UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 1-13253
THE PEOPLES HOLDING COMPANY
-------------------------------------------------------
(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38801
----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 6,019,546 shares outstanding
as of May 12, 2000
1
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999................ 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999.......... 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999.......... 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8
Item 3.
Quantitative and Qualitative Disclosures
About Market Risk................................... 11
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings....................................... 11
Item 6.(b)
Exhibits and Reports on Form 8-K........................ 11
Signatures.................................................. 11
2
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
MARCH 31 DECEMBER 31
2000 1999
------------ -----------
(Unaudited) (Note 1)
Assets
Cash and due from banks .................. $ 38,673 $ 42,956
Interest-bearing balances with banks ..... 17,082 915
---------- ---------
Cash and Cash Equivalents ... 55,755 43,871
Time deposits with banks ................. 152
Securities available-for-sale ............ 191,870 181,133
Securities held-to-maturity (fair
value-$82,391 and $83,373 at
March 31, 2000 and December 31,
1999, respectively) ................... 84,670 85,611
Loans, net of unearned income ............ 815,917 799,085
Allowance for loan losses ............. (10,170) (10,058)
---------- ---------
Net Loans ................... 805,747 789,027
Premises and equipment, net .............. 28,149 27,730
Other assets ............................. 36,466 35,435
---------- ---------
Total Assets .................... $ 1,202,657 $ 1,162,959
========== =========
Liabilities
Deposits:
Noninterest-bearing ................... $ 148,647 $ 140,015
Interest-bearing ...................... 895,555 838,943
---------- ---------
Total Deposits .............. 1,044,202 978,958
Treasury tax and loan note account ....... 6,845 12,000
Advances from the Federal Home Loan Bank . 19,249 39,269
Other liabilities ........................ 15,208 16,643
---------- ---------
Total Liabilities ........... 1,085,504 1,046,870
Shareholders' Equity
Common Stock, $5 par value - 15,000,000
shares authorized, 6,212,284 shares
issued and 6,204,784 shares outstanding
at March 31, 2000 and December 31, 1999,
respectively ........................... 31,061 31,061
Treasury stock, at cost .................. (230) (230)
Additional paid-in capital ............... 39,959 40,424
Retained earnings ........................ 50,483 48,115
Accumulated other comprehensive income ... (4,120) (3,281)
---------- ---------
Total Shareholders' Equity .. 117,153 116,089
---------- ---------
Total Liabilities and
Shareholders' Equity ......... $ 1,202,657 $ 1,162,959
========== =========
See Notes to Condensed Consolidated Financial Statements
3
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
THREE MONTHS ENDED MARCH 31
2000 1999
---- ----
(Unaudited)
Interest Income
Loans ................................ $ 17,523 $ 16,162
Securities:
Taxable ......................... 2,815 3,011
Tax-exempt ...................... 1,049 989
Other ................................ 217 376
------- -------
Total Interest Income ...... 21,604 20,538
Interest Expense
Deposits ............................. 9,573 8,775
Borrowings .......................... 466 361
------- -------
Total Interest Expense ..... 10,039 9,136
---------- ----------
Net Interest Income ........ 11,565 11,402
Provision for loan losses .................. 989 746
--------- ---------
Net Interest Income After
Provision for Loan Losses .. 10,576 10,656
Noninterest Income
Service charges on deposit accounts .. 2,433 1,933
Fees and commissions ................. 932 735
Trust revenue ........................ 267 210
Securities gains (losses)............. 34
Other ................................ 751 1,076
------- -------
Total Noninterest Income ... 4,383 3,988
Noninterest Expense
Salaries and employee benefits ....... 5,496 5,077
Data processing ...................... 834 929
Net occupancy ........................ 733 773
Equipment ............................ 700 546
Other ................................ 2,655 3,002
--------- ---------
Total Noninterest Expense .. 10,418 10,327
---------- ----------
Income before income taxes ................. 4,541 4,317
Income taxes ............................... 1,273 1,102
