Consolidated Balance Sheets
December 31
1994 1993
Assets
Cash and due from banks $ 45,123,177 $ 36,258,382
Federal funds sold 150,000 8,000,000
---------- ----------
Cash and Cash Equivalents 45,273,177 44,258,382
Interest bearing balances with banks 188,549 77,887
Securities (market value - $212,169,487 and
$235,850,729 at December 31, 1994 and 1993, respectively) 212,994,410 231,741,575
Loans:
Commercial, financial and agricultural 95,921,379 103,061,684
Real estate - construction 18,188,860 25,967,773
Real estate - mortgage 253,153,672 220,363,067
Consumer 143,948,292 97,095,734
Unearned income (12,010,336) (9,843,313)
------------ ------------
Total Loans, Net of Unearned Income 499,201,867 436,644,945
Allowance for loan losses (8,182,801) (6,387,902)
___________ ____________
Net Loans 491,019,066 430,257,043
Premises and equipment 16,780,966 15,941,013
Other assets 20,810,320 17,035,916
___________ ___________
Total Assets $ 787,066,488 $ 739,311,816
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Non-interest bearing $ 118,711,872 $ 99,697,615
Certificates of deposit exceeding $100,000 58,984,109 63,937,823
Other interest bearing 518,583,728 491,909,622
___________ ___________
Total Deposits 696,279,709 655,545,060
Treasury tax and loan note account 3,115,183 4,000,000
Note and debentures payable 4,650,488 259,797
Other liabilities 9,287,227 8,068,779
___________ ___________
Total Liabilities 713,332,607 667,873,636
Shareholders' Equity
Common stock, $5 par value - 4,200,000 shares
authorized, 2,604,760 and 2,509,055 shares issued
and outstanding in 1994 and 1993, respectively 13,023,800 12,545,275
Capital surplus 29,875,796 29,875,796
Unrealized losses on securities, net of tax (3,529,765)
Retained earnings 34,364,050 29,017,109
___________ ___________
Total Shareholders' Equity 73,733,881 71,438,180
___________ ___________
Total Liabilities and Shareholders' Equity $ 787,066,488 $ 739,311,816
=========== ===========
See notes to consolidated financial statements.
Consolidated Statements Of Income
Year Ended December 31
1994 1993 1992
Interest income:
Loans $ 39,913,585 $ 35,745,342 $ 38,193,926
Investment securities:
Taxable 10,088,324 9,832,739 9,932,339
Tax-exempt 2,559,206 2,242,796 2,319,185
Other 508,338 618,348 825,508
___________ ___________ ___________
Total Interest Income 53,069,453 48,439,225 51,270,958
Interest expense:
Deposits 18,487,040 16,836,454 20,520,228
Borrowings 403,041 126,701 155,806
___________ ___________ ___________
Total Interest Expense 18,890,081 16,963,155 20,676,034
___________ ___________ ___________
Net Interest Income 34,179,372 31,476,070 30,594,924
Provision for loan losses 2,001,010 2,865,530 4,401,001
___________ ___________ ___________
Net Interest Income After
Provision For Loan Losses 32,178,362 28,610,540 26,193,923
Non-interest income:
Service charges on deposit accounts 5,780,725 5,111,308 4,684,224
Fees and commissions 1,265,031 1,256,543 1,244,297
Trust department 549,925 500,257 367,220
Securities gains 2,701 524,622 195,508
Trading securities gains (losses) 114,221 (92,516)
Other 2,100,036 1,846,539 1,463,860
___________ __________ __________
Total Non-Interest Income 9,698,418 9,353,490 7,862,593
Non-interest expense:
Salaries and employee benefits 16,617,611 15,224,417 14,055,888
Net occupancy 2,150,588 1,993,189 1,812,394
Equipment 1,149,827 1,047,365 902,211
Other 11,128,930 9,419,781 9,000,895
___________ __________ __________
Total Non-Interest Expense 31,046,956 27,684,752 25,771,388
___________ __________ __________
Income before income taxes and cumulative effect of
accounting changes 10,829,824 10,279,278 8,285,128
Income taxes 2,620,904 3,066,504 2,131,465
___________ __________ __________
Income before cumulative effect of accounting changes 8,208,920 7,212,774 6,153,663
Cumulative effect of change in method of accounting
for income taxes and postretirement benefits other
than pensions 522,518
___________ ___________ __________
Net Income $ 8,208,920 $ 7,735,292 $ 6,153,663
=========== =========== ==========
Earnings per share:
Income before cumulative effect of accounting changes $3.15 $2.77 $2.36
Cumulative effect of accounting changes .20
___________ ___________ __________
Earnings Per Share $3.15 $2.97 $2.36
=========== =========== ==========
Weighted average shares outstanding 2,604,760 2,604,760 2,604,760
=========== =========== ==========
See notes to consolidated financial statements.
Consolidated Statements
Of Shareholders' Equity
Common Stock Unrealized
Capital Gains and Retained
Shares Amount Surplus (Losses) Earnings Total
----------------------------------------------------------------------------------
Balance at January 1, 1992
as previously reported $ 2,417,829 $ 12,089,145 $ 30,000,000 $ $ 19,002,640 $ 61,091,785
Adjustment for pooling-of-interests 91,226 456,130 (124,204) 504,249 836,175
_________ __________ __________ __________ __________
Balance at January 1, 1992
as restated for pooling 2,509,055 12,545,275 29,875,796 19,506,889 61,927,960
Net income for 1992 6,153,663 6,153,663
Cash dividends- $.81 per share (2,103,511) (2,103,511)
_________ __________ __________ __________ ___________
Balance at December 31, 1992 2,509,055 12,545,275 29,875,796 23,557,041 65,978,112
Net income for 1993 7,735,292 7,735,292
Cash dividends:
The Peoples Holding Co.- $.84 per share (2,200,224) (2,200,224)
Pooled Company (75,000) (75,000)
_________ __________ __________ __________ __________
Balance at December 31, 1993 2,509,055 12,545,275 29,875,796 29,017,109 71,438,180
Unrealized losses on securities,
net of tax (3,529,765) (3,529,765)
Net income for 1994 8,208,920 8,208,920
4% stock dividend 95,705 478,525 (478,525)
Payment of fractional shares for stock
dividend and pooling-of-interests (40,578) (40,578)
Cash dividends - $.90 per share (2,342,876) (2,342,876)
_________ _________ __________ ____________ __________ ___________
Balance at December 31, 1994 $ 2,604,760 $ 13,023,800 $ 29,875,796 $(3,529,765) $34,364,050 $ 73,733,881
========= ========== ========== =========== ========== ==========
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Year Ended December 31
1994 1993 1992
Operating Activities
Net income $ 8,208,920 $ 7,735,292 $ 6,153,663
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,001,010 2,865,530 4,401,001
Provision for securities losses 107,578
Provision for depreciation and amortization 1,774,975 1,532,835 1,210,193
Net amortization (accretion) of
securities premiums/discounts 1,180,503 475,229 142,873
Gain on sales of trading securities (114,221) (18,906)
Proceeds from sales of trading securities 8,241,556 13,962,031
Purchases of trading securities (3,187,429) (18,994,453)
Gain on sales/calls of investment securities (2,701) (524,622) (195,508)
Increase (decrease) in other liabilities 720,883 954,812 (1,865,794)
Deferred income tax credits (800,550) (733,521) (310,600)
(Gain) loss on sales of premises and equipment 21,735 (3,955) (38,862)
(Increase) decrease in other assets (819,410) (239,043) 3,485,104
___________ __________ __________
Net Cash Provided By Operating Activities 12,285,365 17,002,463 8,038,320
Investing Activities
Net decrease (increase) in balances with other banks (110,662) 46,071 3,307,007
Proceeds from sales of investment securities 4,934,639 99,315
Proceeds from sales of securities held-to-maturity 489,287
Proceeds from sales of securities available-for-sale 10,746,669
Proceeds from maturities/calls of
investment securities 83,667,180 113,889,289
Proceeds from maturities/calls of
securities held-to-maturity 4,369,626
Proceeds from maturities/calls of
securities available-for-sale 55,120,283
Purchases of investment securities (131,709,918) (133,708,657)
Purchases of securities held-to-maturity (7,304,699)
Purchases of securities available-for-sale (51,199,932)
Net (increase) decrease in loans (63,625,715) (36,203,252) 1,876,295
Proceeds from sales of premises and equipment 80,692 116,633 91,622
Purchases of premises and equipment (2,190,754) (1,599,887) (2,069,307)
____________ ____________ ____________
Net Cash Used In Investing Activities (53,625,205) (80,748,534) (16,514,436)
Financing Activities
Net increase in demand and savings deposits 8,685,434 28,589,800 52,158,791
Net increase (decrease) in time deposits 32,049,216 22,971,686 (38,824,401)
Net increase (decrease) in short-term borrowed funds (995,078) 472,121 (2,452,722)
Increase in long-term debt 4,892,591 207,307 13,601
Issuance (retirement) of common stock by
pooled Company reflected in
pooling-of-interests adjustment 105,926 (19,000)
Cash dividends paid (2,342,876) (2,275,224) (2,103,511)
Cash paid on fractional shares for stock dividend
and pooling-of-interests (40,578)
__________ ___________ ___________
Net Cash Provided By Financing Activities 42,354,635 49,965,690 8,772,758
__________ ___________ ___________
Increase (Decrease) In Cash and Cash Equivalents 1,014,795 (13,780,381) 296,642
Cash and Cash equivalents at beginning of year 44,258,382 58,038,763 57,742,121
__________ ___________ ________
Cash and Cash Equivalents At End Of Year $ 45,273,177 $ 44,258,382 $ 58,038,763
========== =========== ==========
Non-cash Transactions
Transfer of loans to other real estate $ 862,682 $ 2,360,311 $ 1,709,986
========== ========= =========
See notes to consolidated financial statements.
Notes To Consolidated Financial Statements
December 31, 1994
Note A - Significant Accounting Policies
The Peoples Holding Company (the Company) is a one-bank holding
company, offering a diversified range of banking services to retail and
commercial customers 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.
Change in Method of Accounting for Securities: The Company adopted
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" on
January 1, 1994. As a result, investment securities have been classified
as either held-to-maturity, trading, or available-for-sale. In accordance
with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle.
