates.
<TABLE>
<CAPTION>
1999 Compared To 1998
----------------------------------------
Increase (Decrease) Due To
----------------------------------------
Volume Rate Net (1)
------------ ------------- -----------
<S> <C> <C> <C>
Interest income:
Loans, net of unearned income .................................... $ 7,748 $ (4,158) $ 3,590
Securities
U. S. government securities and agencies ...................... (753) (128) (881)
Obligations of states and political subdivisions .............. 648 (156) 492
Mortgage-backed securities .................................... (209) (196) (405)
Other securities .............................................. 30 (28) 2
Other ............................................................ (542) (36) (578)
------------ ------------- -----------
Total interest-earning assets .................................... 6,922 (4,702) 2,220
Interest expense:
Interest-bearing demand deposit accounts ......................... (105) (70) (175)
Savings accounts ................................................. 1,467 (118) 1,349
Time deposits .................................................... 376 (2,016) (1,640)
Other ............................................................ 433 (59) 374
------------ ------------- -----------
Total interest-bearing liabilities ............................... 2,171 (2,263) (92)
------------ ------------- -----------
Change in net interest income .................................... $ 4,751 $ (2,439) $ 2,312
============ ============= ===========
</TABLE>
(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> 11
Table 2 - Volume/Rate Analysis (continued)
<TABLE>
<CAPTION>
1998 Compared To 1997
----------------------------------------
Increase (Decrease) Due To
----------------------------------------
Volume Rate Net (1)
------------ ------------- -----------
<S> <C> <C> <C>
Interest income:
Loans, net of unearned income .................................... $ 5,632 $ (1,015) $ 4,617
Securities
U. S. government securities and agencies ...................... (795) (31) (826)
Obligations of states and political subdivisions .............. 928 (229) 699
Mortgage-backed securities .................................... 1,459 (297) 1,162
Other securities .............................................. 14 4 18
Other ............................................................ 322 (33) 289
------------ ------------- -----------
Total interest-earning assets .................................... 7,560 (1,601) 5,959
Interest expense:
Interest-bearing demand deposit accounts ......................... (1) 12 11
Savings accounts ................................................. 1,143 308 1,451
Time deposits .................................................... 2,053 295 2,348
Other ............................................................ 180 16 196
------------ ------------- -----------
Total interest-bearing liabilities ............................... 3,375 631 4,006
------------ ------------- -----------
Change in net interest income .................................... $ 4,185 $ (2,232) $ 1,953
============ ============= ===========
</TABLE>
(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> 12
Table 3 - Investment Portfolio
(In Thousands)
The following tables set forth the amortized cost of securities at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Held to maturity:
U. S. Government and agency securities ........... $ $ 2,234 $ 1,960
Obligations of state and political subdivisions .. 85,611 76,893 59,893
Other securities ................................. 49 58
----------- ----------- -----------
$ 85,611 $ 79,176 $ 61,911
=========== =========== ===========
1999 1998 1997
----------- ----------- -----------
Available for sale:
U. S. Government and agency securities ........... $ 92,858 $ 104,997 $ 110,683
Other securities ................................. 93,508 108,141 77,427
----------- ----------- -----------
$ 186,366 $ 213,138 $ 188,110
=========== =========== ===========
</TABLE>
The following table sets forth the maturity distribution in thousands and
weighted average yield by maturity of securities at December 31, 1999:
<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>
Held to Maturity:
Obligations of state
and political ....... $ 2,423 9.10% $ 17,807 8.05% $ 46,834 7.13% $ 18,547 6.98%
========== ========== ========== ==========
Available for Sale:
U. S. Government
and agency
securities ........... $ 9,079 5.69% $ 61,785 5.88% $ 21,994 6.35%
Other securities ....... 14,990 6.23% 39,561 6.26% 38,957 6.21%
---------- ---------- ----------
Total $ 24,069 $101,346 $ 60,951
========== ========== ==========
</TABLE>
The maturity of mortgage-backed securities, included as other securities,
reflects scheduled repayments based upon the anticipated average life of the
securities.
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.
Yields on available for sale securities are based on amortized cost.
<PAGE> 13
Table 4 - Loan Portfolio
(In Thousands)
The following table sets forth loans, net of unearned income, outstanding as of
December 31, 1999, which, based on remaining scheduled repayments of principal,
are due in the periods indicated. Real estate mortgage loans and consumer loans
are excluded, while net receivables on leased equipment are included in
commercial, financial and agricultural loans in the consolidated financial
statements. Also, amounts due after one year are classified according to their
sensitivity to changing interest rates.
<TABLE>
<CAPTION>
Loans Maturities
-------------------------------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural ............... $ 95,904 $ 45,371 $ 14,510 $ 155,785
Real estate - construction .... 35,241 2,089 107 37,437
--------------- --------------- --------------- ----------------
$ 131,145 $ 47,460 $ 14,617 $ 193,222
=============== =============== =============== ================
</TABLE>
Interest Sensitivity
---------------------------
Fixed Variable
Rate Rate
------------ -------------
Due after 1 but within 5 years ................. $ 46,228 $ 1,232
Due after 5 years .............................. 14,601 16
------------ -------------
$ 60,829 $ 1,248
============ =============
Table 5 - Time Deposits
(In Thousands)
The following table shows the maturity of time deposits over $100 at December
31, 1999:
Less than 3 Months ............. $ 38,510
3 Months- 6 Months ............. 30,886
6 Months-12 Months ............. 43,310
Over 12 Months ............... 29,072
--------------
$ 141,778
==============
<PAGE> 14
Short-term Borrowings
(In Thousands)
The bank borrowed $20,000 from the Federal Home Loan Bank (FHLB) on October 20,
1999, in anticipation of potential Y2K cash needs at a rate of 5.85%. The
$20,000 was outstanding on December 31, 1999. The Federal Home Loan Bank note
matured and was repaid on January 21, 2000. The average balance of other
short-term borrowings for 1999 was $3,243 at a weighted average rate of 5.0%.
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, and statement rendering. In addition, the Bank operated
thirty-one (31) full-service branches, and ten (10) limited-service branches.
The Bank has two (2) full-service branches in West Point; 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, Louisville,
Pontotoc, and Southaven; one (1) full-service branch each at Aberdeen,
Batesville, Calhoun City, Coffeeville, Grenada, Guntown, Hernando, Iuka, New
Albany, Okolona, Saltillo, Sardis, Shannon, Verona, Water Valley, and Winona,
Mississippi; one (1) limited-service branch each at Olive Branch and Smithville,
Mississippi; and seven (7) full-service branches and one (1) limited-service
branch in Tupelo, Mississippi.
The Registrant leases, on a long-term basis, two branch locations for use in
conducting banking activities and one location for Reed-Johnson. The aggregate
annual rental for all leased premises during the year ending December 31, 1999,
did not exceed five percent of the Bank's operating expenses.
It is anticipated that in the next several years, branch renovations and
construction will be completed at Coffeeville, Corinth, Olive Branch, Pontotoc,
and a new location in west 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,
1999, 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 1999.
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The public market for The Peoples Holding Company common stock is limited. The
stock trades on the American Stock Exchange under the ticker symbol PHC. At
March 6, 2000, there were approximately 2,700 shareholders of record based on
the number of record holders.
Prices
Dividends ----------------------------
Per Share Low High
----------- ------------ -------------
1999
1st Quarter .............. $ .190 $ 30.50 $ 36.75
2nd Quarter .............. .210 29.63 36.00
3rd Quarter .............. .210 27.00 34.00
4th Quarter .............. .210 28.38 34.25
1998
1st Quarter .............. $ .175 $ 34.25 $ 36.75
2nd Quarter .............. .175 36.00 45.50
3rd Quarter .............. .175 32.00 39.50
4th Quarter .............. .190 31.38 34.00
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
(Not covered by Report of Independent Auditors)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Interest Income ....................... $ 83,500 $ 81,280 $ 75,321 $ 69,221 $ 65,591
Interest Expense ...................... 37,342 37,434 33,428 29,710 26,937
Provision for Loan Losses ............. 3,192 2,591 2,304 2,837 2,847
Noninterest Income .................... 19,476 14,461 12,181 11,182 10,693
Noninterest Expense ................... 41,480 39,338 36,051 33,987 32,902
------------ ------------ ------------ ------------- ------------
Income Before Income Taxes ............ 20,962 16,378 15,719 13,869 13,598
Income Taxes .......................... 6,182 4,697 4,716 4,151 4,103
------------ ------------ ------------ ------------- ------------
Net Income ............................ $ 14,780 $ 11,681 $ 11,003 $ 9,718 $ 9,495
============ ============ ============ ============= ============
Per Common Share:
Net Income ............................ $ 2.38 $ 1.88 $ 1.77 $ 1.57 $ 1.54
Book Value at December 31 ............. 18.71 17.80 16.61 15.35 14.51
Market Value at December 31 ........... 28.88 32.31 35.67 24.50 19.55
Cash Dividends Declared and Paid-PHC .. .82 .72 .57 .50 .46
Cash Dividends Declared and
Paid-Inter-City .................... .36 .27 1.48 .36
At December 31:
Loans, Net of Unearned Income ......... $ 799,085 $ 729,156 $ 661,572 $ 593,381 $ 551,385
Securities ............................ 266,744 293,639 250,923 246,924 215,010
Assets ................................ 1,162,959 1,107,795 1,011,942 927,451 874,247
Deposits .............................. 978,958 960,295 870,082 801,545 766,614
Borrowings ............................ 51,269 22,476 18,959 11,729 4,913
Shareholders' Equity .................. 116,089 110,209 103,113 95,253 89,637
Selected Ratios
Return on Average:
Total Assets ....................... 1.29% 1.09% 1.13% 1.08% 1.12%
Shareholders' Equity ............... 13.19% 10.85% 11.07% 10.53% 11.17%
Average Shareholders' Equity to
Average Assets ..................... 9.77% 10.07% 10.25% 10.22% 10.00%
At December 31:
Shareholders' Equity
To Assets .......................... 9.98% 9.95% 10.19% 10.27% 10.25%
Allowance for Loan Losses
To Total Loans ..................... 1.26% 1.34% 1.39% 1.59% 1.61%
Allowance for Loan Losses
To Nonperforming Loans ............. 126.47% 261.95% 191.39% 206.29% 227.61%
Nonperforming Loans to
Total Loans ........................ 1.00% .51% .73% .77% .71%
Dividend Payout ....................... 35.24% 36.89% 31.38% 33.52% 28.72%
</TABLE>
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(In Thousands, Except Share Data)
Overview
1999 was a year of challenge for the financial institution industry. Banks were
not only dealing with the final preparation for Y2K, but were also adapting to a
change in the Federal Reserve Bank's monetary policy. Coupled with these
challenges, the financial institution sector found its stock performance falling
short of those of other industries whose earnings growth seemed to have little
investor consideration for value. And while Y2K, for the most part, was a
"non-event", as the Fed began to tighten, many investor banks found their
investment portfolios under water. Not only were rates below market, but many of
the portfolios had also lengthened in maturity due to the composition of
investments within those portfolios.