--------- ---------
Net Income ................. $ 3,268 $ 3,215
========== ==========
Basic and diluted earnings per share ...... $ 0.53 $ 0.52
====== ======
Weighted average shares outstanding ....... 6,204,784 6,191,854
========= =========
See Notes to Condensed Consolidated Financial Statements
4
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
THREE MONTHS ENDED MARCH 31
2000 1999
---- ----
(Unaudited)
Operating Activities
Net Cash Provided by Operating
Activities .................... $ 3,315 $ 4,903
Investing Activities
Purchases of securities
available-for-sale ................. (15,832) (39,439)
Proceeds from calls/maturities of
securities available-for-sale ...... 3,651 40,159
Purchases of securities
held-to-maturity ................... (4,516)
Proceeds from calls/maturities of
securities held-to-maturity ........ 1,106 2,313
Net increase in loans ................... (24,087) (35,272)
Proceeds from sales of loans ............ 6,027 20,853
Proceeds from sales of premises
and equipment ...................... 71 225
Purchases of premises and equipment ..... (1,071) (1,354)
---------- ----------
Net Cash Used in Investing
Activities .................... (30,135) (17,031)
Financing Activities
Net increase (decrease) in
noninterest-bearing deposits ........ 8,632 (10,105)
Net increase in
interest-bearing deposits ........... 56,612 32,123
Net decrease in
short-term borrowings ............... (5,155) (439)
Proceeds from other borrowings .......... 570 3,000
Repayments of other borrowings .......... (20,590) (645)
Cash dividends paid ..................... (1,365) (1,300)
---------- ----------
Net Cash Provided by Financing
Activities ................... 38,704 22,634
---------- ----------
Increase in Cash
and Cash Equivalents ......... 11,884 10,506
Cash and Cash Equivalents at
beginning of period ............... 43,871 38,558
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 55,755 $ 49,064
============ ============
Supplemental Disclosures:
Non-cash transactions:
Transfer of loans to other real
estate ............................... $ 309 $ 233
============ ============
See Notes to Condensed Consolidated Financial Statements
5
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
(in thousands, except share data)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
For further information, refer to the consolidated financial statements and
footnotes thereto included in The Peoples Holding Company and Subsidiary's
(collectively, the Company) annual report on Form 10-K for the year ended
December 31, 1999.
Note 2 Comprehensive Income
For the three month periods ended March 31, 2000 and 1999, total comprehensive
income amounted to $2,429 and $2,586, respectively.
Note 3 Segment Reporting
Segment information for the three months ended March 31, 2000 and 1999, is
presented below.
Three Months Ended March 31, 2000
Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 10,791 $ 694 $ 80 $ 11,565
Provision for loan loss .... 719 208 62 989
------- ------- ------- -------
Net interest income after
provision for loan loss .. 10,072 486 18 10,576
Non-interest income ........ 3,283 801 299 4,383
Non-interest expense ....... 6,005 941 3,472 10,418
------- ------- ------- -------
Income before income taxes . 7,350 346 (3,155) 4,541
Income taxes ............... 0 0 1,273 1,273
------- ------- ------- -------
Net income ................. $ 7,350 $ 346 $ (4,428) $ 3,268
======= ======= ======= =======
Intersegment revenue
(expense) ................ $ 132 $ 132 $ 0 $ 0
======= ======= ======= =======
6
Three Months Ended March 31, 1999
Specialized
Branches Products All Other Total
-------- ---------- --------- ---------
Net interest income ........ $ 10,399 $ 975 $ 28 $ 11,402
Provision for loan loss .... 455 246 45 746
------- ------- ------- -------
Net interest income after
provision for loan loss .. 9,944 729 (17) 10,656
Non-interest income ........ 2,700 799 489 3,988
Non-interest expense ....... 6,105 1,074 3,148 10,327
------- ------- ------- -------
Income before income taxes . 6,539 454 (2,676) 4,317
Income taxes ............... 0 0 1,102 1,102
------- ------- ------- -------
Net income ................. $ 6,539 $ 454 $ (3,778) $ 3,215
======= ======= ======= =======
Intersegment revenue
(expense) ................ $ 93 $ (93) $ 0 $ 0
======= ======= ======= =======
Note 4 Subsequent Events
On March 31, 2000, the Company had 7,500 shares of treasury stock which was
purchased during 1999. On April 7, 2000, the Company purchased an additional
185,238 shares of its common stock at an average price of $24.38 per share.