Securities are classified as held-to-maturity when purchased if
management has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Securities not classified as held-to-maturity or trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of tax, reported in 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 to maturity. Such amortization is included in interest
income from investments. Interest and dividends are included in interest
income from investments. Realized gains and losses, and 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.
Securities classified as trading are carried at fair value, with gains and
losses, both realized and unrealized, reported in earnings.
Revenue Recognition: Interest on loans is accrued and credited to
operations based upon the principal amount outstanding. Generally, the
accrual of income is discontinued when the full collection of principal is
in doubt, or when the payment of principal or interest has become
contractually 90 days past due unless the obligation is both well secured
and in the process of collection. The Company recognizes loan
origination and commitment fees in the period the loan or commitment is
granted to reflect reimbursement of the related costs associated with
originating those loans and commitments which are not materially
different from the results which would be obtained with implementation
of Statement of Financial Accounting Standards No. 91.
Allowance for Loan Losses: The allowance for loan losses is maintained
at a level believed adequate by management to absorb potential losses in
the loan portfolio. Management's determination of the allowance is
based on an evaluation of the portfolio, past experience, current
economic conditions, volume, growth and composition of the loan
portfolio and other relevant factors. The allowance is increased by
provisions for loan losses charged against income.
Impairment of Loans: In May 1993, the Financial Accounting Standards
Board (FASB) issued Statement No. 114, "Accounting by Creditors for
Impairment of a Loan" and in October 1994 the FASB issued Statement
No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures." Statements 114 and 118 are effective for
fiscal years beginning after December 15, 1994. The new rules require
impaired loans to be measured at the present value of expected future
cash flows by discounting these cash flows at the loan's effective interest
rate. The Company is in the process of accumulating the necessary data
and will apply the new rules in the first quarter of 1995 and does not
believe the adoption of the new rules will have a material effect on its
financial condition or results of operations.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation and amortization. The provision for
depreciation is computed primarily by use of the straight-line and
declining-balance methods for furniture, fixtures, and equipment and the
straight-line method for 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 $230,494 and $3,176,774 at
December 31, 1994 and 1993, 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 at the date acquired. Losses arising from the
acquisition of properties are charged against the allowance for loan
losses. An allowance for losses on other real estate is maintained for
subsequent valuation adjustments on a specific-property basis. The net
cost of operating other real estate and losses on the sale of properties
totaled $846,149 in 1994.
Unamortized Cost in Excess of Fair Value of Net Assets Acquired:
Goodwill, included in other assets, represents unamortized cost in excess
of fair value of net assets acquired and is being amortized on a
straight-line method over 13 to 15 years. Goodwill was $5,212,717 and
$2,358,725 at December 31, 1994 and 1993, respectively.
Income Taxes: The Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes", in its financial statements for the year ended December 31,
1993. The cumulative effect as of January 1, 1993, of adopting
Statement No. 109 increased net income by $686,000, or $.26 per share.
Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Prior to the adoption of Statement No. 109, income tax expense
was determined using the deferred method. Deferred tax expense was
based on items of income and expense that were reported in different
years in the financial statements and tax returns and were measured at
the tax rate in effect in the year the difference originated.
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.
Postretirement Benefits Other Than Pensions: During the first quarter of
1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Statement No. 106
changed the practice of accounting for postretirement benefits other than
pensions on a pay-as-you-go (cash) basis by requiring accrual, during the
years that the employee renders the necessary service, of the expected
cost of providing those benefits to an employee, the employee's
beneficiaries and covered dependents. The cumulative effect as of
January 1, 1993, of adopting Statement No. 106 decreased net income,
net of tax effect of $84,218, by $163,482, or $.06 per share.
Postretirement benefit costs for 1992 recorded on the cash basis have not
been restated.
Earnings Per Share: The computation of earnings per share is based on
the weighted average number of shares outstanding during each year
adjusted retroactively for all stock dividends. Previously reported per
share amounts have been restated for the effect of the acquisition of New
South Capital Corporation accounted for as a poolng-of-interests.
Statements of Cash Flows: Cash equivalents include cash and due from
banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods. During 1994, 1993, and 1992, cash paid
for interest was $18,230,987, $16,891,833, and $23,447,740,
respectively. During 1994, 1993, and 1992, cash paid for income taxes
was $2,354,158, $2,927,410, and $2,407,430, respectively.
Reclassifications: Certain reclassifications have been made to the 1993
and 1992 consolidated financial statements to conform with the 1994
presentation.
Note B - Mergers and Acquisitions
Effective December 31, 1994, the Company (PHC) acquired New South
Capital Corporation (NSCC) and its wholly-owned subsidiary, New
South Bank, of Batesville, Mississippi, in a transaction accounted for as a
pooling-of-interests. In exchange for all of the outstanding common
stock of New South Capital Corporation, the Company issued 91,226
shares of its common stock. The accompanying financial statements for
periods prior to the acquisition have been restated to reflect the accounts
and operations of the pooled company. Separate results of operations of
the Company and New South Capital Corporation for the years ending
December 31, 1994, 1993, and 1992 are as follows:
Year ended December 31, 1994
PHC NSCC Combined
Interest income $ 51,292,323 $ 1,777,130 $ 53,069,453
Non-interest income 9,455,512 242,906 9,698,418
Net income 7,914,102 294,818 8,208,920
Year ended December 31, 1993
PHC NSCC Combined
Interest income $ 46,990,629 $ 1,448,596 $ 48,439,225
Non-interest income 8,997,182 356,308 9,353,490
Net income 7,569,649 165,643 7,735,292
Year ended December 31, 1992
PHC NSCC Combined
Interest income $ 49,093,666 $ 2,177,293 $ 51,270,958
Non-interest income 7,528,469 334,124 7,862,593
Net income 5,566,014 587,649 6,153,663
During 1994, the Company purchased approximately $16,500,000 of
selected assets and assumed approximately $33,065,000 of deposit
liabilities located in three branch offices of Security Federal Savings and
Loan Association from the Resolution Trust Corporation. The purchase
price has been allocated to the acquired assets and liabilities at their
respective estimated fair value at the date of acquisition.
During 1993, the Company purchased selected assets of approximately
$34,200,000 and combined deposits of approximately $34,000,000 of
three branch offices from Sunburst Bank of Grenada, Mississippi,
formerly owned by Eastover Bank for Savings.
Note C - Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Due From Banks: The carrying amount reported in the
consolidated balance sheet for cash and due from banks approximates fair
value.
Federal Funds Sold: The carrying amount reported in the consolidated
balance sheet for federal funds sold approximates fair value.
Interest Bearing Balances With Banks: The carrying amount reported in
the consolidated balance sheet for interest bearing balances with banks
approximates fair value.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments. See Note
E of the Notes to Consolidated Financial Statements.
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 using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Deposit Liabilities: The fair values disclosed for demand deposits, both
interest bearing and non-interest 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.
Notes and Debentures Payable: The fair value was determined by
discounting the cash flow using the current market rate.
Off-Balance Sheet: The fair value was determined by replacing the
current rate with a market rate and applying that to the letters of credit
and commitments.
December 31
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------------------------------
Financial assets:
Cash and due from banks $ 45,123,177 $ 45,123,177 $ 36,258,382 $ 36,258,382
Federal funds sold 150,000 150,000 8,000,000 8,000,000
Interest bearing balances
with banks 188,549 188,549 77,887 77,887
Securities 212,994,410 212,169,487 231,741,575 235,850,729
Loans, net of unearned income 499,201,867 495,501,571 436,644,945 436,054,970
Less: Allowance for loan losses (8,182,801) (8,182,801) (6,387,902) (6,387,902)
____________ ____________ ____________ ___________
Net loans 491,019,066 487,318,770 430,257,043 429,667,068
Financial liabilities:
Deposits 696,279,709 697,174,710 655,545,060 656,982,512
Treasury tax and loan note account 3,115,183 3,115,183 4,000,000 4,000,000
Notes and debentures payable 4,650,488 4,299,000 259,797 247,890
Off-balance sheet:
Standby letters of credit 6,233,000 6,192,350 2,529,949 2,520,522
Commitments to extend credit 107,778,678 105,008,148 83,578,032 82,243,393
Note D - Restrictions on Cash and Due From Banks
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of those balances for the
year ended December 31, 1994, was approximately $20,751,000.
Note E - Investment Securities
The amortized cost and estimated market values of securities-held-to
maturity and available-for-sale at December 31, 1994, are as follows:
Securities Held-to-Maturity
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
___________ _______________ _______________ ______________
Obligations of states and
political subdivisions $ 45,756,198 $ 678,839 $(1,503,762) $ 44,931,275
========== ======== ============ ===========
Securities Available-for-Sale
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
_________ ________________ _______________ ______________
U.S. Treasury securities $ 110,181,980 $ 983 $ (3,090,155) $ 107,092,808
Obligations of other U.S. Government
agencies and corporations 14,280,670 ( 208,016) 14,072,654
Mortgage-backed securities 45,415,163 175,291 (2,226,232) 43,364,222
Preferred stock 2,410,965 2,410,965
Other debt securities 297,563 297,563
___________ ________ ___________ ____________
$ 172,586,341 $ 176,274 $( 5,524,403) $ 167,238,212
=========== ======== ============ ============
The amortized cost and estimated market values of investment securities
at December 31, 1993, are as follows:
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Market Values
_________ ________________ ________________ ______________
U.S. Treasury securities $ 109,411,088 $ 1,364,015 $( 15,262) $ 110,759,841
Obligations of other U.S. Government
agencies and corporations 9,218,730 517,769 9,736,499
Obligations of states and
political subdivisions 42,907,803 1,872,950 (39,630) 44,741,123
Mortgage-backed securities 63,884,283 736,992 (327,680) 64,293,595
Adjustable rate preferred stock 6,319,671 6,319,671
___________ __________ __________ ___________
$ 231,741,575 $ 4,491,726 $ (382,572) $ 235,850,729
=========== ========== ========== ===========
The amortized cost and estimated market value of securities held-to-
maturity and available-for-sale at December 31, 1994, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Securities Held-to-Maturity Cost Values
-----------------------------------------
Due in one year or less $ 2,749,175 $ 2,764,368
Due after one year through five years 11,918,714 12,170,840
Due after five years through ten years 20,454,636 20,139,336
Due after ten years 10,633,673 9,856,731
___________ ___________
$ 45,756,198 $ 44,931,275
=========== ====
Estimated
Amortized Market
Securities Available-For-Sale Cost Values
__________ __________
Due in one year or less $ 51,314,643 $ 50,713,812
Due after one year through five years 71,375,958 68,725,463
Due after five years 2,069,612 2,023,750
___________ ___________
124,760,213 121,463,025
Mortgage-backed securities 45,415,163 43,364,222
Preferred Stock 2,410,965 2,410,965
___________ ___________
$ 172,586,341 $ 167,238,212
=========== ===========
The amortized cost of securities held-to-maturity sold during 1994 was
$486,850. The securities were sold due to a downgrade of the securities'
credit rating below the Company's investment policy standards.