The Bank did not experience any significant problems related to the Y2K date
change due to the efforts of a well-trained and qualified staff. As the clock
turned into the new century, the Company's staff was validating all systems. All
computers and phone systems, as well as ATM's, were working without a glitch. In
addition, data integrity was tested for quality with no reports of errors.
During 1999, economic growth continued its ninth straight year. Foreign markets
had begun to rebound, unemployment was at a low of 4.1%, productivity was up,
wages were growing, housing starts were up over 3% from the prior year, and the
economy was growing at a robust rate. Inflation was beginning to surface as
indicated by the Consumer Price Index (CPI). The CPI was 2.9% and 1.7% for the
fourth quarter of 1999 and 1998, respectively.
The Federal Reserve became concerned about the growth of the economy and the
pressures that were inflationary. The federal funds rate began the year at 4.75%
with the Fed maintaining a neutral bias until the Federal Open Market Committee
meeting that was held on May 18. While rates did not change, the Fed moved from
a neutral bias to a tightening bias, and at its next two meetings, raised rates
50 basis points and adopted a neutral bias. As the Fed continued to monitor the
economy, there were few signs of slowing. Then at the November meeting, the
federal funds rate was raised to 5.5%. These rate changes forced the
prime-lending rate up to 8.75% and mid-term Treasuries up approximately 175
basis points.
Amid these hurdles, the Company set record earnings for 1999. Net income was
$14,780, up 26.53% over 1998. Net income for 1998 and 1997 was $11,681 and
$11,003, respectively. Earnings per share were $2.38, $1.88, and $1.77 for 1999,
1998, and 1997, respectively.
Two primary measures of performance that are used by the Company are return on
average assets (ROA) and return average equity (ROE).
Return on Average Assets
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
1.29% 1.09% 1.13% 1.08% 1.12%
Return on Average Equity
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
13.19% 10.85% 11.07% 10.53% 11.17%
<PAGE> 18
The Company ended the year with total assets of $1,162,959, up 4.98% over 1998.
Growth was down from the 9.47% rate experienced in 1998. Total assets at
December 31, 1998, were $1,107,795.
On March 26, 1999, the Company acquired Inter-City Federal Bank for Savings
located in Louisville, Mississippi. Assets of Inter-City were approximately $43
million. The merger was accounted for as a pooling-of-interests; therefore, all
numbers in this report have been restated for all prior periods to reflect the
impact of the merger. The Company exchanged 347,382 shares of stock for all of
the common stock of Inter-City.
The Company acquired Reed-Johnson Insurance Agency, Inc., located in Tupelo,
Mississippi, on June 24, 1999. The purchase came after a bill was signed into
Mississippi law removing legal barriers that prohibited commercial banks from
selling insurance products. Reed-Johnson is operating as a wholly owned
subsidiary of The Peoples Bank & Trust Company. The acquisition was accounted
for under the purchase method of accounting.
Results of Operations
Net interest income on a tax equivalent basis rose 5.98% from $46,538 in 1998 to
$49,321 in 1999. This growth resulted primarily from an increase in the volume
of earning assets over the decrease in the yield on those assets. While rates
began to rise during 1999, both yields on earning assets and rates paid on
liabilities were lower than those from 1998. Specifically, net interest income
on a tax equivalent basis increased approximately $3,809 due to an increase in
the volume of earning assets and costing liabilities and decreased approximately
$1,026 due to changes in rates. The Company experienced the most significant
volume increase in loans, interest bearing transaction accounts, and
certificates of deposit.
Average Earning Assets to Total Average Assets
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
92.41% 92.57% 92.54% 91.90% 91.34%
Tax equivalent net interest income for 1998 was up 5.59% from $44,075 in 1997.
This change in net interest income was primarily due to the growth of both
earning assets and deposits. As in 1999, yields in 1998 were down from the
previous year. However, in contrast with 1999, the cost of deposits and borrowed
funds in 1998 was up slightly over 1997. Net interest income on a tax equivalent
basis increased approximately $4,504 due to increases in the volume of earning
assets and costing liabilities and decreased approximately $2,041 due to changes
in rates. The Company's growth came from loans, savings and money market
accounts.
Net interest margin, the tax equivalent net yield on earning assets, was down
for 1999. While the Company's trend follows the national trend, its net interest
margin is higher than most peer banks. The trend of a falling margin is due to
interest rate changes and intense competition from other banks and non-banks.
Net Interest Margin - Tax Equivalent
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
4.65% 4.70% 4.91% 5.00% 5.20%
<PAGE> 19
Loan interest income is the largest component of interest income and, with the
economy fueling economic expansion in the market place of the Company, loan
growth was significant. Loans are the most significant earning asset of the
Company and comprised 68.71% and 65.82% of the assets at December 31, 1999 and
1998, respectively. Despite rate increases during the year and the sale of
approximately $18,000 in credit card loans, overall loan growth in 1999 was
9.59%, with the most significant percentage growth in real estate construction
and mortgages.
The table below sets forth loans outstanding, according to loan type, net of
unearned discount, at December 31:
Loan Portfolio
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural ... $155,785 $136,249 $119,509 $112,092 $107,472
Real estate-construction .............. 37,437 26,410 24,930 21,022 17,074
Real estate-mortgage .................. 460,348 405,352 368,688 323,283 282,614
Consumer .............................. 145,515 161,145 148,445 136,984 144,225
----------- ----------- ----------- ----------- -----------
Total loans net of discount ........ $799,085 $729,156 $661,572 $593,381 $551,385
=========== =========== =========== =========== ===========
</TABLE>
The taxable equivalent loan interest income was $67,208, $63,528, and $58,817
for the years ended December 31, 1999, 1998, and 1997, respectively. The
increase in 1999 was due to an increase in the average volume over 1998 of
$83,636, up 12.27%. The tax equivalent yield on those loans was down 54 basis
points to 8.78%. Although the tax equivalent yield on loans for 1998 was down 14
basis points, loan interest income grew from an increase of 9.63% in average
loans.
Investment income is the second largest component of interest income. 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 portfolio decreased $26,895 or 9.16% from the previous year.
This reduction was the result of allocating additional resources to the growth
in higher yielding loans. The majority of the Company's investments are in the
mortgage-backed and municipal sectors. The investment portfolio for 1998 grew
17.02% over 1997. During 1998, the Company reduced the percentage of the
portfolio held in treasuries and increased its holdings in municipal and
mortgage-backed securities.
Securities by Sector Allocation
Sector 1999 1998
------ ------- -------
U. S. Treasury securities ........................ 17% 19%
U. S. Government agencies ........................ 17% 18%
Mortgage-backed securities ....................... 33% 36%
Obligations of states and political subdivisions . 32% 26%
FHLB stock ....................................... 1% 1%
Investment income on a tax equivalent basis was down from $19,475 to $19,054.
This decrease in interest was the result of a drop in the average volume of
securities from $289,091 to $286,069 and a decrease in the tax equivalent yield
of 8 basis points. The tax equivalent yield of the portfolio was 6.66% and 6.74%
for 1999 and 1998, respectively. The investment income for 1998 was up slightly
due to an increase in volume. The average portfolio was up $25,777. The tax
equivalent yield on the portfolio was down 9 basis points from 1997.
The tax equivalent yields on earning assets were 8.18%, 8.49%, and 8.63% for
1999, 1998, and 1997, respectively.
<PAGE> 20
The Company relies on deposits as its major source of funds. Deposits
represented 84.18% and 86.69% of total assets at December 31, 1999 and 1998,
respectively. Noninterest-bearing deposits were $140,015 and $152,496 at
December 31, 1999 and 1998, respectively. This represented 12.04% and 13.77% of
total assets at those dates. The balance in this account may fluctuate
significantly from day to day. The average balance was up $13,682 over 1998.
Noninterest bearing deposits were up 22.78% over 1997. This increase was the
result of the Company implementing a more aggressive marketing and sales effort.
Interest-bearing deposits at December 31, 1999 and 1998 were $838,943 and
$807,799, respectively. During 1999 these deposits grew 3.86%. On an average
basis, these accounts were up from $792,023 in 1998 to $843,747 in 1999
representing a 6.53% growth. During 1999 new products were introduced for the
interest-bearing transaction and money market accounts. These accounts were well
received and resulted in the majority of the growth experienced during the year.