On May 1, 2000, the Company entered into an agreement in which the subsidiary of
The Peoples Bank and Trust Company (the Bank), Reed-Johnson Insurance Agency,
Inc., acquired The Southern Insurance Group. With locations in Corinth and
Tupelo, Mississippi, The Southern Insurance Group represents more than 50
leading insurance companies and offers personal and commercial property and
casualty insurance, life and health insurance, and other financial services.
Premium volume for 1999 totaled more than $20 million. The two agencies are
being renamed The Peoples Insurance Agency, Inc., and in the near term, each
will continue to operate in its current location with existing personnel.
7
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(in thousands, except share data)
This Form 10-Q may contain, or incorporate by reference, statements which may
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Prospective investors are cautioned that
any such forward-looking statements are not guarantees for future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking
statements. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include significant fluctuations in interest rates, inflation, economic
recession, significant changes in the federal and state legal and regulatory
environment, significant underperformance in the Company's portfolio of
outstanding loans, and competition in the Company's markets. The Company
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
Financial Condition
Total assets of The Peoples Holding Company grew from $1,162,959 on December 31,
1999, to $1,202,657 on March 31, 2000, or 3.41% for the three month period.
Total securities increased slightly from $266,744 on December 31, 1999,
to $276,540 on March 31, 2000. Loans, net of unearned income, increased $16,832
or 2.11%, primarily in commercial loan accounts.
Total deposits for the first three months of 2000 grew from $978,958 on
December 31, 1999 to $1,044,202 on March 31, 2000, or an increase of
6.66%, with the majority of growth in public fund checking and time deposits.
The equity capital to total assets ratios were 9.74% and 9.98% for March 31,
2000 and December 31, 1999, respectively. Capital grew .92% from December 31,
1999 to March 31, 2000. With the recent increases in interest rates, changes in
accumulated comprehensive income related to unrealized portfolio losses have
curtailed growth in capital. Cash dividends increased from $.21 per share in
December of 1999 to $.22 per share in March of 2000.
Results of Operations
The Company's net income for the three month period ending March 31, 2000,
was $3,268, representing an increase of $53 or 1.65% over net income
for the three month period ending March 31, 1999, which totaled $3,215.
The increase in net income for the three month period in 2000 compared to 1999
resulted from usual and customary deposit gathering and lending operations. The
annualized return on average assets for the three month periods ending March 31,
2000 and 1999, was 1.11% and 1.16%, respectively.
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary concerns in managing net interest income are the
mix and the maturities of rate-sensitive assets and liabilities. Net interest
margins were 4.55% and 4.69% for the three month periods ending March 31,
2000 and 1999, respectively. While the Company has grown its asset base
significantly, the flattening of the net interest income growth was due to an
increase in costing liabilities and the reduction of the spread, over prime, on
loans as rates rose. Net interest income for the three month periods ending
March 31, 2000 and 1999 was $11,565 and $11,402, respectively. Earning assets
averaged $1,093,873 for the three month period ending March 31, 2000, compared
to $1,041,061 for the same period in 1999.
8
The provision for loan losses charged to operating expense is an amount which,
in the judgement of management, is necessary to maintain the allowance for loan
losses at a level that is adequate to meet the inherent risks of losses on the
Company's current portfolio of loans. The appropriate level of the allowance is
based on a quarterly analysis of the loan portfolio including consideration of
such factors as the risk rating of individual credits, size and diversity of the
portfolio, economic conditions, prior loss experience, and the results of
periodic credit reviews by internal loan review and regulators. The provision
for loan losses totaled $989 and $746 for the three month periods ending
March 31, 2000 and 1999, respectively. The allowance for loan losses as a
percentage of loans outstanding was 1.25% and 1.26% as of March 31, 2000 and
December 31, 1999, respectively. Net charge-offs to average loans was .11%
and .05% for the three month periods ending March 31, 2000 and 1999,
respectively. The increase in net charge-offs was primarily due to automobile
loans that were isolated to a specific location.