Proceeds from the sales of investment and trading securities were
$13,176,195 in 1993 realizing gross gains of $665,302 and gross losses
of $26,459 on these sales.
At December 31, 1994 and 1993, investment securities with an amortized
cost of approximately $103,979,000 and $93,200,000, respectively, were
pledged to secure government, public and trust deposits.
Note F - Notes and Debentures Payable
During the year, the Company obtained several advances from the
Federal Home Loan Bank totaling $4,500,952 at December 31, 1994.
The advances ranged from $125,000 to $3,500,000 with interest rates
from 4.84% to 6.13%. Maturity dates range from August 1, 1999 to
April 1, 2007. The advances are secured by one-to-four family first
mortgages equal to the amount of outstanding aggregate advances.
Future minimum payments, by year and in the aggregate, related to the
advances with initial or remaining terms of one year or more, consisted
of the following at December 31, 1994:
[S] [C]
1995 $ 843,130
1996 886,011
1997 931,075
1998 978,433
1999 780,277
Thereafter 82,026
_________
Total $ 4,500,952
Also included in notes and debentures payable are loans owed by the
Company to purchase real estate for future bank expansion.
Note G - Loans to Related Parties
Certain Company subsidiary 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 the unrelated persons and do not involve
more than a normal risk of collectibility. The aggregate dollar amount of
these loans was $4,664,132 and $5,599,221 at December 31, 1994 and
1993, respectively. During 1994, $3,753,790 of new loans were made
and payments received totaled $4,688,879.
Note H - Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
Year Ended December 31
1994 1993 1992
---------------------------------------------------------
Balance at beginning of year $ 6,387,902 $ 6,613,972 $ 5,762,429
Charge-offs (1,095,363) (3,495,835) (3,883,076)
Recoveries 889,252 404,235 333,618
___________ __________ ___________
Net Charge-offs ( 206,111) (3,091,600) (3,549,458)
Provision for loan losses 2,001,010 2,865,530 4,401,001
___________ ___________ ___________
Balance at End of Year $ 8,182,801 $ 6,387,902 $ 6,613,972
=========== =========== ===========
Note I - Nonaccrual and Past Due Loans
Nonaccrual and past due loans were as follows:
December 31
1994 1993
------------------------------------
Nonaccrual loans outstanding $ 877,409 $ 1,605,076
Accruing loans past due 90 days
or more outstanding 1,196,464 3,052,371
At December 31, 1994 and 1993, there were no significant commitments
to lend any of these debtors additional funds.
Note J - Premises and Equipment
Premises and equipment accounts are summarized as follows:
[CAPTION]
December 31
1994 1993
------------------------------
[S] [C] [C]
Land $ 2,862,865 $ 2,514,075
Premises 16,582,425 15,998,564
Equipment, furniture and fixtures 10,494,109 9,388,014
___________
29,939,399 27,900,653
Accumulated depreciation and amortization (13,158,433) (11,959,640)
---------- -----------
$ 16,780,966 $ 15,941,013
=========== ============
Depreciation expense $ 1,248,374 $ 1,143,933
=========== ============
Note K - 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 made since the
deferred 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, 1994 and 1993, are as follows:
(In Thousands)
1994 1993
---------------------------
Deferred tax assets:
Provision for loan losses $ 2,715 $ 2,114
Net unrealized losses on securities
available-for-sale 1,818
Deferred compensation 702 618
Other 549 368
______ ______
Total deferred tax assets 5,784 3,100
Deferred tax liabilities:
Depreciation 1,478 1,397
Other 446 462
______ ______
Total deferred tax liabilities 1,924 1,859
______ ______
Net deferred tax assets $ 3,860 $ 1,241
====== ======
Significant components of the provision for income taxes (credits)
attributable to continuing operations are as follows:
Liability Deferred
Method Method
--------------------------------- ________
1994 1993 1992
____ ____ ____
Current $ 3,421,454 $ 3,800,025 $ 2,442,065
Deferred (800,550) (733,521) (310,600)
_________ __________ _________
$ 2,620,904 $ 3,066,504 $ 2,131,465
========= ========= =========
The reconciliation of income taxes (credits) attributable to continuing
operations computed at the United States federal statutory tax rates to
income tax expense is:
Liability Deferred
Method Method
1994 1993 1992
--------------------------------------- --------------------
Tax at U.S. statutory rate $3,682,140 34.0% $3,494,956 34.0% $ 2,816,944 34.0%
Tax-exempt interest income (910,676) (8.4%) (755,617) (7.4%) (691,546) (8.3%)
Amortization of intangible assets 53,292 0.5% 61,295 0.6% 54,435 0.7%
Dividends received deduction (35,682) (0.3%) (24,644) (0.3%) (74,728) (0.9%)
Other items - net (168,170) (1.6%) 290,514 2.9% 26,360 0.2%
_________ _____ __________ _____ ________ ______
$2,620,904 24.2% $3,066,504 29.8% $ 2,131,465 25.7%
========= ===== ========== ===== ========== =====
The components of the provision for deferred income taxes (credits) for
the year ended December 31, 1992, are as follows:
1992
Depreciation $ 54,000
Provision for loan losses (270,000)
Pension expense (26,000)
Deferred compensation (100,000)
Other 31,400
_________
$ (310,600)
==========
Income taxes provided on gains on the sales of investment securities were
approximately $1,000, $217,000, and $85,000, for the years ended
December 31, 1994, 1993 and 1992, respectively.
Note L - Restrictions on Bank Dividends, Loans or Advances
Certain restrictions exist regarding the ability of the Bank to transfer
funds to the Company in the form of cash dividends, loans or advances.
The approval of the Mississippi Department of Banking and Consumer
Finance is required prior to the Bank paying dividends which are limited
to earned surplus in excess of three times the Bank's capital stock. At
December 31, 1994, the unrestricted surplus was approximately
$21,639,000.
Federal Reserve regulations also limit the amount the Bank may loan to
the Company unless such loans are collateralized by specified
obligations. At December 31, 1994, the maximum amount available for
transfer from the Bank to the Company in the form of loans was 11% of
consolidated net assets.
Note M - Employee Benefit Plans
The Company and its Bank sponsor a defined benefit noncontributory
pension plan generally covering all full-time employees. Effective April
1993, all employees are eligible to participate in the plan after
completing a minimum of one thousand hours of service during a twelve
month period. The normal retirement benefit is determined as the sum
of (A) 1.4% of average earnings, plus (B) 0.6% of average earnings in
excess of covered compensation, times (C) years of service at retirement
limited to 25.
The Company's funding policy is to contribute annually an amount that
falls within the minimum and maximum amount determined by consulting
actuaries in accordance with the Employee Retirement Income Security
Act of 1974.
Net pension expense as determined by consulting actuaries included the
following components:
Year Ended December 31
1994 1993 1992
______________________________________________________
Service costs - benefits earned during the year $ 456,660 $ 455,506 $ 402,029
Interest cost on projected benefit obligation 748,988 678,844 592,254
Actual return on plan assets 456,472 (265,861) (328,697)
Net amortization and deferral (1,051,402) (275,678) (178,661)
___________ ____________ _________
Net pension expense $ 610,718 $ 592,811 $ 486,925
========== =========== ========
Curtailment loss $ 159,294
========
During 1992, the Company offered early retirement to a select group of
employees. In conjunction with this, the Company recorded a
curtailment loss relating to the increase in the projected benefit obligation
of the early retirees.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheet, as determined
by consulting actuaries:
December 31
1994 1993
-----------------------------------
Actuarial present value of accumulated
benefits, including vested benefits of $6,699,365 in 1994
and $6,477,395 in 1993 $ (6,761,400) $ (6,595,805)
=========== ===========
Plan assets at fair value $ 6,963,692 $ 6,736,813
Projected benefit obligation (9,559,173) (9,733,488)
___________ ___________
Projected benefit obligation in excess of plan assets (2,595,481) (2,996,675)
Unrecognized net asset (418,483) (486,540)
Prior service cost not yet recognized in net periodic cost 770,116 920,598
Unrecognized net loss from past experience
different from that assumed 2,119,947 2,126,211
_________ _________
Accrued pension expense $ (123,901) $ (436,406)
========== ==========
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.5% and 5%, respectively at
December 31, 1994, and 7.875% and 5%, respectively at December 31,
1993. The expected long-term rate of return on investments was 9.25%
for 1994, 1993 and 1992. The unrecognized net asset is being
recognized over 15.53 years. Plan assets consist mainly of U. S.
Treasury obligations and certificates of deposit. The actual return was
(6.7%), 4.2% and 3.0% for years ending 1994, 1993 and 1992.
In addition to providing retirement income benefits, the Company
provides certain health care and life insurance to retired employees.
Substantially all of the Company's employees may become eligible for
these benefits if they reach normal or early retirement while working for
the Company. The Company pays one-half of the health insurance
premium. Up to age 70, each retired employee receives $5,000 in life
insurance coverage paid entirely by the Company. In 1994 and 1993, the
Company has accounted for its obligation related to these plans in
accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions." The following table presents the Plan's funded status
reconciled with amounts recognized in the Company's balance sheet:
December 31
1994 1993
---------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ (8,700) $ (22,500)
Fully eligible active plan participants (79,400) (69,600)
Other active plan participants (179,700) (197,600)
_________ _________
Accumulated postretirement benefit obligation
in excess of plan assets (267,800) (289,700)
Unrecognized (gain) loss (56,100) 6,500
---------- ----------
Accrued postretirement benefit cost $ (323,900) $ (283,200)
========== ==========
Net Periodic postretirement benefit cost includes the following components:
Year ended December 31
1994 1993
--------------------------------------
Service cost $ 21,700 $ 22,000
Interest cost 19,300 19,300
Transition obligation 247,700
________ ________
Net periodic postretirement benefit cost $ 41,000 $ 289,000
======== ========
The Company has limited its liability in the per capita cost of covered
benefits (i.e., health care cost trend rate) to the rate of inflation which is
assumed to be 4% each year. The health care cost trend rate assumption
has little effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year
would not increase the accumulated postretirement benefit obligation nor
the service and interest cost components of net periodic postretirement
benefit cost as of December 31, 1994, and for the year then ended. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5% and 7.875% at December 31,
1994 and 1993, respectively. The cost of these benefits was recognized
as expense when claims and premiums were paid in 1992. Insurance
premiums paid during 1992 totaled $29,429 and claims paid in 1992
were $13,102.