For 1998, interest-bearing deposits grew to $807,799, up 8.30% over 1997. The
largest growth came from interest-bearing transaction and money market accounts.
Interest-Bearing Deposits to Total Deposits
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
85.38% 85.83% 85.42% 85.06% 84.37%
Interest expense for deposits was $35,477, $35,943, and $32,133 for 1999, 1998,
and 1997, respectively. The cost of interest-bearing deposits was 4.20%, 4.54%,
and 4.50% for the same periods.
Interest expense for borrowed funds increased from $1,491 in 1998 to $1,865 in
1999. These funds were necessary to fund the loan growth for 1999, particularly
to fund longer-term loans. In addition the bank borrowed 90-day funds from the
Federal Home Loan Bank to meet its Y2K needs. In 1998, the Company used Federal
Home Loan Bank money to fund longer-term loans. Interest rates were low and
customers were taking advantage of the environment by locking in rates for
longer terms. In order to minimize interest rate risk, the Company match-funded
these loans with funds from the Federal Home Loan Bank.
The provision for loan losses was $3,192, $2,591, and $2,304 for 1999, 1998, and
1997, respectively. The provision was up primarily due to loan growth,
liquidating the credit card portfolio, and to provide for charge-offs in the
current period.
Provision for Loan Losses to Average Loans
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
.42% .38% .37% .50% .52%
Total non-interest income includes service charges on deposit accounts, fees and
commissions, trust revenue, security gains, credit card sale, and other
non-interest income accounts. Non-interest income was up 34.68% and 18.72% over
1998 and 1997, respectively.
Non-Interest Income (Less Securities Gains/Losses) to Average Assets
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
1.37%* 1.35% 1.26% 1.23% 1.32%
* Ratio does not include the gain on the sale of the credit card portfolio.
<PAGE> 21
Service charges on deposit accounts were $8,309, up 13.62% over 1998. The
Company implemented a number of service charge changes that had been recommended
during 1998 and 1999 by the Alex Sheshunoff Management Services, Inc. Primarily
these changes involved restructuring the charges related to overdrafts and other
products. Service charges for 1998 were up 6.08% over 1997. This increase was
due to charges related to the growth in transaction accounts.
Fees and commissions were $3,302, up 22.12% over 1998. The increase was due to
commissions from the sale of annuities and mutual funds, loan document
preparation fees, and other loan fees. The Company experienced a decrease in
mortgage and underwriting fees due to a slowdown in the demand for mortgage
products. For 1998, fees and commissions were $2,704, up 55.40% over 1997. The
growth for 1998 was attributable to commissions on annuity and mutual fund sales
and sales of mortgage loans.
Trust revenue was up 11.23% from $846 to $941 due to increased volume. In 1998,
trust revenue was up 17.66% over 1997.
During 1999, the Company sold its credit card portfolio. Approximately $18,000
in loans were sold resulting in a gain of $3,717. The Company recorded some
additional expenses related to the sale that have been included in other
non-interest expense.
Other non-interest income for 1999 was $3,122, down 11.73% from 1998. Despite
the loan growth experienced during 1999, credit life income was down 19.81%, an
impairment charge related to the mortgage servicing value was recorded for
approximately $100, and due to the sale of the credit card portfolio, credit
card interchange fees were down 40.49%. For 1998, other non-interest income was
up 23.28%. The primary growth came from credit card income and the sale of
mortgage loans.
Total non-interest expense includes salaries and employee benefits, net
occupancy, equipment, and other non-interest expense. For 1999, non-interest
expense was $41,480, up 5.45% over 1998. This expense, totaling $39,338 for
1998, was up over 1997 by 9.12%.
Non-Interest Expense to Average Assets
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
3.62% 3.68% 3.72% 3.76% 3.87%
Salaries and employee benefits were $22,398, up $1,033 or 4.84% over 1998. While
regular payroll was down approximately 2% from the prior year, overtime pay
jumped $192 or 36.57%. On January 2, 1999, the Company began implementing
changes aimed at streamlining it operation. Namely, the support functions for
loans as well as other back-office functions were consolidated. Due to the
installation of new computer systems, employees spent overtime in getting those
systems operational. Health insurance, pension, and ESOP costs were down 6.95%,
4.44%, and 46.67%, respectively. The Company expensed $1,564 in employee
incentive pay for 1999 compared to $332 for 1998. In addition, the Company did
incur a substantial cost related to employment contracts in the merger with
Inter-City Federal Bank for Savings. This resulted in an increase in other
benefits of 12.32%. Salaries and employee benefits were up 6.48% over 1997. This
increase was the result of increases in regular payroll, overtime and
incentives, health insurance, and other employee benefits.
Net occupancy expense was $2,858, up 4.69% over 1998. During 1999, the Company
capitalized two new facilities and renovated one other facility. These
facilities are located in the growing markets of the Company. They were designed
to enhance the Company's service quality by providing more convenient locations.
With the opening of these additional facilities, costs increased for janitorial,
depreciation, insurance, and property taxes. In addition, a building that had
been acquired in a prior acquisition was sold at a loss. For 1998, net occupancy
expense was $2,730, up 3.29% over 1997. The increase for 1998 compared to 1997
was also attributable primarily to additional janitorial, utility, and insurance
expense.
<PAGE> 22
Equipment expense for 1999 was $2,118, up 7.19% over 1998. During 1999, the
Company installed new computer and software systems that increased depreciation
charges 11.87%. In addition, the Company purchased other non-capitalized
equipment that resulted in a 77.73% increase over the prior year. These expenses
were somewhat offset by a gain on the sale of the residual value on leased
equipment. For 1998, equipment expense was $1,976, up 7.04% over 1997.
Depreciation charges and repairs and maintenance led this increase.
For 1999, other non-interest expenses including data processing, was $14,106, up
6.32% over 1998. With the restructuring of the Company, both work processes and
computer systems changed. Incorporated into these changes was a move toward a
more sales oriented environment with consolidation of the support areas. This
led to additional training and travel costs. Travel expenses were up $70 or
21.04% over 1998. In addition, the Company was a sponsor of the LPGA U.S. Open
Golf Tournament that was held at Old Waverly. This cost resulted in an increase
in public relations expenses of approximately 58.54%. The Company also incurred
expenses related to conversions in outsourcing the servicing of its mortgage
loan portfolio and in the merger with Inter-City Federal Bank for Savings. Other
costs contributing to the increase were temporary employment expenses,
marketing, and data processing. Telephone expense was up 17.00% due to the
installation of a new phone system. The Call Center was put in place to handle
24-hour service to customers. This system will substantially reduce the calls
being handled by the retail divisions. Other expenses for 1998 were $13,267, up
15.39% over 1997. The increase in 1998 compared to 1997 was due to education,
special community functions sponsored by the Company, correspondent bank fees,
and fees paid to Alex Sheshunoff Management Services, Inc. (consultant), and
data processing.
Efficiency Ratio
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
63.82% 64.56% 64.04% 64.66% 63.79%
Income tax expense for 1999, 1998, and 1997 was $6,182, $4,697, and $4,716,
respectively. The effective tax rates for those years were 29.49%, 28.68%, and
30.00%. During 1999 and 1998, the Company increased its holdings in tax exempt
securities, tax-free leases and loans. Note H of the Notes to Consolidated
Financial Statements provides further details of the income tax expense.
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.
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.
<PAGE> 23
Credit Risk (continued)
The allowance for loan losses is available to absorb probable credit losses
inherent 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 $10,058 and $9,742 at December 31, 1999 and
1998, respectively. Based on the Company's year-end evaluation of the adequacy
of the allowance for loan losses, management deems this allowance adequate for
future loan losses.
Allowance for Loan Losses to Loans
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
1.26% 1.34% 1.39% 1.59% 1.61%
The Company's net charge-offs for 1999 and 1998 were $2,876 and $2,070
respectively. Approximately 67% and 25% of the net charge-offs for 1999 were
from consumer and commercial loans, respectively. The major losses of consumer
loans were used auto loans and credit cards. Management continues to monitor
loans and utilize diligent collection efforts.
Net Charge-Offs to Average Loans
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
.38% .30% .40% .41% .41%
Non-performing 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.
During 1999, the Company centralized the collection process and began credit
scoring loans. The credit scoring system is used to assist lenders in evaluating
credit risk. This system has proven to be beneficial in identifying potential
credit risk before a loan is made. This system is also used to assist the
Company in evaluating its adequacy of the allowance for loan losses. Loans are
segregated according to a grade. Loan grades range between 1 and 7. Grade 1
loans would require only a small allowance while grade 7 loans would be
classified as loss and a complete allowance adequacy would be determined and set
aside for the charge-off. The Company calculates the adequacy of the allowance
at each calendar quarter.
Non-Accrual, Past Due and Restructured Loans to Loans
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
1.01% .53% .76% .81% .75%
<PAGE> 24
Summary of Loan Loss Experience
The table below reflects the activity in the allowance for loan losses for the
years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ......... $ 9,742 $ 9,221 $ 9,409 $ 8,902 $ 8,268
Provision for loan losses ............ 3,192 2,591 2,304 2,837 2,847
Charge-Offs
Commercial, financial,
agricultural ............... 882 433 248 273 1,286
Real estate-construction ........ 41 34 228
Real estate-mortgage ............ 223 267 667 247 96
Consumer ........................ 2,288 1,803 1,909 2,085 1,074
------------ ------------ ------------ ------------ ------------
Total Charge-Offs .................... 3,434 2,537 3,052 2,605 2,456
Recoveries
Commercial, financial,
agricultural .............. 158 142 73 54 101
Real estate-construction ........ 7 11 68
Real estate-mortgage ............ 40 88 197 49 6
Consumer ........................ 353 226 222 172 136
------------ ------------ ------------ ------------ ------------
Total Recoveries ..................... 558 467 560 275 243
------------ ------------ ------------ ------------ ------------
Net Charge-offs ................. 2,876 2,070 2,492 2,330 2,213
------------ ------------ ------------ ------------ ------------
Balance at end of year ............... $ 10,058 $ 9,742 $ 9,221 $ 9,409 $ 8,902
============ ============ ============ ============ ============
</TABLE>
The following table presents the allocation of the allowance for loan losses by
loan category at December 31 for each of the years presented:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural ... $ 7,519 $ 7,099 $ 6,570 $ 6,479 $ 5,249
Real estate - construction ............