Noninterest income, excluding gains from the sales of securities, was $4,383
for the three month period ending March 31, 2000, compared to $3,954 for the
same period in 1999, or an increase of 10.85%. The increase between 2000 and
1999 is due in large part to fees associated with the increases in loans and
deposits and the continued emphasis in sales of miscellaneous services and
products. While non-sufficient fund fees accounted for the majority of the
increase in service charges, changes made to our fee structure on different
account types created a substantial boost to service charge income. Fees and
commissions increased as a result of financial investment alternative
commissions, loan document preparation fees, Handy Check income, and ATM usage
fees. Other noninterest income decreased from the prior year primarily as the
result of a reduction of approximately $300 in life insurance benefits and gains
on the sale of mortgage loans.
Noninterest expense was $10,418 for the three month period ending March 31,
2000, compared to $10,327 for the same period in 1999, or an increase of
.88%. Depreciation expense related to the recent placement of new premises,
equipment, and other technology enhancements has been the most significant
increase in noninterest expense between these periods. The increase in
noninterest expense has been minimized by the reduction of acquisition costs and
credit card processing costs incurred during the first quarter of 1999. The
remaining components of noninterest expense reflect normal increases for banking
related expenses and general inflation in the cost of services and supplies
purchased by the Company.
Income tax expense was $1,273 for the three month period ending March 31,
2000, compared to $1,102 for the same period in 1999. The Company benefited in
March of 1999 from a non-taxable life insurance benefit resulting from the
death of a director. The Company also continues to invest in assets whose
earnings are given favorable tax treatment.
Liquidity Risk
Liquidity management is the ability to meet the cash flow requirements of
customers who may be either depositors wishing to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs.
Core deposits are a major source of funds used to meet cash flow needs.
Maintaining the ability to acquire these funds as needed in a variety of money
markets is a key to assuring liquidity. When evaluating the movement of these
funds even during times of large interest rate changes, it is apparent that the
Company continues to attract deposits that can be used to meet cash flow needs.
Management continues to monitor the liquidity and potentially volatile
liabilities ratios to ensure compliance with Asset-Liability Committee targets.
These targets are set to ensure that the Company meets the liquidity
requirements deemed necessary by management and regulators.
9
Another source available for meeting the Company's liquidity needs is
available-for-sale securities. The available-for-sale portfolio is composed of
securities with a readily available market that can be used to convert to cash
if the need arises. In addition, the Company maintains a federal funds
position that provides day-to-day funds to meet liquidity needs and may also
obtain advances from the Federal Home Loan Bank (FHLB) or the treasury tax and
loan note account. Historically, the Company has not relied upon these sources
to meet long-term liquidity needs. Sources of funds derived from the FHLB are
used primarily to match mortgage loan originations in order to minimize
interest rate risk, but may be used to provide short-term funding.
Capital Resources
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum balances and ratios. All banks are required
to have core capital (Tier I) of at least 4% of risk-weighted assets (as
defined), 4% of average assets (as defined), and total capital of 8% of
risk-weighted assets (as defined). As of March 31, 2000, the Bank has met
all capital adequacy requirements to which it is subject.
As of March 31, 2000, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios of 10%, 6%, and 5%, respectively. In the opinion of
management, there are no conditions or events since the last notification that
have changed the institution's category. The Bank's actual capital amounts and
applicable ratios are as follows:
Actual
Amount Ratio
------ -----
(000)
As of March 31, 2000
Total Capital .................... $ 120,306 14.9%
(to Risk Weighted Assets)
Tier I Capital ................... $ 110,215 13.7%
(to Risk Weighted Assets)
Tier I Capital ................... $ 110,215 9.4%
(to Adjusted Average Assets)
As of December 31, 1999
Total Capital .................... $ 123,208 15.5%
(to Risk Weighted Assets)
Tier I Capital ................... $ 113,294 14.3%
(to Risk Weighted Assets)
Tier I Capital ................... $ 113,294 9.9%
(to Adjusted Average Assets)
10
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well
capitalized bank.
Book value per share was $18.88 and $18.71 at March 31, 2000 and December
31, 1999, respectively. Quarterly cash dividends were $.22 per share during
the first quarter of 2000, up from $.21 per share during the fourth quarter of
1999.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes to our disclosure on quantitative and
qualitative disclosures about market risk since December 31, 1999. For
additional information, see the Company's Form 10-K for the year ended
December 31, 1999.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material proceedings against the Company
during the quarter ending March 31, 2000.
Item 6(a) Exhibit 27 - Financial Data Schedule
Item 6(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the first quarter
of 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: May 12, 2000 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
11