The Company and its subsidiary also sponsor an employee stock
ownership plan covering essentially 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 either in cash
or the Company's Common Stock. Total contributions to the Plan
charged to operating expenses were $399,992 in 1994, $353,890 in 1993,
and $346,395 in 1992.
Note N - Other Income and Expenses
Components of other income and other expenses which exceed 1% of
total revenues were as follows: 1994-life insurance proceeds, $673,494;
computer processing cost, $1,963,510; stationary and supplies $640,603;
other fees, $650,105; FDIC/State banking assessment, $1,851,883;
1993-FDIC/State banking assessment, $1,585,024; stationary and
supplies, $577,813; 1992-FDIC/State banking assessment, $1,672,751.
Note O - Financial Instruments with Off-Balance Sheet Risk and
Concentrations of Credit Risk
Loan commitments are made to accommodate the financial needs of the
Company's customers. Standby letters of credit commit the Company to
make payments on behalf of customers when certain specified future
events occur. They primarily are issued to support medium and
long-term notes, and debentures, including industrial revenue obligations.
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 maximum exposure to credit loss for loan commitments
(unfunded loans and unused lines of credit) and standby letters of credit
outstanding at December 31, 1994, was approximately $107,779,000 and
$6,233,000, compared to December 31, 1993, which was approximately
$83,578,000 and $2,530,000, respectively.
Market risk resulting from interest rate changes on particular off-balance
sheet financial instruments may be offset by other on- or off-balance
sheet transactions. Interest rate sensitivity is monitored by the Company
for determining the net effect of potential changes in interest rates on the
market value of both on- or off-balance sheet financial instruments.
Note P - The Peoples Holding Company (Parent Company Only)
Condensed Financial Information
Balance Sheets
December 31
1994 1993
-------------------------------------
Assets
Cash* $ 4,866 $ 55,654
Dividends receivable* 603,248 681,101
Investment in bank subsidiary* 73,696,858 71,278,361
Other assets 70,365 165
__________ __________
Total Assets $ 74,375,337 $ 72,015,281
========== ==========
Liabilities and Shareholders' Equity
Dividends payable $ 603,248 556,101
Accrued interest payable and other liabilities 38,208 21,000
Shareholders' equity 73,733,881 71,438,180
__________ __________
Total Liabilities and Shareholders' Equity $ 74,375,337 $ 72,015,281
========== ==========
Statements of Income
Year Ended December 31
1994 1993 1992
----------------------------------------------
Income:
Dividends from bank subsidiary* $ 2,342,876 $ 2,500,224 $ 2,103,511
Other dividends 45,092 53,019 66,213
Interest income from bank subsidiary* 410
_________ _________ _________
2,387,968 2,553,653 2,169,724
Expenses:
Other 184,936 80,249 215,846
__________ _________ __________
184,936 80,249 215,846
__________ _________ __________
Income before income tax expense (credits) and
equity in undistributed net income of bank subsidiary 2,203,032 2,473,404 1,953,878
Income tax credits (57,700) (21,877) (66,631)
___________ __________ __________
2,260,732 2,495,281 2,020,509
Equity in undistributed net
income of bank subsidiary* 5,948,188 5,240,011 4,133,154
__________ __________ __________
Net Income $ 8,208,920 $ 7,735,292 $ 6,153,663
========== ========== ==========
*Eliminated in consolidation.
Statements of Cash Flows
Year Ended December 31
1994 1993 1992
-----------------------------------------------------
Operating Activities:
Net income $ 8,208,920 $ 7,735,292 $ 6,153,663
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of bank subsidiary (5,948,188) (5,240,011) (4,133,154)
(Increase) decrease in dividends receivable 77,853 (149,179) (24,178)
Increase in other assets (70,200)
Increase (decrease) in other liabilities 64,355 (18,150) 66,840
__________ __________ __________
Net Cash Provided By Operating Activities 2,332,740 2,327,952 2,063,171
Investing Activities:
(Increase) decrease in investment in subsidiaries (106,000) 19,000
Purchase of certificates of deposit (60,000)
Proceeds from matured certificates of deposit 60,000
_________ _________ _________
Net Cash (Used In) Provided By Investing Activities (106,000) 19,000
Financing Activities:
Issuance (retirement) of common stock by
pooled Company reflected in pooling-of-
interests adjustment 105,926 (19,000)
Cash dividends (2,342,876) (2,275,224) (2,103,511)
Payment of fractional shares on stock dividend (40,578)
__________ __________ ___________
Net Cash Used In Financing Activities (2,277,528) (2,275,224) (2,122,511)
___________ ___________ ___________
Increase (Decrease) In Cash (50,788) 52,728 (40,340)
Cash at beginning of year 55,654 2,926 43,266
__________ __________ __________
Cash At End Of Year $ 4,866 $ 55,654 $ 2,926
========== ========= =========
*Eliminated in consolidation.
Note Q - Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 1994 and 1993:
Three Months Ended
Mar 31 June 30 Sept 30 Dec 31
-------------------------------------------------------------------------
1994
Interest income $ 12,111,492 $ 13,113,544 $ 13,674,616 $ 14,169,801
Interest expense 4,396,038 4,649,344 4,818,345 5,026,354
Net interest income 7,715,454 8,464,200 8,856,271 9,143,447
Provision for loan losses 500,229 500,228 500,305 500,248
Non-interest income 2,501,182 2,425,146 2,376,082 2,396,008
Non-interest expenses 7,291,352 7,724,631 7,934,904 8,096,069
Income before income taxes 2,425,055 2,664,487 2,797,144 2,943,138
Income taxes 425,103 536,084 840,662 819,055
Net income 1,999,952 2,128,403 1,956,482 2,124,083
Earnings per share $.77 $.82 $.75 $.81
1993
Interest income $ 11,821,668 $ 12,187,750 $ 12,266,124 $ 12,163,683
Interest expense 4,149,748 4,178,281 4,308,989 4,326,137
Net interest income 7,671,920 8,009,469 7,957,135 7,837,546
Provision for loan losses 1,163,993 637,451 637,451 426,635
Non-interest income 2,182,406 2,321,589 2,318,606 2,530,889
Non-interest expenses 6,572,348 6,966,073 6,970,768 7,175,563
Income before income taxes 2,117,985 2,727,534 2,667,522 2,766,237
Income taxes 728,207 657,276 802,567 878,454
Cumulative effect of accounting changes 522,518
Net income 1,912,296 2,070,258 1,864,955 1,887,783
Earnings per share $.73 $.79 $.72 $.73
The amounts presented for the first three quarters of 1994 and 1993 do
not equal amounts previously reported in Form 10-Q due to restatement
of results after the pooling-of-interests discussed in Note B.
Note R - Contingent Liabilities
Various claims and lawsuits, incidental to the ordinary course of
business, are pending against the Company and its subsidiary. 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.
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, 1994 and
1993, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Peoples
Holding Company and subsidiary at December 31, 1994 and 1993, and
the consolidated results of their operations and cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1994
the Company changed its method of accounting for certain investment
securities, and in 1993 changed its method of accounting for income
taxes and postretirement benefits.
Memphis, Tennessee
January 25, 199
Selected Financial Information
(Not covered by the Accountants' Report)
1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------
For the year ended December 31:
Interest Income $ 53,069,453 $ 48,439,225 $ 51,270,958 $ 57,437,770 $ 59,737,636
Interest Expense 18,890,081 16,963,155 20,676,034 29,786,414 34,351,326
Provision for Loan Losses 2,001,010 2,865,530 4,401,001 2,888,938 2,231,476
Non-interest Income 9,698,418 9,353,490 7,862,593 7,703,632 6,643,405
Non-interest Expense 31,046,956 27,684,752 25,771,388 24,003,557 20,790,680
Income Before Taxes 10,829,824 10,279,278 8,285,128 8,462,493 9,007,559
Income Tax Expense 2,620,904 3,066,504 2,131,465 1,871,102 2,216,238
Cumulative Effect of Changes
in Accounting Principles 522,518
Net Income 8,208,920 7,735,292 6,153,663 6,591,391 6,791,321
Per Common Share:
Net Income $ 3.15 $ 2.97 $ 2.36 $ 2.53 $ 2.61
Book Value at December 31 28.31 27.43 25.33 23.77 22.01
Market Value at December 31 35.00 33.60 29.33 22.12 18.03
Cash Dividends Declared and Paid 0.90 0.85 0.81 0.76 0.71
Total at Year-End:
Loans $ 499,201,867 $ 436,644,945 $ 405,893,604 $ 413,011,064 $ 394,846,465
Allowance for Loan Losses 8,182,801 6,387,902 6,613,972 5,762,429 5,241,944
Investment Securities 212,994,410 231,741,575 193,523,989 168,807,551 186,739,922
Assets 787,066,488 739,311,816 680,656,022 667,398,720 657,176,902
Deposits 696,279,709 655,545,060 603,983,574 590,649,184 584,007,698
Long-Term Debt 4,650,488 259,797 292,674 279,073 594,396
Shareholders' Equity 73,733,881 71,438,180 65,978,112 61,927,960 57,320,923
Selected Ratios:
Return on Average:
Total Assets 1.05% 1.07% 0.90% 0.99% 1.05%
Shareholders' Equity 11.24% 11.24% 9.57% 10.99% 12.31%
Average Shareholders' Equity
to Average Assets 9.34% 9.52% 9.38% 9.03% 8.55%
At December 31:
Shareholders' Equity
to Assets 9.37% 9.66% 9.69% 9.28% 8.72%
Tier 1 Leverage 9.22% 9.52% 9.48% 9.07% 8.55%
Risk-Based Capital Ratios
Tier 1 14.86% 17.40% 14.70% 14.26% 13.69%
Total (8.00% Required) 16.12% 18.65% 15.95% 15.62% 14.99%
Allowance for Loan Losses
to Total Loans 1.64% 1.46% 1.63% 1.40% 1.33%
Allowance for Loan Losses
to Non-performing Loans 394.57% 137.15% 128.12% 98.91% 77.58%
Non-performing Loans to
Total Loans .42% 1.07% 1.27% 1.41% 1.71%
Dividend Payout 29.03% 29.41% 34.18% 30.23% 27.22%
Market Value of Stock by Quarters
The public market for The Peoples Holding Company common stock is
limited. The stock is currently listed in the NASDAQ exchange and is
traded in the local over-the-counter market. Bid and offer prices have
been reported daily by Morgan Keegan & Company, Inc., J.J.B. Hilliard
& W. L. Lyons, Inc. (Hilliard Lyons), and Sterne, Agee, and Leach,
Inc., market makers of the shares of The Peoples Holding Company
common stock. High and low prices are reflective of actual trades as
reported in the NASDAQ Stock Bulletin. At December 31, 1994, there
were approximately 2,270 shareholders of record.