Real estate - mortgage ................ 195 283 305 202 157
Consumer .............................. 1,982 1,933 1,892 1,813 1,577
Unallocated ........................... 362 427 454 915 1,919
--------- ---------- ---------- ---------- ----------
Total ................................. $10,058 $ 9,742 $ 9,221 $ 9,409 $ 8,902
========= ========== ========== ========== ==========
</TABLE>
<PAGE> 25
Loans by Category to Total Loans
The following table presents the percentage of loans by category to total loans
at December 31 for each of the years presented:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural ... 19.50% 18.69% 18.06% 18.89% 19.49%
Real estate - construction ............ 4.68 3.62 3.77 3.54 3.10
Real estate - mortgage ................ 57.61 55.59 55.73 54.48 51.26
Consumer .............................. 18.21 22.10 22.44 23.09 26.15
----------- ----------- ----------- ----------- -----------
Total ................................. 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== ===========
Loan Loss Analysis
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Loans-average ......................... $ 765,199 $ 681,563 $ 621,716 $ 563,155 $ 545,037
Loans-year end ........................ 799,085 729,156 661,572 593,381 551,385
Net charge-offs ....................... 2,876 2,070 2,492 2,330 2,213
Allowance for loan losses ............. 10,058 9,742 9,221 9,409 8,902
Loan Ratios
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Net Charge-offs to:
Loans-average ....................... .38% .30% .40% .41% .41%
Allowance for loan losses ........... 28.59% 21.25% 27.03% 24.76% 24.86%
Allowance for loan losses to:
Loans-year end ...................... 1.26% 1.34% 1.39% 1.59% 1.61%
Non-performing loans ................ 126.47% 261.95% 191.39% 206.29% 227.61%
Non-performing loans to:
Loans-year end ...................... 1.00% .51% .73% .77% .71%
Loans-average ....................... 1.04% .55% .77% .81% .72%
</TABLE>
The following table shows the principal amounts of non-accrual and restructured
loans at December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Non-performing loans
Non-accruing ....................... $ 136 $ 204 $ 1,070 $ 1,655 $ 803
Accruing loans past due 90 days or
more ............................. 7,817 3,515 3,748 2,906 3,108
----------- ----------- ----------- ----------- -----------
Total non-performing loans ........... 7,953 3,719 4,818 4,561 3,911
Restructured loans ................... 146 178 203 224 243
----------- ----------- ----------- ----------- -----------
Total ................................ $ 8,099 $ 3,897 $ 5,021 $ 4,785 $ 4,154
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 26
Management and the Loss Management Committee closely monitor loans that are
considered to be non-performing. The Company's loan review staff also monitors
the performance of these loans. The interest income forgone and recognized on
restructured and non-accruing loans during 1999 was not significant.
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.
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.
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.
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 is the estimated impact of immediate
changes in interest rates at the specified levels at December 31:
Percentage Change In:
-------------------------------------------------
Change in Interest Rates Net Interest Income (1) Net Portfolio Value(2)
(In Basis Points) 1999 1998 1999 1998
- ------------------------ -------- -------- -------- --------
+400 ............... 18.7% (15.5%) (14.1%) (8.5%)
+300 ............... 14.2% (11.6%) (10.2%) (5.8%)
+200 ............... 9.8% (7.7%) (6.5%) (3.5%)
+100 ............... 6.2% (3.7%) (3.1%) (1.5%)
-100 ............... (2.6%) 6.5% 2.6% 0.7%
-200 ............... (7.7%) 1.3% 2.3% (3.1%)
-300 ............... (11.1%) (0.7%) 5.9% (5.6%)
-400 ............... (15.4%) (4.0%) 6.1% (10.1%)
(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.
<PAGE> 27
Interest Rate Risk (continued)
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 are 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 Company's 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 in cases where 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. Approximately 72% of the Company's
time deposits is composed of accounts with balances less than $100. 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 substantial sources of liquidity. The
Company has approximately 27.40% of loans maturing within the next twelve
months.
Average Loan to Deposit Ratio
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
77.43% 73.86% 74.33% 71.36% 72.92%
<PAGE> 28
Capital Resources
Total shareholders' equity of the Company was $116,089 and $110,209 at December
31, 1999 and 1998, respectively. Shareholders' equity grew 5.34% during 1999,
and 6.88% during 1998. The growth in capital for both years was attributable to
earnings less dividends declared. During 1999, the Company purchased 27,600
shares of stock, retiring 20,100. In addition, the change in the net unrealized
gain (loss) on securities available for sale decreased capital in 1999 by $4,111
and increased capital by $264 in 1998. Shareholders' equity as a percentage of
assets was 9.98% and 9.95% at December 31, 1999 and 1998, 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 classifications:
<TABLE>
<CAPTION>
Tier 1 Risk - Total Risk - Leverage
Capital Tiers Based Capital Based Capital Ratio
- ------------- ------------- ------------- --------
<S> <C> <C> <C>
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
</TABLE>
The Company met the guidelines for a well capitalized bank for both 1999 and
1998. At December 31, 1999, the total Tier 1 and total risk-based capital were
$113,423 and $123,339, respectively. Risk-weighted assets, less excess allowance
for loan losses, were $793,064 at December 31, 1999. Tier 1 and total risk-based
capital at December 31, 1998, were $103,576 and $112,844, respectively. See Note
K of the Consolidated Financial Statements for capital ratios.
Cash dividends have increased each consecutive year since 1987 (see selected
financial information for the previous five years). Cash dividends were raised
both in 1999 and 1998. Book value per share was $18.71 and $17.80 at December
31, 1999 and 1998, respectively. The increase in capital for both years,
excluding the effect of the net unrealized gain on securities available for
sale, was internally generated due to a retention of earnings of 64.76% and
63.11% during 1999 and 1998, respectively.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Risk Management" on pages 22 through 28
of the Registrant's 1999 Form 10-K is incorporated herein by reference.
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Auditors
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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Memphis, Tennessee
January 24, 2000
<PAGE> 30
<TABLE>
<CAPTION>
The Peoples Holding Company
Consolidated Balance Sheets
(In Thousands, Except Share Data)
December 31
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks .................................... $ 42,956 $ 32,453
Interest-bearing balances with banks ....................... 915 6,105
------------ ------------
Cash and Cash Equivalents 43,871 38,558
Time deposits with banks ................................... 152
Securities available for sale .............................. 181,133 214,463
Securities held to maturity (fair value - $83,373 and
$80,779 at December 31, 1999, and 1998, respectively) .. 85,611 79,176
Loans ...................................................... 799,085 729,156
Allowance for loan losses .............................. (10,058) (9,742)
------------ ------------
Net Loans 789,027 719,414
Premises and equipment, net ................................ 27,730 26,634
Other assets ............................................... 35,435 29,550
------------ ------------
Total Assets $ 1,162,959 $ 1,107,795
============ ============
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing .................................... $ 140,015 $ 152,496
Interest-bearing ....................................... 838,943 807,799
------------ ------------
Total Deposits 978,958 960,295
Treasury tax and loan note account .......................... 12,000 2,455
Advances from the Federal Home Loan Bank .................... 39,269 17,521
Federal funds purchased ..................................... 2,500
Other liabilities ........................................... 16,643 14,815
------------ ------------
Total Liabilities 1,046,870 997,586
Shareholders' Equity
Common stock, $5 par value -15,000,000 shares authorized,
6,212,284 and 6,191,854 issued and 6,204,784 and
6,191,854 outstanding at December 31, 1999 and
1998, respectively ..................................... 31,061 30,959
Treasury stock, at cost ..................................... (230)
Additional paid-in capital .................................. 40,424 39,876
Retained earnings ........................................... 48,115 38,544
Accumulated other comprehensive income (loss) ............... (3,281) 830
------------ ------------
Total Shareholders' Equity 116,089 110,209
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,162,959 $ 1,107,795
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 31
<TABLE>
<CAPTION>
The Peoples Holding Company
Consolidated Statements of Income
(In Thousands, Except Share Data)
Year ended December 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest Income
Loans ..................................... $ 66,730 $ 63,140 $ 58,523
Securities
Taxable ................................ 12,222 13,506 13,152
Tax-exempt ............................. 4,142 3,650 2,951
Other .................................... 406 984 695
---------- ---------- ----------
Total Interest Income 83,500 81,280 75,321
Interest Expense
Deposits .................................. 35,477 35,943 32,133
Borrowings ................................ 1,865 1,491 1,295
---------- ---------- ----------
Total Interest Expense 37,342 37,434 33,428
---------- ---------- ----------
Net Interest Income .......................... 46,158 43,846 41,893
Provision for loan losses .................... 3,192 2,591 2,304
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 42,966 41,255 39,589
Noninterest Income
Service charges on deposit accounts ....... 8,309 7,313 6,894
Fees and commissions ...................... 3,302 2,704 1,740
Trust revenue ............................. 941 846 719
Securities gains (losses) ................. 85 61 (41)
Gain on sale of credit card portfolio ..... 3,717
Other ..................................... 3,122 3,537 2,869
---------- ---------- ----------
Total Noninterest Income 19,476 14,461 12,181
---------- ---------- ----------
Noninterest Expense
Salaries and employee benefits ............ 22,398 21,365 20,064
Data processing ........................... 4,007 3,401 2,830
Net occupancy ............................. 2,858 2,730 2,643
Equipment ................................. 2,118 1,976 1,846
Other ..................................... 10,099 9,866 8,668
---------- ---------- ----------
Total Noninterest Expense 41,480 39,338 36,051
Income before income taxes ................... 20,962 16,378 15,719
Income taxes ................................. 6,182 4,697 4,716
---------- ---------- ----------
Net Income ................................... $ 14,780 $ 11,681 $ 11,003