DIVIDENDS PRICES
PERIOD PER SHARE LOW HIGH
-----------------------------------------------
[S] [C] [C] [C]
1994
1st Quarter $.22 $34.08 $39.36
2nd Quarter .22 37.44 43.27
3rd Quarter .23 36.25 42.50
4th Quarter .23 35.00 39.50
1993
1st Quarter $ .21 $ 27.36 $ 31.44
2nd Quarter .21 27.36 33.60
3rd Quarter .21 32.16 41.28
4th Quarter .21 33.60 38.40
Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Overview
The Peoples Holding Company (the Company) is a one-bank holding
company incorporated under the laws of the state of Mississippi. The
Company was incorporated in February 1904 and is the sixth largest
bank holding company located in the state. The Peoples Bank & Trust
Company (the Bank) is a wholly-owned subsidiary of the Company
which operates forty-two branches located in north and northcentral
Mississippi.
The Company's banking subsidiary provides a wide range of banking and
financial services to its customers. Those include lending services for
commercial, consumer, and real estate loans; depository services for
checking, savings, money market, IRA's and certificate of deposit
accounts; and fiduciary services. The Bank maintains credit card
services and is the issuer of the Mississippi State University and Delta
State University affinity cards. In addition the Bank has a number of
automated teller machines located throughout its market area that provide
24-hour banking services along with 24-hour access to customer account
information through a voice response system.
The purpose of this discussion is to focus on important factors affecting
the Company's financial condition and results of operations. Reference
should be made to the consolidated financial statements (including the
notes thereto), and the selected financial data in this report for an
understanding of the following discussion and analysis. All applicable
information has been restated to include the pooling-of-interests
consummated December 31, 1994. All per share data is adjusted to
reflect all stock dividends declared through December 31, 1994.
The Company ended 1994 with assets totaling $787,066,488, up from the
prior year of $739,311,816. This represented a 6.5% growth. Earnings
were up 6.1% from the previous year with net income surpassing
$8,000,000.
During 1994, the Company purchased selected assets and assumed
certain deposit liabilities located in three branch offices of Security
Federal Savings and Loan Association (Security Federal) from the
Resolution Trust Corporation. Effective December 31, 1994, the
Company merged with New South Capital Corporation (New South) and
its wholly-owned subsidiary, New South Bank, in a transaction accounted
for as a pooling-of-interests. See Note B of audited financial statements.
Financial Condition Review
The Company emphasizes the importance of employing a high percentage
of its assets in an earning capacity. Utilization of the Company's earning
assets is a major factor in generating profitability.
The Company employs the largest portion of its earning assets in loans.
Loans, net of unearned income, comprised 63.4% and 59.1% of the total
assets for 1994 and 1993, respectively. Loan growth was 14.3% for
1994. Total loans increased 7.6% during 1993. Of the $62,556,922
growth in 1994, approximately $36,686,000 was attributable to the
acquisition of the three branches of Security Federal Savings and Loan
Association and the pooling of New South Bank. An increase in the
demand for consumer and mortgage loans increased as the economy
improved and unemployment dropped.
Loans increased $30,751,341 during 1993 due to the acquisition of three
branches of the Sunburst Corporation which increased loans by
approximately $21,000,000; and an improved economy and drop in the
unemployment rate. The interest rate environment proved to be very
favorable to the consumer in buying a home resulting in a 14.9%
increase in mortgage loans and a 24.7% increase in consumer loans
compared to 1992.
The table on page 30 sets forth loans outstanding, according to loan type,
at the date indicated. The major factor affecting comparability with prior
year's balances is due to a reclassification of the loan portfolio following
a computer conversion in January 1992. Prior to the conversion, certain
mortgages were classified as commercial.
1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------
Commercial, financial, and
agricultural $95,921,379 $103,061,684 $130,610,697 $145,606,537 $128,760,736
Real estate - construction 18,188,860 25,967,773 15,280,136 12,941,094 16,090,270
Real estate - mortgage 253,153,672 220,363,067 191,861,073 186,964,488 180,571,049
Consumer 143,948,292 97,095,734 77,844,541 79,336,554 82,797,167
Unearned income (12,010,336) (9,843,313) (9,702,843) (11,837,609) (13,372,757)
____________ ___________ ____________ ___________ ____________
Total loans, net of
unearned income $499,201,867 $436,644,945 $405,893,604 $413,011,064 $394,846,465
============ =========== ============ =========== ============
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 type of securities purchased and the
terms of those securities depend on management's assessment of future
economic conditions.
The securities portfolio totaled $212,994,410 at December 31, 1994,
down from $231,741,575 at December 31, 1993. The decrease in the
securities portfolio is due in part to the implementation of FASB 115,
"Accounting for Certain Investments in Debt and Equity Securities",
which resulted in an unrealized loss on securities classified as available-
for-sale at December 31, 1994 of $5,348,129. In addition, the portfolio
balance decreased as loan funding demands increased. The securities
portfolio represented 27.1% and 31.3% of assets at the end of 1994 and
1993, respectively. The decline of 8.1% in the portfolio for 1994 was
largely attributable to a decrease in mortgage-backed securities.
Total securities were up 19.7% at December 31, 1993, over 1992. The
largest change came from an increase in mortgage-backed securities
which were up approximately $23,000,000 over 1992. In addition, U.S.
Treasury securities were up approximately $16,000,000.
Management continues to evaluate the Company's tax position in order to
maximize earnings from investment securities. The Company was not in
an alternative minimum tax position during 1994 or 1993. Note E of the
Notes to the Consolidated Financial Statements provides details of the
securities portfolio.
Federal funds sold provide a significant source of liquidity. These funds
consist of day-to-day loans to correspondent banks. Federal funds sold
totaled $150,000 and $8,000,000, at December 31, 1994 and 1993
respectively. The reduction in these balances between periods is typical
of fluctuations caused by changes in deposits, loans, and securities.
Non-earning assets include cash and due from banks, premises and
equipment, and other assets. Cash and due from banks represented 5.7%
and 4.9% of total assets at December 31, 1994 and 1993, respectively.
These funds are available for meeting day-to-day cash requirements
inclusive of reserves required to be held by the Federal Reserve Bank.
Effective December 22, 1994, the Federal Reserve Board amended
Regulation D by decreasing the amount of net transaction accounts to
which the lowest reserve requirement would apply from $51,900,000 to
$47,900,000. In addition, the change increased the amount of the
reservable liabilities that was subject to a zero percentage from
$4,000,000 to $4,200,000. The rate applied to transaction accounts
above the tier levels remained at 10%. During 1993 the Federal Reserve
Bank raised the requirement base for transaction accounts from
$46,800,000 to $51,900,000. These changes resulted in the Company
maintaining higher balances with the Federal Reserve Bank in order to
meet reserve requirements in 1994 compared to 1993 and lower balances
in 1993 compared to 1992.
Premises and equipment was $16,780,966 and $15,941,013 at December
31, 1994 and 1993, respectively. The increase in premises and equipment
is partially due to the acquisition of the Security Federal and New South
branches. The Company is presently constructing an operations center in
Tupelo, Mississippi, which is expected to be completed in July 1995.
During 1993, the Company acquired approximately $450,000 of fixed
assets from Sunburst Corporation in the acquisition of three branches
formerly of Eastover Bank for Savings. The Company constructed a
branch office in Amory and installed a mobile branch unit in Corinth.
Other assets were $20,810,320 and $17,035,916 at December 31, 1994
and 1993, respectively. The major accounts in this category are interest
earned not collected, prepaid expenses, intangible assets, deferred taxes,
and other real estate owned. Interest earned not collected totaled
$6,895,188, up from $5,869,532 at the end of 1993. Other real estate
was $230,494 and $3,176,774 at the end of 1994 and 1993, respectively.
The decrease is due to management's commitment to decrease non-
earning assets and an improvement in the credit quality of the loan
portfolio.
Intangible assets, resulting from bank acquisitions, totaled $5,268,228
and $3,353,406 at December 31, 1994 and 1993, respectively. The
Company recorded a premium on deposits purchased from Security
Federal during 1994. The majority of the intangibles is being amortized
over a period from 13 to 15 years.
Total asset growth for 1994 and 1993 was 6.5% and 8.6%, respectively.
Growth in assets for 1994 and 1993 is quite typical of banks across the
nation.
The Company relies on deposits as its major source of funds.
Non-interest bearing deposits were $118,711,872 and $99,697,615 at
December 31, 1994 and 1993, respectively. This represented 15.1% and
13.5% of total assets for 1994 and 1993, respectively.
Interest bearing deposits were $577,567,837 and $555,847,445 at
December 31, 1994 and 1993 respectively, or a 3.9% increase for 1994
over 1993. The largest growth attributing to this increase came from
certificates of deposit under $100,000. As interest rates on certificates of
deposit began climbing, depositors moved funds from lower paying
accounts to certificates.
The Company maintains a note account with the Federal Reserve Bank
for which tax deposits are accepted. The account is secured through
pledging of securities. On December 31, 1994, the balance in the
treasury tax and loan account was $3,115,183, down slightly from
$4,000,000 at the end of 1993. This account fluctuates based on the
amount of securities pledged to secure the account and the frequency
with which the Federal Reserve Bank draws on those funds.
During 1994, the Company received advances from the Federal Home
Loan Bank totaling $4,500,952 at December 31, 1994. These advances
are the result of asset/liability managements decisions matching certain
earning assets (first mortgages and consumer loans) against these
advances at positive rate spreads.
Other liabilities totaling $9,287,227 and $8,174,705 for 1994 and 1993,
respectively, include accrued interest, accrued expenses, current taxes,
and dividends payable. Accrued interest payable totaled $2,787,348 and
$2,128,254 for 1994 and 1993, respectively.
Risk Management
The management of risk is an on-going process. Risks that are
associated with the Company include credit, interest rate, and liquidity
risks.
Credit Risk
Inherent in any lending activity is credit risk, that is, the risk of loss
should a borrower or trading counterparty default. The Company's
credit risk is monitored and managed by a Loan Committee and a Loss
Management Committee. Credit quality and policies are major concerns
of these committees. The Company tries to maintain diversification
within its loan portfolio in order to minimize the effect of economic
conditions within a particular industry.
The allowance for loan losses is available to absorb potential credit losses
from the entire loan portfolio. The appropriate level of the allowance is
based on a quarterly analysis of the loan portfolio and represents an
amount that management deems adequate to provide for potential losses.
The analysis includes the consideration of such factors as the risk rating
of individual credits, the size and diversity of the loan portfolio,
economic conditions, prior loss experience, and the results of periodic
credit reviews by internal loan review, the regulators, and the
Company's independent accounting firm. If the allowance is deemed
inadequate, management sets aside additional reserves by increasing the
charges against income.
The table on page 32 reflects the activity in the allowance for loan losses
for the years ended December 31.
The allowance for loan losses was $8,182,801 and $6,387,902 at
December 31, 1994 and 1993, respectively. This represents an
allowance to year-end loans of 1.64% and 1.46%, respectively.
Management deems this allowance adequate for future potential loan
losses.
The Company's net charge-offs for 1994 and 1993 were $206,111 and
$3,091,600, respectively. This represented a net charge-off to average
loans ratio of .04% and .73% for the two years. During 1994, a single
line recovery accounted for a significant portion of the decrease in net
charge-offs for 1994 along with the improvement in the quality of the
loan portfolio.
The net charge-offs for 1993 were down $457,858 or 12.9% over 1992.
The net charge-off ratio was comparable to 1992 including a single loan
charged off during 1993 that accounted for a major portion of the net
charge-offs in 1993.
Non-performing loans are those on which the accrual of interest has
stopped. Loans are placed on nonaccrual status if the principal or
interest is past due 90 days or more and the collateral is insufficient to
cover principal and interest. Loans are reclassified to accrual status only
when interest and principal payments are brought current and future
payments appear assured.
Allowance for Loan Losses
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------
For the year ended December 31:
Balance at Beginning of Year $ 6,387,902 $ 6,613,972 $ 5,762,429 $ 5,241,944 $4,076,333
Provision for Loan Losses 2,001,010 2,865,530 4,401,001 2,888,938 2,231,476
Charge-Offs:
Commercial, Financial,
and Agricultural 174,051 2,595,750 3,097,115 962,136 466,200
Real Estate - Mortgage 237,104 1,022,573 48,210
Consumer 684,208 900,085 785,961 910,535 759,824
_________ _________ _________ _________ _________
Total Charge-Offs 1,095,363 3,495,835 3,883,076 2,895,244 1,274,234
Recoveries:
Commercial, Financial,
and Agricultural 562,303 150,087 119,217 168,210 97,600
Real Estate - Mortgage 148,866 187,993
Consumer 178,083 254,148 214,401 170,588 110,769
_________ __________ _________ _________ __________
Total Recoveries 889,252 404,235 333,618 526,791 208,369
_________ __________ _________ _________ __________
Net Charge-Offs 206,111 3,091,600 3,549,458 2,368,453 1,065,865
_________ __________ _________ _________ __________
Balance at End of Year $ 8,182,801 $ 6,387,902 $ 6,613,972 $ 5,762,429 $ 5,241,944
========= ========== ========= ========= ==========
Loan Loss Analysis:
Loans - Average $ 463,594,744 $ 422,041,326 $ 409,694,187 $ 404,013,545 $ 383,386,381
Loans - Year-End 499,201,867 436,644,945 405,893,604 413,011,064 394,846,465
Net Charge-offs 206,111 3,091,600 3,549,458 2,368,453 1,065,765
Allowance for Loan Losses 8,182,801 6,387,902 6,613,972 5,762,429 5,241,944
Ratios:
Net Charge-offs to:
Loans - Average 0.04% 0.73% 0.87% 0.59% 0.28%
Allowance for Loan Losses 2.52% 48.40% 53.67% 41.10% 20.33%
Allowance for Loan Losses to:
Loans - Year End 1.64% 1.46% 1.63% 1.40% 1.33%
Non-performing Loans 394.57% 137.15% 128.12% 98.91% 77.58%
Non-performing Loans to:
Loans - Year End 0.42% 1.07% 1.27% 1.41% 1.71%
Loans - Average 0.45% 1.10% 1.26% 1.44% 1.76%
The following table shows the principal amounts of nonaccrual and
restructured loans at December 31 in the years indicated.
1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------
Non-performing Loans
Non-accruing $ 877,409 $ 1,605,076 $ 931,084 $ 984,278 $ 1,495,676
Accruing Loans Past Due
90 Days or More 1,196,464 3,052,371 4,231,404 4,841,781 5,261,356
_________ _________ _________ _________ _________
Total Non-performing
Loans 2,073,873 4,657,447 5,162,488 5,826,059 6,757,032
Restructured Loans
Balance Outstanding 259,945 278,416 3,139,551 3,210,538 3,275,078
_________ _________ _________ _________ _________
Total Non-performing Loans
including Restructured $ 2,333,818 $ 4,935,863 $ 8,302,039 $ 9,036,597 $ 10,032,110
========= ========= ========= ========= ==========
The following table presents the interest income on nonaccrual and
renegotiated loans that would have been recorded if these loans had been
current in accordance with their original terms and the amount of interest
income on these loans that was included in income for the periods
indicated:
1994 1993 1992 1991 1990
----------------------------------------------------------------------------------
Gross Amount of Interest That
Would Have Been Recorded
at the Original Rate $ 3,498 $ 10,784 $284,267 $443,980 $446,120
Interest That Was Recognized
in Income $ 20,529 $ 18,500 $255,557 $257,267 $259,407
________ ________ ________ ________ _______
Favorable (Unfavorable) Impact
on Gross Income $ 17,031 $ 7,716 $(28,710) $(186,713) $(186,713)
======== ========= ========= =========== =========
Non-performing loans totaled $2,073,873 and $4,657,447 for 1994 and
1993, respectively. These loans represented .45% and 1.1% of average
loans for 1994 and 1993. The allowance for loan losses to non-
performing loans was 394.6% and 137.2% for the two years. Loans
that are considered to be non-performing are closely monitored by
management and the Loss Management Committee. The decrease in
non-performing loans is attributable to an improvement in credit quality
and management's commitment to monitor loan performance.
Real estate acquired through the satisfaction of loan indebtedness is
recorded at fair value. 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.
Renegotiated loans are those for which concessions have been granted to
the borrower due to a deterioration of the borrower's financial condition.
Such concessions may include a reduction in interest rates, or a deferral
of interest or principal payments.
Loans that had been restructured due to cash flow requirements totaled
$259,945 and $278,416 for 1994 and 1993, respectively. The Company's
loan review staff monitors the performance of these loans.
Interest Rate Risk
The Company has an Asset/Liability Committee 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 asset/liability management'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.
Rate sensitivity analysis is performed on a monthly basis and shows the
Company's gap position. A positive gap exists when more rate sensitive
assets are repriced than rate sensitive liabilities within a defined period.
A negative gap exists when more rate sensitive liabilities are repriced
than rate sensitive assets within a defined period. The mismatches
between rate sensitive assets and rate sensitive liabilities are evaluated
into monthly, quarterly, annually, two years, three years, and five years
and over pools. The Asset/Liability Committee's target is to have a
cumulative gap position at the six month period of less than a positive
5%, and greater than a negative 30%.
According to the schedule on page 36, the Company will reprice
$154,451,000 more rate sensitive liabilities than assets during the first six
months of 1995 resulting in a negative gap of 19.54%. At December 31,
1995, the Company will have repriced $103,221,000 more of rate
sensitive liabilities than rate sensitive assets. This results in a cumulative
one-year negative gap of 13.06%.
The securities portfolio is one of the primary sources for positioning the
Company's interest rate risk exposure. The interest rate forecast coupled
with the economic forecast provides tools for management in making
decisions about future short and long term interest rates. From this
information decisions will be made whether to invest short term or long
term. Consideration is also given to liquidity needs before long-term
investments are made. In addition to evaluating the gap position, the
Company performs interest rate shocks on its securities portfolio to
evaluate the effect of positive or negative changes in interest rates. Rate
shocks were performed at year end from -1% to +3%. The effect of the
interest rate shock was evaluated by management in order to determine
the future investment strategy of the Company.
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. The Company has
worked toward lowering its dependence on other public funds. This has
added more stability to the Company's core deposit base reducing the
dependence on highly liquid assets.
Approximately 85% of the Company's deposits are composed of
accounts with balances less than $100,000. When evaluating the
movement of these funds even during large interest rate changes, it is
apparent that the Company continues to attract deposits that can be used
to meet cash flow needs. Other sources available for meeting the
Company's liquidity needs include available-for-sale securities. The
available-for-sale portfolio is composed of securities with a readily
available market that can be used to convert to cash if the need arises.
In addition the Company maintains a federal funds position that provides
day-to-day funds to meet liquidity needs.
Repayments and maturities of loans provide a substantial source of
liquidity. The Company has approximately 61% of loans maturing
within the next twelve months.
Capital Resources
Total shareholders' equity of the Company was $73,733,881 and
$71,438,180 at December 31, 1994 and 1993, respectively.
Shareholders' equity grew 3.2% during 1994 and 8.3% during 1993.
The growth in capital for both years was attributable to earnings less the
dividends declared. In addition, the adoption of SFAS 115 reduced
capital at December 31, 1994, by $3,529,765. Shareholders' equity as a
percentage of assets was 9.4% and 9.7% at December 31, 1994 and
1993, respectively.