========== ========== ==========
Basic and diluted earnings per share ......... $ 2.38 $ 1.88 $ 1.77
========== ========== ==========
Weighted average shares outstanding .......... 6,205,752 6,201,061 6,206,854
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 32
<TABLE>
<CAPTION>
The Peoples Holding Company
Consolidated Statements of Shareholders' Equity
(In Thousands, Except Share Data)
Accumulated
Common Stock Additional Other
---------------------- Treasury Paid-in Retained Comprehensive
Shares Amount Stock Capital Earnings Income (Loss) Total
----------- ---------- -------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ................... 4,138,263 $ 20,691 $ 39,876 $ 34,459 $ 227 $ 95,253
Comprehensive income:
Net income ..................................... 11,003 11,003
Other comprehensive income:
Unrealized holding gains on securities
available for sale (net of tax of $201) .... 312 312
Less reclassification adjustment for losses
realized in net income (net of tax of $14) .. 27 27
---------- ------------- ----------
Comprehensive income ......................... 11,003 339 11,342
Cash dividends - PHC ($.57 per share) .......... (3,360) (3,360)
Cash dividends - Inter-City ($.27 per share) ... (93) (93)
Stock split effected in the form of a stock
dividend .................................... 2,068,591 10,343 (10,343)
Payment of fractional shares for stock
dividend .................................... (29) (29)
----------- ---------- -------- ---------- ---------- ------------- ----------
Balance at December 31, 1997 ................... 6,206,854 $ 31,034 $ 39,876 $ 31,637 $ 566 $ 103,113
Comprehensive income:
Net income ..................................... 11,681 11,681
Other comprehensive income:
Unrealized holding gains on securities
available for sale (net of tax of $159) .... 302 302
Less reclassification adjustment for gains
realized in net income (net of tax of $23) .. (38) (38)
---------- ------------- ----------
Comprehensive income ......................... 11,681 264 11,945
Cash dividends - PHC ($.72 per share) .......... (4,184) (4,184)
Cash dividends - Inter-City ($.36 per share) ... (125) (125)
Treasury stock purchased and retired ........... (15,000) (75) (465) (540)
----------- ---------- -------- ---------- ---------- ------------- ----------
Balance at December 31, 1998 ................... 6,191,854 $ 30,959 $ $ 39,876 $ 38,544 $ 830 $ 110,209
Comprehensive income:
Net income ..................................... 14,780 14,780
Other comprehensive income:
Unrealized holding losses on securities
available for sale (net of tax of ($2,447)).. (4,058) (4,058)
Less reclassification adjustment for gains
realized in net income (net of tax of ($32)). (53) (53)
---------- ------------- ----------
Comprehensive income ......................... 14,780 (4,111) 10,669
Cash dividends ($.82 per share) ................ (5,209) (5,209)
Common stock issued for acquisition ............ 40,530 203 1,078 1,281
Treasury stock purchased ....................... (7,500) (230) (230)
Treasury stock purchased and retired ........... (20,100) (101) (530) (631)
----------- ---------- -------- ---------- ---------- ------------- ----------
Balance at December 31, 1999 ................... 6,204,784 $ 31,061 $ (230) $ 40,424 $ 48,115 $ (3,281) $ 116,089
=========== ========== ======== ========== ========== ============= ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 33
<TABLE>
<CAPTION>
The Peoples Holding Company
Consolidated Statements of Cash Flows
(In Thousands)
Year ended December 31
-------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net income ..................................................... $ 14,780 $ 11,681 $ 11,003
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses ................................. 3,192 2,591 2,304
Net amortization of securities ............................ 386 765 336
Depreciation and amortization ............................. 3,067 2,656 2,389
Deferred income taxes ..................................... (862) (429) (241)
Gain on sales of interest-bearing assets .................. (4,253) (736) (282)
(Gain) loss on sales of premises and equipment ............ (53) 157 233
Increase in other assets .................................. (2,137) (2,598) (2,329)
Increase in other liabilities ............................. 1,881 1,405 1,116
---------- ---------- ----------
Net Cash Provided by Operating Activities 16,001 15,492 14,529
---------- ---------- ----------
Investing Activities
Purchases of securities available for sale ..................... (95,808) (105,184) (114,367)
Proceeds from sales of securities available for sale ........... 12,410 16,242 48,988
Proceeds from call/maturities of securities available for sale . 110,074 63,692 71,322
Purchases of securities held to maturity ....................... (11,899) (23,928) (16,009)
Proceeds from calls/maturities of securities held to maturity .. 5,483 6,735 6,230
Net increase in loans .......................................... (131,594) (151,720) (104,778)
Proceeds from sales of loans ................................... 62,397 81,333 33,290
Proceeds from sales of premises and equipment .................. 369 272 62
Purchases of premises and equipment ............................ (3,506) (5,362) (4,032)
---------- ---------- ----------
Net Cash Used in Investing Activities (52,074) (117,920) (79,294)
---------- ---------- ----------
Financing Activities
Net increase (decrease) in non-interest bearing deposits ....... (12,481) 28,293 4,650
Net increase in interest-bearing deposits ...................... 31,144 61,920 63,888
Net increase (decrease) in short-term borrowings ............... 7,045 (1,146) (253)
Proceeds from other borrowings ................................. 24,250 1,000 9,400
Repayment of other borrowings .................................. (2,502) (2,439) (2,169)
Cash paid on fractional shares for stock dividend .............. (29)
Acquisition of treasury stock .................................. (861) (540)
Cash dividends paid ............................................ (5,209) (4,309) (3,453)
---------- ---------- ----------
Net Cash Provided by Financing Activities 41,386 82,779 72,034
---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 5,313 (19,649) 7,269
Cash and Cash Equivalents at Beginning of Year .................. 38,558 58,207 50,938
---------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 43,871 $ 38,558 $ 58,207
========== ========== ==========
Supplemental Disclosures:
Cash paid for:
Interest .................................................. $ 36,823 $ 37,528 $ 32,980
Income taxes .............................................. 7,209 5,404 5,207
Transfers of loans to other real estate ...................... $ 560 $ 1,531 $ 1,128
</TABLE>
See notes to consolidated financial statements.
<PAGE> 34
The Peoples Holding Company
Notes to Consolidated Financial Statements
December 31, 1999
(In Thousands, Except Share Data)
Note A - Significant Accounting Policies
Nature of Operations: 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).
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.
Business Combinations: All prior period amounts have been restated to reflect
business combinations accounted for as poolings-of-interests and, accordingly,
the financial position, results of operations and cash flows are presented as
though the companies were combined for all historical periods. Business
combinations accounted for using the purchase method of accounting reflect the
net assets of the companies recorded at their fair value at the date of
acquisition. Goodwill is amortized on a straight-line basis over 15-25 years,
the estimated periods benefited. The results of operations of the purchased
companies are included since the date of acquisition.
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.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Securities: Securities are classified as held to maturity when purchased if
management has the 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 and accretion is included in interest income from securities.
Interest, stock, 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.
Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balances adjusted for charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Loan origination and
commitment fees are recognized in the period the loan or commitments are granted
to reflect reimbursement of the related costs associated with originating those
loans and commitments.
Generally, the accrual of interest on mortgage and commercial loans is
discontinued at the time the loan is 90 days past due unless the credit is
well-secured and in process of the collection. Consumer and other retail loans
are typically charged off no later than 120 days past due. In all cases, loans
are placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
<PAGE> 35
Note A - Significant Accounting Policies (continued)
All interest accrued for the current year, but not collected for loans that are
placed on nonaccrual or charged off, is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
Allowance for Loan Losses: The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb probable losses in the loan portfolio. The allowance for
loan losses is evaluated based on a continuing assessment of problem loans,
historical loss experience, new lending products, emerging credit trends,
changes in the size and character of loan categories, and other factors
including its risk rating system, regulatory guidance and economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Impairment is measured on a loan by loan basis for commercial and
construction loans by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is collateral dependent.
When the ultimate collectibility of an impaired loan's principal is in doubt,
wholly or partially, all cash receipts are applied to principal. Once the
recorded balance has been reduced to zero, future cash receipts are applied to
interest income, to the extent any interest has been foregone, and then they are
recorded as recoveries of any amounts previously charged off. Large groups of
smaller balance homogeneous loans are evaluated collectively for impairment.
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.
Other Real Estate: Other real estate of $606 and $907 at December 31, 1999 and
1998, 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.
Mortgage Servicing Rights: The Company capitalizes purchased and
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. 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.
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
<PAGE> 36
Note A - Significant Accounting Policies (continued)
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. 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.
Impact of Recently Issued Accounting Standards: In June 1998, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is required to be adopted in years beginning after June 15,
2000. Because the Company does not currently use derivatives or intend to use
derivatives, the adoption of this Statement will not have an impact on earnings
or the financial position of the Company.
Reclassification: Certain 1998 and 1997 amounts have been reclassified to
conform to the 1999 presentation.
Note B - Business Combinations
On June 24, 1999, the Company purchased Reed-Johnson Insurance Agency, Inc. 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 coverage.
Reed-Johnson has retained its name and staff and operates as a wholly-owned
subsidiary of The Peoples Bank and Trust Company. The transaction was accounted
for under the purchase method of accounting. The proforma results, giving effect
to this transaction as though it occurred as of the beginning of the reporting
period, do not vary significantly from actual results.
On March 26, 1999, the Company merged with Inter-City Federal Bank for Savings
(Inter-City). At the merger date, total assets, loans, and deposits for
Inter-City totaled $43,482, $33,812, and $37,751, respectively. The merger was
accounted for using the pooling of interests method of accounting. The Company
exchanged 347,382 shares of its common stock for all the outstanding common
stock of Inter-City.
The following table presents selected financial information, split between the
Company and Inter-City.
Year ended December 31
--------------------------
1999 1998
------------ ------------
Interest Income
The Peoples Holding Company ................... $82,720 $77,913
Inter-City Federal Bank for Savings (1) ....... 780 3,367
------------ ------------
Total ...................................... $83,500 $81,280
============ ============
Interest Expense
The Peoples Holding Company ................... $36,916 $35,643
Inter-City Federal Bank for Savings (1) ....... 426 1,791
------------ ------------
Total ...................................... $37,342 $37,434
============ ============
Net Income
The Peoples Holding Company ................... $14,910 $11,368
Inter-City Federal Bank for Savings (1) ....... (130) 313
------------ ------------
Total ...................................... $14,780 $11,681
============ ============
(1) The results of operations from March 27, 1999, through December 31, 1999,
are included in The Peoples Holding Company amounts.
<PAGE> 37
Note C - Securities
The amortized cost and fair value of securities available for sale and held to
maturity at December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Securities Available For Sale
----------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized
Cost Gains Losses Fair Value
--------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
U. S. Treasury securities ................. $ 45,564 $ $ (494) $ 45,070
Obligations of other U. S.
Government agencies and corporations ... 47,294 (1,885) 45,409
Mortgage-backed securities ................ 89,828 13 (2,867) 86,974
FHLB stock ................................ 3,680 3,680
--------- ---------------- ---------------- ----------
$ 186,366 $ 13 $ (5,246) $ 181,133
========= ================ ================ ==========
Securities Held to Maturity
----------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized
Cost Gains Losses Fair Value
--------- ---------------- ---------------- ----------
Obligations of states and
political subdivisions ................. $ 85,611 $ 357 $ (2,595) $ 83,373
========= ================ ================ ==========
</TABLE>
The amortized cost and fair value of securities available for sale and held to
maturity at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Securities Available For Sale
----------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized
Cost Gains Losses Fair Value
--------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities .................. $ 54,397 $ 432 $ $ 54,829
Obligations of other U.S.
Government agencies and corporations ... 50,600 378 (10) 50,968
Mortgage-backed securities ................ 104,788 675 (150) 105,313
FHLB stock ................................ 3,353 3,353
--------- ---------------- ---------------- ----------
$ 213,138 $ 1,485 $ (160) $ 214,463
========= ================ ================ ==========
Securities Held to Maturity
----------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized
Cost Gains Losses Fair Value
--------- ---------------- ---------------- ----------
Obligations of other U.S.
Government agencies and corporations ... $ 2,234 $ $ (96) $ 2,138
Mortgage-backed securities ................ 49 7 56
Obligations of states and
political subdivisions ................. 76,893 1,855 (163) 78,585
--------- ---------------- ---------------- ----------
$ 79,176 $ 1,862 $ 259) $ 80,779
========= ================ ================ ==========
</TABLE>
<PAGE> 38
Note C - Securities (continued)
The amortized cost and fair value of securities available for sale and held to
maturity at December 31, 1999, 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.
Amortized Fair
Securities Available for Sale Cost Value
----------- -----------
Due in one year or less ................. $ 9,079 $ 9,039
Due after one year through five years ... 61,785 60,388
Due after five years through ten years .. 21,994 21,052
----------- -----------
92,858 90,479
Mortgage-backed securities .............. 89,828 86,974
FHLB stock .............................. 3,680 3,680
----------- -----------
$ 186,366 $ 181,133
=========== ===========
Amortized Fair
Securities Held to Maturity Cost Value
----------- -----------
Due in one year or less ................. $ 2,423 $ 2,438
Due after one year through five years ... 17,807 17,969
Due after five years through ten years .. 46,834 45,833
Due after ten years ..................... 18,547 17,133
----------- -----------
$ 85,611 $ 83,373
=========== ===========
At December 31, 1999 and 1998, securities with an amortized cost of
approximately $196,349 and $167,208, respectively, were pledged to secure
government, public, and trust deposits.
Note D - Loans and Allowance for Loan Losses
Loans are summarized as follows: December 31
-----------------------------
1999 1998
---------- ----------
Commercial, financial, and agricultural ...... $ 158,107 $ 138,374
Real estate - construction ................... 37,437 26,410
Real estate - mortgage ....................... 460,349 405,356
Consumer ..................................... 150,831 167,843
---------- ----------
806,724 737,983
Unearned income .............................. (7,639) (8,827)
Allowance for loan losses .................... (10,058) (9,742)
---------- ----------
$ 789,027 $ 719,414
========== ==========
Changes in the allowance for loan losses were as follows:
Year ended December 31
---------------------------------
1999 1998 1997
-------- -------- --------
Balance at beginning of year ............... $ 9,742 $ 9,221 $ 9,409
Provision for loan losses ................ 3,192 2,591 2,304
Loans charged-off ........................ (3,434) (2,537) (3,052)
Recoveries of loans
previously charged-off................. 558 467 560
-------- -------- --------
Balance at end of year ..................... $ 10,058 $ 9,742 $ 9,221
======== ======== ========
<PAGE> 39
Note D - Loans and Allowance for Loan Losses (continued)
Impaired loans recognized in conformity with SFAS No. 114, as amended by SFAS
No. 118, were as follows:
December 31
-----------------------------
1999 1998
---------- ----------
Impaired loans with a related allowance for
loan losses ............................... $ 1,741 $ 3,212
Impaired loans without a specific allowance
for loan losses ........................... 2,370 1,065
---------- ----------
Total impaired loans ......................... $ 4,111 $ 4,277
========== ==========
Year ended December 31
---------------------------------
1999 1998 1997
-------- -------- --------
Average recorded investment in impaired loans. $ 4,192 $ 3,841 $ 3,704
Interest income recognized using the accrual
basis of income recognition .............. $ 436 $ 340 $ 237
Interest income recognized using the
cash-basis of income recognition .......... $ 4 $ 13 $ 18
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 $11,341 and $10,667 at December
31, 1999 and 1998, respectively. During 1999, $6,667 of new loans were made and
payments received totaled $5,993.
Note E - Deposits
At December 31, 1999, the approximate scheduled maturities of time deposits are
as follows:
2000 ................ $ 370,118
2001 ................ 99,389
2002 ................ 23,040
2003 ................ 8,727
2004 ................ 2,459
Thereafter .......... 1,140
---------
Total ............... $ 504,873
=========
The aggregate amount of time deposits in denominations of $100 or more at
December 31, 1999 and 1998 was $141,778 and $131,248, respectively.
Certain executive officers and directors had amounts on deposit with the Bank of
approximately $3,180 at December 31, 1999.
<PAGE> 40
Note F - Advances from the Federal Home Loan Bank
The Company had outstanding advances from the FHLB of $39,269 and $17,521 at
December 31, 1999 and 1998, respectively. The interest rates on these advances
are all at fixed rates which range from 5.29% to 6.99% at December 31, 1999. The
Company had availability on unused lines of credit with the FHLB of $144,863 at
December 31, 1999.
During 1998, the Company obtained from the Federal Home Loan Bank an advance
totaling $1,000, with an interest rate of 6.03% and a maturity date of June 2,
2008. All advances are secured by one-to-four family first mortgages.
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, 1999:
2000 ................ $ 21,845
2001 ................ 4,784
2002 ................ 3,936
2003 ................ 968
2004 ................ 985
Thereafter .......... 6,751
---------
Total ............... $ 39,269
=========
Note G - Commitments, Contingent Liabilities and Financial Instruments with
Off-Balance Sheet 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 management's 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, 1999, were
approximately $145,758 and $6,598, respectively, compared to December 31, 1998,
which were approximately $198,449 and $13,207, respectively.
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.
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 H - 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 Company's
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, 1999 and 1998, are as
follows:
<PAGE> 41
Note H - Income Taxes (continued)
December 31
-----------------------------
1999 1998
---------- ----------
Deferred tax assets
Allowance for loan losses ................. $ 3,745 $ 3,548
Net unrealized losses on securities
available for sale .................... 1,952
Deferred compensation .................... 1,572 1,415
Other ..................................... 1,016 449
---------- ----------
Total deferred tax assets .............. 8,285 5,412
Deferred tax liabilities
Depreciation .............................. 1,425 1,248
Net unrealized gains on securities
available for sale .................... 495
Other ..................................... 734 852
---------- ----------
Total deferred tax liabilities ......... 2,159 2,595
---------- ----------
Net deferred tax assets ............... $ 6,126 $ 2,817
========== ==========
Significant components of the provision for income taxes (credits) are as
follows:
Year ended December 31
--------------------------------
1999 1998 1997
-------- -------- --------
Current
Federal ............................ $ 6,307 $ 4,654 $ 4,510
State .............................. 737 472 447
-------- -------- --------
7,044 5,126 4,957
Deferred
Federal ............................ (735) (373) (208)
State .............................. (127) (56) (33)
-------- -------- --------
(862) (429) (241)
-------- -------- --------
$ 6,182 $ 4,697 $ 4,716
======== ======== ========
The reconciliation of income taxes (credits) computed at the United States
federal statutory tax rates to the provision for income taxes is:
Year ended December 31
--------------------------------
1999 1998 1997
-------- -------- --------
Tax at U.S. statutory rate ............... $ 7,337 $ 5,732 $ 5,502
Tax-exempt interest income ............... (1,709) (1,498) (1,201)
State income tax, net of federal benefit . 401 271 272
Amortization of intangible assets ........ 27 27 58
Dividends received deduction ............. (9) (12) (11)
Other items-net .......................... 135 177 96
-------- -------- --------
$ 6,182 $ 4,697 $ 4,716
======== ======== ========
<PAGE> 42
Note I - Restrictions on Cash, Bank Dividends, Loans, or Advances
The Bank is required to maintain average balances with the Federal Reserve Bank.