The Federal Reserve Board, the FDIC, and the OCC have issued
guidelines for governing the levels of capital that banks are to maintain.
Those guidelines specify capital tiers which include the following
classification:
Tier 1 Risk- Total Risk- Leverage
Capital Tiers Based Capital Based Capital Ratio
Well capitalized 6% or above 10% or above 5% or above
Adequately capitalized 4% or above 8% or above 4% or above
Undercapitalized Less than 4% Less than 8% Less than 4%
Significantly undercapitalized Less than 3% Less than 6% Less than 3%
Critically undercapitalized 2% or less
The Company met the guidelines for a well capitalized bank for both
1994 and 1993. At December 31, 1994, the total Tier 1 and total capital
was $71.6 million and $77.6 million, respectively. Risk weighted assets
were $481.3 and $393.9 million at December 31, 1994 and 1993,
respectively. Tier 1 and total capital at December 31, 1993 were $68.4
million and $73.4 million, respectively.
1994 1993
------ -------
[S] [C] [C]
Shareholders' equity 9.37% 9.66%
Tier 1 leverage 9.22% 9.52%
Risk-based capital ratios
Tier 1 14.86% 17.40%
Total 16.12% 18.65%
Cash dividends have increased each year since 1990. See selected
financial information for previous five years. Book value per share was
$28.31 and $27.43 at December 31, 1994 and 1993, respectively.
Management places significant emphasis on internal growth of capital.
All of the increase in capital for both years was internally generated due
to a retention of earnings of 71.0% and 70.6% during 1994 and 1993,
respectively.
Results of Operations
Net income for the Company was $8,208,920, $7,735,292 and
$6,153,663 for 1994, 1993 and 1992, respectively. Net income
increased $473,628 or 6.1% over 1993. Earnings for 1993 were up
$1,581,629 or 25.7% from the 1992 earnings of $6,153,663. Earnings
per share was $3.15, $2.97, and $2.36 for 1994, 1993, and 1992,
respectively.
Return on average assets for 1994, 1993, and 1992 was 1.05%, 1.07%,
and .90%, respectively. The improvement in dollars earned for 1994
over the prior two years was largely attributable to improvement in loan
quality. The increase in 1993 earnings compared to 1992 is attributable
to improvement in loan quality and the cumulative effect of adopting
changes in method of accounting for income taxes and postretirement
benefits other than pensions.
Net interest income is the largest contributor to the net income of the
Company. It is an effective measure of how well management has
balanced the interest sensitive assets and liabilities and is the difference
between the interest earned on earning assets and the cost paid on interest
bearing liabilities. Net interest income was $34,179,372, $31,476,070,
and $30,594,924, for 1994, 1993, and 1992, respectively. This increase
over the three-year period was the result of the Company's ability to
manage interest rate risk.
Loan interest income was $39,913,585 for 1994, up $4,168,243 or
11.7% from the prior year. The increase in interest was the result of
repricing loans during a period of rising interest rates during 1994 in
which the prime rate rose to 8.5% at December 31, 1994, from 6% at
December 31, 1993. The average balance for 1994 was greater than
1993, and yield increased 14 basis points from 8.47% in 1993 to 8.61%.
Economic conditions continued to improve in the market area of the
Company.
Loan interest income for 1993 totaling $35,745,342 was down from 1992
by $2,448,584 or 6.4%. The prime interest rate during 1993 and 1992
was 6%. The decrease in loan interest income for 1993 is due to a
decrease in the yield of 85 basis points over 1992. (See three year
statistical summary for details).
3rd and
1st Qtr 2nd Qtr 4th Qtr 1-3 Years 3-5 Years 5 Years
(In Thousands) 1995 1995 1995 1996-1997 1998-1999 and over Total
-----------------------------------------------------------------------------------------
Assets:
Securities
U.S. Government and
Agency Securities $ 12,997 $ 15,020 $ 23,000 $ 64,341 $ 7,034 $ 2,070 $ 124,462
Other Securities 1,775 1,435 3,600 21,141 8,710 11,464 48,125
Obligations of States and
Political Subdivisions 194 543 1,993 5,351 6,567 31,108 45,756
Loans
Fixed 63,410 43,367 65,605 112,697 39,483 40,092 364,654
Variable 134,115 1 282 150 134,548
Federal Funds Sold 150 150
Interest Bearing Balances
With Banks 189 189
Other Assets 72,712 72,712
------- ------ ------ -------- -------- -------- --------
Total Assets $ 212,830 $ 60,366 $ 94,480 $ 203,680 $ 61,794 $ 157,446 $ 790,596
======= ======= ====== ======== ======== ======== ========
Liabilities:
Demand Deposit Accounts $ $ $ $ $ $ 118,712 $ 118,712
Interest Bearing DDA 142,206 142,206
Savings and Money Market
Accounts 101,607 101,607
Certificates of Deposit
(< $100,000) 71,712 50,490 31,034 46,608 21,981 1,406 223,231
Time Deposit
(> $100,000) 31,161 13,044 4,956 10,726 5,616 419 65,922
Individual Retirement
Accounts (< $100,000) 7,663 6,121 6,821 13,817 9,828 352 44,602
Other Borrowed Funds 3,428 215 439 1,820 1,769 95 7,766
Other Liabilities 9,286 9,286
Realized Equity 77,264 77,264
_______ _______ ______ _______ _______ _______ _______
Total Liabilities and Equity $ 357,777 $ 69,870 $ 43,250 $ 72,971 $ 39,194 $ 207,534 $ 790,596
======= ======= ====== ======= ======= ======= =======
GAP $ (144,947) $ (9,504) $ 51,230 $ 130,709 $ 22,600 $ (50,088)
GAP / Total Assets (18.33%) (1.20%) 6.48% 16.53% 2.86% (6.34%)
Cumulative GAP $ (144,947) $ (154,451) $ (103,221) $ 27,488 $ 50,088
Cumulative GAP / Total Assets (18.33%) (19.54%) (13.06%) 3.48% 6.34%
This analysis excludes the impact of SFAS 115 which resulted in an
unrealized loss on securities available for sale of $5.348 million, deferred
tax asset of $1.818 million, and a decrease in equity of $3.530 million.
1994 1993 1992
% of Taxable % of Taxable % of Taxable
Equivalent Equivalent Equivalent
Net Interest Net Interest Net Interest
Amount Income Amount Income Amount Income
--------------------------------------------------------------------------------------
Non-Interest Income:
Service charges on deposit accounts $ 5,780,725 16.26% $ 5,111,308 15.65% $ 4,684,224 14.68%
Fees and commissions 1,265,031 3.56% 1,256,543 3.85% 1,244,297 3.90%
Trust department revenues 549,925 1.55% 500,257 1.53% 367,220 1.15%
Investment securities gains 2,701 0.01% 524,622 1.61% 195,508 0.61%
Trading account gains (losses) 114,221 0.35% (92,516) (0.29%)
Other 2,100,036 5.90% 1,846,539 5.65% 1,463,860 4.59%
__________ __________ _________
Total Non-Interest Income $ 9,698,418 27.28% $ 9,353,490 28.64% $7,862,593 24.65%
Non-Interest Expense:
Salaries and employee benefits $ 16,617,611 46.74% $ 15,224,417 46.62% $ 14,055,888 44.06%
Net occupancy 2,150,588 6.05% 1,993,189 6.10% 1,812,394 5.68%
Furniture and equipment 1,149,827 3.23% 1,047,365 3.21% 902,211 2.83%
Other 11,128,930 31.30% 9,419,781 28.84% 9,000,895 28.22%
Income taxes 2,620,904 7.37% 3,066,504 9.39% 2,131,465 6.68%
__________ __________ __________
Total Non-interest Expense $ 33,667,860 94.69% $ 30,751,256 94.16% $ 27,902,853 87.47%
Cumulative Effect of Changes in
Accounting Principles 522,518 1.60%
Net Income $ 8,208,920 23.09% $ 7,735,292 23.69% $ 6,153,663 19.29%
Taxable Equivalent
Net Interest Income $ 35,551,815 $ 32,658,284 $ 31,900,244
Interest income from investment securities was $12,647,530,
$12,075,535, and $12,251,524, for 1994, 1993, and 1992, respectively.
The increase in income for 1994 was attributable to an increase in the
average balances of the securities of approximately $24.0 million. The
tax equivalent yield dropped from 6.27% in 1993 to 5.95% in 1994.
In 1993 earnings from investment securities dropped due to a drop in the
yield from 7.18% on a tax equivalent basis to 6.27%. The average
balance of those securities increased approximately $22.8 million over
1992. Investment securities interest for 1992 dropped from 1991.
Interest fell $179,027 or 1.8%. This decrease resulted in a drop in the
tax equivalent yield from 7.55% to 6.56%, while the average balance
increased approximately $14.4 million over 1991.
The tax equivalent yield on average earning assets was 7.64%, 7.59%,
and 8.48%, for 1994, 1993, and 1992, respectively.
The major source of funds for the Company is through deposits. Deposits
represented 88.5%, 88.7%, and 88.7% of the total assets for 1994,
1993, and 1992, respectively. Interest bearing accounts funded 73.4%,
75.2%, and 76.5% of the assets for those three years. The cost of funds
is reflected in interest expense.
Interest expense was $18,890,081, $16,963,155 and $20,676,034 for the
three year period. The cost of interest bearing liabilities increased from
3.05% in 1993 to 3.21% in 1994. The most significant reduction in
interest expense occurred between 1993 and 1992. The cost of interest
bearing liabilities dropped 84 basis points. The cost of interest bearing
liabilities for 1992 dropped 185 basis points from 1991 due to decrease
in interest rates.
The net interest margin reflects the portion of the yield on earning assets
that remains after the accrual of all interest expense. Net interest margin
was 4.99% on a tax equivalent basis for 1994, compared to 5.0% for
1993. The net interest margin was 5.14% for 1992.
The provision for loan losses was $2,001,010 for 1994, down from
$2,865,530 for 1993 or 30.2%. The reduction in 1994 and 1993 was
due to an improvement in the quality of the loan portfolio over the prior
year. The provision for 1993 was down $1,535,471 from 1992.
As the table indicates on page 37, non-interest income totaled
$9,698,418, $9,353,490 and $7,862,593 for the years ended December
31, 1994, 1993, and 1992, respectively. This represented 28.28%,
28.64%, and 24.65% of net interest income on a tax equivalent basis.