The average amount of those balances for the year ended December 31, 1999, was
approximately $15,174.
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, 1999, the unrestricted
surplus was approximately $103,783.
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, 1999, the maximum amount available for transfer from the Bank to
the Company in the form of cash dividends and loans was 20.27% of the Bank's
consolidated net assets. There were no loans outstanding from the Bank to the
Company at December 31, 1999.
Note J - Employee Benefit and Deferred Compensation Plans
The Company sponsored a defined benefit noncontributory pension plan which was
curtailed as of December 31, 1996. Accordingly, participant accruals were frozen
as of that date. 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. The Company did not make a contribution to the Plan for the years 1999,
1998, or 1997.
The Company also provides certain health care and/or life insurance to retired
employees. Substantially all of the Company's employees may become eligible for
these benefits if they reach normal of 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 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 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 or decreasing
the assumed health care cost trend rates by one percentage point in each year
would not increase or decrease the accumulated postretirement benefit obligation
nor the service and interest cost components of net periodic postretirement
benefit costs as of December 31, 1999, and for the year then ended.
<PAGE> 43
Note J - Employee Benefit and Deferred Compensation Plans (continued)
Pension Benefits represent the defined benefit pension plan previously offered
by the Company and Other Benefits represent the postretirement health and life
plans. There is no additional minimum pension liability required to be
recognized. The following table sets forth the required disclosures as of
December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year .......$ 12,417 $ 11,237 $ 455 $ 442
Service cost .................................. 33 27
Interest cost ................................. 867 820 38 31
Plan participants' contributions .............. 44 29
Actuarial gain (loss).......................... (1,336) 914 56 65
Benefits paid ................................. (539) (554) (185) (139)
Plan amendment ................................ 39
---------- ----------- ---------- ----------
Benefit obligation at end of year ...............$ 11,409 $ 12,417 $ 480 $ 455
========== =========== ========== ==========
Change in plan assets
Fair value of plan assets at beginning of year.$ 13,015 $ 12,096
Actual return on plan assets .................. 854 1,473
Benefits paid ................................. (539) (554)
---------- -----------
Fair value of plan assets at end of year ........$ 13,330 $ 13,015
========== ===========
Prepaid (accrued) benefits cost
Funded status .................................$ 1,921 $ 598 $ (480) $ (455)
Unrecognized net actuarial (gain) loss ........ (600) 568 90 34
Unamortized prior service cost ................ 290 320 34
---------- ----------- ---------- ----------
Prepaid (accrued) benefit cost ..................$ 1,611 $ 1,486 $ (356) $ (421)
========== =========== ========== ==========
Weighted-average assumptions as of December 31
Discount rate ................................. 8.0% 7.0% 8.0% 7.0%
Expected return on plan assets ................ 8.0% 8.0% N/A N/A
</TABLE>
<PAGE> 44
Note J - Employee Benefit and Deferred Compensation Plans (continued)
<TABLE>
<CAPTION>
Year ended December 31 Year ended December 31
------------------------------------- ------------------------------------
Pension Benefits Other Benefits
------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost(income)
Service cost ................... $ $ $ $ 33 $ 27 $ 25
Interest cost .................. 867 820 789 38 31 32
Expected return on plan assets . (1,022) (950) (859)
Prior service cost recognized .. 30 30 30 5
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost(income). $ 125) $ (100) $ (40) $ 76 $ 58 $ 57
========== ========== ========== ========== ========== ==========
</TABLE>
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 accrued $674 and $738
to the money purchase pension plan in 1999 and 1998, respectively. 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,
completed a year of service and is employed on the last day of the plan year.
The Company's costs related to the 401(k) plan in 1999 and 1998 were $371 and
$381, respectively.
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 $160, $300, and
$100 in 1999, 1998, and 1997, respectively.
The Company adopted the existing Incentive Compensation Plan effective January
1, 1997. Incentive benefits are paid to eligible officers and employees after
the end of each calendar year and are determined based on established criteria
relating to growth, profitability, asset quality and productivity. Management
sets key performance indicators for all applicable profit centers to reward
employees on improved economic benefit derived from the profit center. The
expense associated with the Plan for 1999, 1998 and 1997 was $1,564, $332 and
$775, respectively.
The Company's Deferred Compensation Plan is available to eligible directors and
officers. Directors may defer up to 100% of their fees and retainers. Employees
may defer up to 10% of their salaries. Opportunities to increase deferrals, or
for new participants to enter the Plan, are offered periodically. The interest
amount accrued on deferrals is tied to Moody's Average Corporate Bond Rate for
the previous year. The Plans are unfunded, and it is anticipated that they will
result in no cost of the Company over the term of the Plans because life
insurance policies on the lives of the Participants have been purchased in
amounts estimated to be sufficient to pay benefits under the Plans. The Company
is both the owner and beneficiary of the life insurance policies. The expense
recorded in 1999, 1998 and 1997 for the Employee Deferred Compensation Plans,
inclusive of the salary deferrals, was $341, $281 and $269, respectively. The
expense recorded in 1999, 1998 and 1997 for the Directors Deferred Compensation
Plans, inclusive of fee deferrals, was $136, $125 and $108, respectively. There
were no retainer deferrals for 1999, 1998 or 1997.
<PAGE> 45
Note K - 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 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. There are no
conditions or events since that notification that management believes have
changed the institution's category.
December 31
-----------------------------------------------------
1999 1998
------------------------ ----------------------------
Amount Ratio Amount Ratio
------------ ----------- -------------- -------------
The Company
Total Capital ..... $123,339 15.55% $112,844 15.23%
Tier I Capital .... 113,423 14.30% 103,576 13.98%
Tier I Leverage ... 113,423 9.95% 103,576 9.75%
The Bank
Total Capital ..... $123,208 15.54% $112,920 15.24%
Tier I Capital .... 113,294 14.29% 103,650 13.99%
Tier I Leverage ... 113,294 9.94% 103,650 9.76%
Note L - Segment Reporting
The Company has defined two reportable segments: branches and specialized
products. Branches offer commercial, consumer, and mortgage loans as well as
full range of deposit services. Specialized products include leasing, student
loans, credit cards, accounts receivable factoring, trust services, and
financial investment alternatives.
The Company evaluates performance based on profit or loss from operations. The
reportable segments do not receive any allocations for income taxes or gains and
losses from security sales. The accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies.
Intersegment transfers are recorded at cost; there is no intercompany profit or
loss on these transfers. There are no intercompany receivables.
<PAGE> 46
Note L - Segment Reporting (continued)
Branches are defined as a reportable segment because, while they offer a variety
of products, they offer the same set of products, use the same delivery system,
and are evaluated by the same set of standards. Specialized products are grouped
together, not because of similarities in the products, but because of the
delivery system which is largely marketed through branch referrals and the
immateriality of the revenue generated by each division separately. The
similarity in these is that they are all specialized financial services products
which must be supported by experts.
<TABLE>
<CAPTION>
Year ended December 31, 1999
Specialized
Branches Products All Other Total
------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Net interest income ....................... $ 42,369 $ 3,400 $ 389 $ 46,158
Provision for loan losses ................. 1,780 1,209 203 3,192
------------- ---------------- --------------- -------------
Net interest income after provision
for loan losses ........................ 40,589 2,191 186 42,966
Noninterest income ........................ 11,310 7,510 656 19,476
Noninteret expense ........................ 24,061 4,595 12,824 41,480
------------- ---------------- --------------- -------------
Income before income taxes ................ 27,838 5,106 (11,982) 20,962
Income taxes .............................. 6,182 6,182
------------- ---------------- --------------- -------------
Net income ................................ $ 27,838 $ 5,106 $ (18,164) $ 14,780
============= ================ =============== =============
Intersegment revenue (expense) ............ $ 551 $ (551)
============= ================
Segment assets ............................ $ 1,044,751 $ 68,857 $ 49,351 $ 1,162,959
============= ================ =============== =============
Year ended December 31, 1998
Net interest income ....................... $ 40,276 $ 3,519 $ 51 $ 43,846
Provision for loan losses ................. 1,707 714 170 2,591
------------- ---------------- --------------- -------------
Net interest income after provision
for loan losses ........................ 38,569 2,805 (119) 41,255
Noninterest income ........................ 9,964 4,233 264 14,461
Noninteret expense ........................ 24,830 5,275 9,233 39,338
------------- ---------------- --------------- -------------
Income before income taxes ................ 23,703 1,763 (9,088) 16,378
Income taxes .............................. 4,697 4,697
------------- ---------------- --------------- -------------
Net income ................................ $ 23,703 $ 1,763 $ (13,785) $ 11,681
============= ================ =============== =============
Intersegment revenue (expense) ............ $ 517 $ (517)
============= ================
Segment assets ............................ $ 984,273 $ 91,385 $ 32,137 $ 1,107,795
============= ================ =============== =============
</TABLE>
<PAGE> 47
Note L - Segment Reporting (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1997 Specialized
Branches Products All Other Total
------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Net interest income ....................... $ 38,472 $ 3,372 $ 49 $ 41,893
Provision for loan losses ................. 1,823 375 106 2,304
------------- ---------------- --------------- -------------
Net interest income after provision
for loan losses ........................ 36,649 2,997 (57) 39,589
Noninterest income ........................ 9,484 2,590 107 12,181
Noninterest expense ...................... 23,133 4,948 7,970 36,051
------------- ---------------- --------------- -------------
Income before income taxes ................ 23,000 639 (7,920) 15,719
Income taxes .............................. 4,716 4,716
------------- ---------------- --------------- -------------
Net income ................................ $ 23,000 $ 639 $ (12,636) $ 11,003
============= ================ =============== =============
Intersegment revenue (expense) ............ $ 629 $ (629)
============= ================
Segment assets ............................ $ 895,910 $ 77,723 $ 38,309 $ 1,011,942
============= ================ =============== =============
</TABLE>
Note M - 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.
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.
Deposits: 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: Off-balance-sheet items are primarily short-term commitments,
often at variable rates which are tied to prime, accordingly, the commitment
amounts approximate fair value.
<PAGE> 48
Note M - Disclosures About Fair Value of Financial Instruments (continued)
<TABLE>
<CAPTION>
1999 1998
----------------------- ----------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks ......................... $42,956 $42,956 $32,453 $32,453
Interest bearing balances with banks ............ 1,067 1,067 6,105 6,105
Securities ...................................... 266,744 264,506 293,639 295,242
Loans, net ...................................... 789,027 782,928 719,414 727,647
Financial liabilities:
Deposits ........................................ 978,958 978,295 960,295 962,400
Treasury tax and loan note account .............. 12,000 12,000 2,455 2,455
Borrowings ...................................... 39,269 38,704 20,021 20,204
</TABLE>
Note N - The Peoples Holding Company (Parent Company Only)
Condensed Financial Information
December 31
-------------------------
1999 1998
------------ ------------
Assets
Cash ........................................... $ 209 $ 42
Dividends receivable ........................... 1,305 1,110
Stock .......................................... 75
Investment in bank subsidiary .................. 115,959 110,283
------------ ------------
Total Assets ................................. $ 117,548 $ 111,435
============ ============
Liabilities and Shareholders' Equity
Dividends payable .............................. $ 1,305 $ 1,110
Accrued interest payable and other liabilities . 154 116
Shareholders' equity ........................... 116,089 110,209
------------ ------------
Total Liabilities and Shareholders' Equity ... $ 117,548 $ 111,435
============ ============
<PAGE> 49
Note N - The Peoples Holding Company (Parent Company Only)
Condensed Financial Information (continued)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------
Statements of Income 1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiary ............... $ 6,426 $ 4,988 $ 3,453
Other dividends .............................. 51 46
Other income ................................. 1
Interest income from bank subsidiary ......... 2
------------- -------------- ------------
6,426 5,039 3,502
Expenses
Other ........................................ 245 256 251
Income before income tax credits and equity in
undistributed net income of bank subsidiary .. 6,181 4,783 3,251
Income tax credits .............................. (94) (84) (86)
------------- -------------- ------------
6,275 4,867 3,337
Equity in undistributed net income of bank
subsidiary ................................... 8,505 6,814 7,666
------------- -------------- ------------
Net Income ................................... $ 14,780 $ 11,681 $ 11,003
============= ============== ============
Year ended December 31
-----------------------------------------
Statements of Cash Flows 1999 1998 1997
------------- -------------- ------------
Operating Activities
Net Income ..................................... $ 14,780 $ 11,681 $ 11,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of bank
subsidiary ............................... (8,505) (6,814) (7,666)
Increase in dividends receivable ........... (195) (251) (78)
Increase in other liabilities .............. 233 216 159
------------- -------------- ------------
Net Cash Provided by Operating Activities .. 6,313 4,832 3,418
Investing Activities
Maturities of certificates of deposit .......... 86
Purchase of stock in insurance company ......... (75)
Purchase of fractional shares in Inter-City .... (1)
------------- -------------- ------------
Net Cash Provided by (Used In) Investing
Activities ............................... (76) 86
Financing Activities
Cash dividends ................................. (5,209) (4,309) (3,453)
Payment of fractional shares on stock dividend . (29)
Purchase of treasury stock ..................... (861) (540)
------------- -------------- ------------
Net Cash Used in Financing Activities ...... (6,070) (4,849) (3,482)
------------- -------------- ------------
Increase (Decrease) In Cash ................ 167 (17) 22
Cash at Beginning of Year ....................... 42 59 37
------------- -------------- ------------
Cash at End of Year ........................ $ 209 $ 42 $ 59
============= ============== ============
</TABLE>
<PAGE> 50
Note O - Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
Mar 31 June 30 Sept 30 Dec 31
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Interest income ....................... $ 20,538 $ 21,002 $ 20,889 $ 21,071
Interest expense ...................... 9,136 9,267 9,291 9,648
------------ ----------- ------------ -----------
Net interest income ................... 11,402 11,735 11,598 11,423
Provision for loan losses ............. 746 1,275 530 641
Noninterest income .................... 3,988 7,548 3,909 4,031
Noninterest expense ................... 10,327 10,323 10,337 10,493
------------ ----------- ------------ -----------
Income before income taxes ............ 4,317 7,685 4,640 4,320
Income taxes .......................... 1,102 2,528 1,448 1,104
------------ ----------- ------------ -----------
Net income ............................ $ 3,215 $ 5,157 $ 3,192 $ 3,216
============ =========== ============ ===========
Basic and diluted earnings per share .. $ 0.52 $ 0.83 $ 0.51 $ 0.52
============ =========== ============ ===========
Year ended December 31, 1998
Interest income ....................... $ 19,704 $ 20,185 $ 20,585 $ 20,806
Interest expense ...................... 8,957 9,266 9,585 9,626
------------ ----------- ------------ -----------
Net interest income ................... 10,747 10,919 11,000 11,180
Provision for loan losses ............. 645 644 646 656
Noninterest income .................... 3,431 3,392 3,635 4,003
Noninterest expense ................... 9,357 9,768 9,767 10,446
------------ ----------- ------------ -----------
Income before income taxes ............ 4,176 3,899 4,222 4,081
Income taxes .......................... 1,221 1,089 1,212 1,175
------------ ----------- ------------ -----------
Net income ............................ $ 2,955 $ 2,810 $ 3,010 $ 2,906
============ =========== ============ ===========
Basic and diluted earnings per share .. $ 0.48 $ 0.45 $ 0.48 $ 0.47
============ =========== ============ ===========
</TABLE>
<PAGE> 51
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 15,
2000, 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 15, 2000, which is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Summary Compensation Table-Annual Compensation"
on pages 6 through 10 of the Company's definitive Proxy Statement, dated March
15, 2000, 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 15, 2000, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Transactions with Management" on page 11 of the
Company's definitive Proxy Statement, dated March 15, 2000, is incorporated
herein by reference.
<PAGE> 52
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.
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) No Form 8-K was filed during the quarter ended December 31, 1999
(d) Financial Statement Schedules -- None.
<PAGE> 53
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 15, 2000 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,
Vice Chairman of the Board,
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
Eugene B. Gifford, Jr., Director ...................../s/ Eugene B. Gifford, Jr.
J. Niles McNeel, Director ............................/s/ J. Niles McNeel
C. Larry Michael, Director .........................../s/ C. Larry Michael
Jimmy S. Threldkeld, Director ......................../s/ Jimmy S. Threldkeld
H. Joe Trulove, Director ............................./s/ H. Joe Trulove
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> 54
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 are included in this Form
10-K (Item 8) of the registrant for the year ended December 31, 1999.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Income--Years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Shareholders' Equity--Years ended
December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows--Years ended
December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements--December 31, 1999
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.
Exhibit 23
The Peoples Holding Company
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-20108) of The Peoples Holding Company and in the related Prospectus
of our report dated January 24, 2000, with respect to the consolidated financial
statements of The Peoples Holding Company included in this Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Memphis, Tennessee
March 13, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,956
<INT-BEARING-DEPOSITS> 1,067
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 181,133
<INVESTMENTS-CARRYING> 85,611
<INVESTMENTS-MARKET> 83,373
<LOANS> 799,085
<ALLOWANCE> 10,058
<TOTAL-ASSETS> 1,162,959
<DEPOSITS> 978,958
<SHORT-TERM> 32,000
<LIABILITIES-OTHER> 16,643
<LONG-TERM> 19,269
0
0
<COMMON> 31,061
<OTHER-SE> 85,028
<TOTAL-LIABILITIES-AND-EQUITY> 116,089
<INTEREST-LOAN> 66,730
<INTEREST-INVEST> 16,364
<INTEREST-OTHER> 406
<INTEREST-TOTAL> 83,500
<INTEREST-DEPOSIT> 35,477
<INTEREST-EXPENSE> 37,342
<INTEREST-INCOME-NET> 46,158
<LOAN-LOSSES> 3,192
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 41,480
<INCOME-PRETAX> 20,962
<INCOME-PRE-EXTRAORDINARY> 20,962
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,780
<EPS-BASIC> 2.38
<EPS-DILUTED> 2.38
<YIELD-ACTUAL> 4.65
<LOANS-NON> 136
<LOANS-PAST> 7,817
<LOANS-TROUBLED> 146
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,742
<CHARGE-OFFS> 3,434
<RECOVERIES> 558
<ALLOWANCE-CLOSE> 10,058
<ALLOWANCE-DOMESTIC> 10,058
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 362
</TABLE>