Service charges on deposit accounts were up $669,417, or 13.1%, from
1993. This increase is attributable to the acquisition of three branches
from Security Federal, the merger with New South and the introduction
of new products. Service charges for 1993 increased $427,084 over
1992 due to the acquisition from Sunburst Corporation.
Fees and commissions were $1,265,031, $1,256,543, and $1,224,297,
for 1994, 1993, and 1992, respectively. Fees have remained stable over
the years presented.
Other income was $2,100,036, $1,846,539, and $1,463,860, for 1994,
1993, and 1992. Other income was up for 1994 and 1993 due to the
Security Federal acquisition and gains on the sale of mortgage loans.
Balances for 1992 were relatively flat when compared to the prior
period.
Non-interest expenses include salaries and employee benefits, net
occupancy, furniture and equipment, and other. The total for these
expenses for 1994, 1993, and 1992 were $33,667,860, $30,751,256, and
$27,902,853, respectively. Expenses for 1994 were up 9.5%. In 1993
and 1992 expenses were up 10.2% and 16.2%.
Salaries and benefits, representing a major portion of the Company's
operating expenses, have increased approximately 9.2% and 8.3% during
1994 and 1993. Management monitors these costs through the
implementation of a performance evaluation system. Jobs are graded
according to levels of difficulty using a point system which provides for
salary adjustments through specified ranges. Employee performance, in
relation to goal achievement, is a major factor contributing to the
employee's salary increase. Included in salaries is an incentive plan
adopted by the Board of Directors. The cash incentive for 1994, 1993,
and 1992 was $158,111, $335,615, and $346,603. Salaries and benefits
have increased at a relatively constant rate even with increases in staffing
due to acquisitions.
Net occupancy expense includes charges for repairs, janitorial,
depreciation, rental, and other expenses related to occupancy. Expenses
for 1994, 1993, and 1992 were $2,150,588, $1,993,189, and
$1,812,394, respectively. As the table on page 37 indicates, this
represents 6.05%, 6.10%, and 5.68% of net interest income on a tax
equivalent basis for the three year period.
Furniture and equipment expenses include computer equipment rental,
repairs, and depreciation. These expenses totaled $1,149,827,
$1,047,365, and $902,211 for 1994, 1993, and 1992, respectively.
Other expenses for 1994, 1993, and 1992 were $11,128,930,
$9,419,781, and $9,000,895, respectively. The increase in 1994 was
due to losses sustained by the Company in liquidating certain parcels of
other real estate held in order to increase earning assets; and the increase
in 1993 was due to expenses incurred to make the acquisitions.
Income tax expense for 1994, 1993, and 1992 was $2,620,904,
$3,066,504, and $2,131,465. Effective tax rates were 24.2%, 29.8%,
and 25.7%. Note K of the Notes to Consolidated Financial Statements
provides further details of the provision for income taxes.
The Company adopted SFAS No. 109 and SFAS No. 106 during 1993
resulting in an increase to earnings after tax of $522,518. Refer to Note
A regarding new accounting statements adopted by the Company in
1994.
Impact of Inflation and Changing Prices
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial
and industrial companies that have significant investments in fixed assets
and inventories. Management believes the most significant impact on
financial results stems from the Company's ability to react to changes in
interest rates. Therefore, management is constantly monitoring the
Company's rate sensitivity.
SEC Form 10-K
A copy of the annual report on Form 10-K, as filed with the Securities
and Exchange Commission, may be obtained without charge by directing
a written request to : Wayne Conwill, Vice President, The Peoples
Holding Company, P. O. Box 709, Tupelo, MS 38802-0709.
Three Year Statistical Summary
1994
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
------------------------------------------------------------
Earning assets:
Loans and leases, net of unearned income:
Commercial $ 17,683,325 $ 218,147,929 8.11%
Consumer 14,289,174 155,593,089 9.18%
Other loans 7,941,086 89,853,726 8.84%
----------- -----------
Total Loans and Leases, Net 39,913,585 463,594,744 8.61%
Interest bearing balances with
banks and federal funds sold 508,338 13,363,563 3.80%
Taxable investment and trading securities:
U.S. Government securities 6,200,816 124,081,994 5.00%
U.S. Government agencies 885,201 12,768,507 6.93%
Mortgage-backed securities 2,828,152 51,220,241 5.52%
Other securities 174,155 3,862,621 5.90%TE
____________ ___________
Total Taxable Investment and Trading Securities 10,088,324 191,933,363 5.36%TE
Non-taxable investment securities:
Obligations of States and
Political Subdivisions 2,559,206 43,702,000 8.87%TE
____________ ___________
Total Investment and Trading Securities 12,647,530 235,635,363 5.95%TE
____________ ___________
Total Earning Assets 53,069,453 712,593,670 7.64%
Cash and due from banks 43,446,045
Other assets, less allowance 25,604,012
___________
for loan losses
Total Assets $ 781,643,727
===========
Interest bearing liabilities:
Interest bearing demand deposits 3,697,980 $ 161,066,313 2.30%
Savings accounts 2,403,042 106,033,460 2.27%
Time deposits 12,386,018 313,749,274 3.95%
___________ -----------
Total Interest Bearing Deposits 18,487,040 580,849,047 3.18%
Total Other Interest Costing Liabilities 403, 041 8,342,746 4.83%
___________ ___________
Total Interest Bearing Liabilities 18,890,081 589,191,793 3.21%
Non-interest bearing sources:
Non-interest bearing demand deposits 111,663,641
Other liabilities 7,746,773
Shareholders' equity 73,041,520
___________
Total Liabilities and Shareholders' Equity $ 781,643,727
===========
Net interest income/net interest margin $ 34,179,372 4.99%TE
==========
For purposes of the above computations, non-accrual loans are included in
the average loan amounts outstanding and income on such loans is recognized
as received.
TE - Ratios have been calculated on a tax equivalent basis.
1993
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
-----------------------------------------------------
Earning assets:
Loans and leases, net of unearned income:
Commercial $ 17,357,030 $ 221,681,068 7.83%
Consumer 12,326,579 126,679,135 9.73%
Other loans 6,061,733 73,681,123 8.23%
------------ -------------
Total Loans and Leases, Net 35,745,342 422,041,326 8.47%
Interest bearing balances with
banks and federal funds sold 618,348 19,991,545 3.09%
Taxable investment and trading securities:
U.S. Government securities 5,271,348 100,152,565 5.26%
U.S. Government agencies 906,769 12,425,571 7.30%
Mortgage-backed securities 3,509,565 61,223,623 5.73%
Other securities 145,057 2,762,231 6.60%TE
____________ ___________
Total Taxable Investment and Trading Securities 9,832,739 176,563,990 5.59%TE
Non-taxable investment securities:
Obligations of States and
Political Subdivisions 2,242,796 35,026,031 9.70%TE
____________ ___________
Total Investment and Trading Securities 12,075,535 211,590,021 6.27%TE
____________ ___________
Total Earning Assets 48,439,225 653,622,892 7.59%
Cash and due from banks 42,633,082
Other assets, less allowance 26,440,043
___________
for loan losses
Total Assets $ 722,696,017
===========
Interest bearing liabilities:
Interest bearing demand deposits 3,832,758 $ 170,331,137 2.25%
Savings accounts 2,616,800 91,569,907 2.86%
Time deposits 10,386,896 290,040,324 3.58%
___________ -----------
Total Interest Bearing Deposits 16,836,454 551,941,368 3.05%
Total Other Interest Costing Liabilities 126,701 4,097,013 3.09%
___________ ___________
Total Interest Bearing Liabilities 16,963,155 556,038,381 3.05%
Non-interest bearing sources:
Non-interest bearing demand deposits 90,185,490
Other liabilities 7,667,384
Shareholders' equity 68,804,762
___________
Total Liabilities and Shareholders' Equity $ 722,696,017
===========
Net interest income/net interest margin $ 31,476,070 5.00%TE
=========
For purposes of the above computations, non-accrual loans are included in
the average loan amounts outstanding, and income on such loans is recognized
as received.
TE - Ratios have been calculated on a tax equivalent basis.
1992
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
---------------------------------------------------------
Earning assets:
Loans and leases, net of unearned income:
Commercial $ 22,450,504 $ 260,519,075 8.62%
Consumer 10,711,319 109,299,378 9.80%
Other loans 5,032,103 39,875,734 12.62%
----------- -----------
Total Loans and Leases, Net 38,193,926 409,694,187 9.32%
Interest bearing balances with
banks and federal funds sold 825,508 21,514,699 3.84%
Taxable investment and trading securities:
U.S. Government securities 5,199,290 84,459,516 6.16%
U.S. Government agencies 1,773,517 23,467,998 7.56%
Mortgage-backed securities 2,596,244 37,567,769 6.91%
Other securities 363,288 8,597,129 5.48%TE
____________ ___________
Total Taxable Investment and Trading Securities 9,932,339 154,092,412 6.52%TE
Non-taxable investment securities:
Obligations of States and
Political Subdivisions 2,319,185 34,730,900 10.12%TE
____________ ___________
Total Investment and Trading Securities 12,251,524 188,823,312 7.18%TE
____________ ___________
Total Earning Assets 51,270,958 620,032,198 8.48%
Cash and due from banks 39,769,513
Other assets, less allowance 25,214,834
___________
for loan losses
Total Assets $ 685,016,545
===========
Interest bearing liabilities:
Interest bearing demand deposits 4,633,372 $ 156,690,363 2.96%
Savings accounts 3,169,786 79,330,788 4.00%
Time deposits 12,717,070 292,055,285 4.35%
___________ -----------
Total Interest Bearing Deposits 20,520,228 528,076,436 3.89%
Total Other Interest Costing Liabilities 155,806 3,772,409 4.13%
___________ ___________
Total Interest Bearing Liabilities 20,676,034 531,848,845 3.89%
Non-interest bearing sources:
Non-interest bearing demand deposits 82,130,724
Other liabilities 6,757,892
Shareholders' equity 64,279,084
___________
Total Liabilities and Shareholders' Equity $ 685,016,545
===========
Net interest income/net interest margin $ 30,594,924 5.14%TE
==========
For purposes of the above computations, non-accrual loans are included in
the average loan amounts outstanding, and income on such loans is recognized
as received.
TE - Ratios have been calculated on a tax equivalent basis.