Financial Statements
Consolidated Balance Sheets
December 31
1995 1994
---- ----
Assets
Cash and due from banks ......................................................... $ 46,918,819 $ 45,123,177
Federal funds sold .............................................................. 17,000,000 150,000
---------- ----------
Cash and Cash Equivalents ............................ 63,918,819 45,273,177
Interest-bearing balances with banks ............................................ 8,814,411 188,549
Securities held-to-maturity (market value - $50,109,526 and
$44,931,275 at December 31, 1995 and 1994, respectively) ............... 49,362,527 45,756,198
Securities available-for-sale (amortized cost - $166,530,900 and
$172,586,341 at December 31, 1995 and 1994, respectively) .............. 168,381,798 167,238,212
Loans:
Commercial, financial and agricultural ................................. 104,032,841 95,921,379
Real estate - construction ............................................. 16,850,556 18,188,860
Real estate - mortgage ................................................. 259,918,417 253,153,672
Consumer ............................................................... 149,218,137 143,948,292
Unearned income ........................................................ (11,231,586) (12,010,336)
----------- -----------
Total Loans, Net of Unearned Income .................. 518,788,365 499,201,867
Allowance for loan losses .............................................. (8,815,130) (8,182,801)
----------- ------------
Net Loans ............................................ 509,973,235 491,019,066
Premises and equipment .......................................................... 20,323,492 16,780,966
Other assets .................................................................... 20,925,126 20,810,320
----------- -----------
Total Assets ......................................... $ 841,699,408 $ 787,066,488
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing .................................................... $ 116,894,919 $ 118,711,872
Certificates of deposit exceeding $100,000 ............................. 62,620,549 58,984,109
Other interest-bearing ................................................. 560,029,831 518,583,728
----------- -----------
Total Deposits ....................................... 739,545,299 696,279,709
Treasury tax and loan note account .............................................. 2,400,495 3,115,183
Borrowings ...................................................................... 4,313,109 4,650,488
Other liabilities ............................................................... 10,480,085 9,287,227
----------- -----------
Total Liabilities .................................... 756,738,988 713,332,607
Shareholders' Equity
Common stock, $5 par value - 7,500,000 and 4,200,000 shares authorized
in 1995 and 1994, respectively; 2,604,760 issued and outstanding in
1995 and 1994, respectively ............................................ 13,023,800 13,023,800
Additional paid-in capital ...................................................... 39,875,796 29,875,796
Unrealized gains (losses) on securities available-for-sale, net of tax .......... 1,169,262 (3,529,765)
Retained earnings ............................................................... 30,891,562 34,364,050
---------- ----------
Total Shareholders' Equity ........................... 84,960,420 73,733,881
----------- -----------
Total Liabilities and Shareholders' Equity ........... $ 841,699,408 $ 787,066,488
=========== ===========
See notes to consolidated financial statements.
Consolidated Statements of Income
Year Ended December 31
1995 1994 1993
---- ---- ----
Interest income:
Loans ...................................................... $ 49,138,054 $ 39,913,585 $ 35,745,342
Securities:
Taxable ........................................... 10,097,721 10,088,324 9,832,739
Tax-exempt ........................................ 2,764,337 2,559,206 2,242,796
Other ...................................................... 1,008,809 508,338 618,348
---------- ---------- ----------
Total Interest Income ........... 63,008,921 53,069,453 48,439,225
Interest expense:
Deposits ................................................... 25,234,441 18,487,040 16,836,454
Borrowings ................................................. 386,764 403,041 126,701
---------- ---------- ----------
Total Interest Expense .......... 25,621,205 18,890,081 16,963,155
---------- ---------- ----------
Net Interest Income ............. 37,387,716 34,179,372 31,476,070
Provision for loan losses ........................................... 2,826,647 2,001,010 2,865,530
---------- ---------- ----------
Net Interest Income After
Provision For Loan Losses ....... 34,561,069 32,178,362 28,610,540
Noninterest income:
Service charges on deposit accounts ........................ 6,188,520 5,780,725 5,111,308
Fees and commissions ....................................... 1,215,810 1,265,031 1,256,543
Trust department ........................................... 584,273 549,925 500,257
Securities (losses) gains .................................. (507,344) 2,701 524,622
Trading securities gains ................................... 114,221
Other ...................................................... 3,089,856 2,100,036 1,846,539
---------- --------- ---------
Total Noninterest Income ........ 10,571,115 9,698,418 9,353,490
Noninterest expense:
Salaries and employee benefits ............................. 18,055,318 16,617,611 15,224,417
Net occupancy .............................................. 2,178,314 2,150,588 1,993,189
Equipment .................................................. 1,460,488 1,149,827 1,047,365
Other ...................................................... 10,303,357 11,128,930 9,419,781
---------- ---------- ----------
Total Noninterest Expense ....... 31,997,477 31,046,956 27,684,752
Income before income taxes and cumulative effect of
accounting changes ......................................... 13,134,707 10,829,824 10,279,278
Income taxes ........................................................ 3,930,797 2,620,904 3,066,504
---------- ---------- ----------
Income before cumulative effect of accounting changes ............... 9,203,910 8,208,920 7,212,774
Cumulative effect of change in method of accounting
for income taxes and postretirement benefits other
than pensions .............................................. 522,518
---------- ---------- ----------
Net Income ...................... $ 9,203,910 $ 8,208,920 $ 7,735,292
========== ========== ==========
Earnings per share:
Income before cumulative effect of accounting
changes ........................................... $ 3.53 $ 3.15 $ 2.77
Cumulative effect of accounting changes .................... .20
---------- --------- ---------
Earnings Per Share .............. $ 3.53 $ 3.15 $ 2.97
========== ========= =========
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 Additional Unrealized
Paid-in Gains and Retained
Shares Amount Capital (Losses) Earnings Total
------ ------ ------- -------- -------- -----
Balance at January 1, 1993 ........ 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
available-for-sale, 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)
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
Unrealized gains on securities
available-for-sale, net of tax .... 4,699,027 4,699,027
Transfer of capital ............... 10,000,000 (10,000,000)
Net income for 1995 ............... 9,203,910 9,203,910
Cash dividends -
$1.03 per share ................... (2,676,398) (2,676,398)
-----------------------------------------------------------------------------------------
Balance at December 31, 1995 ...... 2,604,760 $ 13,023,800 $ 39,875,796 $ 1,169,262 $30,891,562 $ 84,960,420
=========================================================================================
See notes to consolidated financial statements.
Consolidated Statements Of Cash Flows
Year Ended December 31
1995 1994 1993
---- ---- ----
Operating Activities
Net income ................................................................ $ 9,203,910 $ 8,208,920 $ 7,735,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ............................... 2,826,647 2,001,010 2,865,530
Provision for depreciation and amortization ............. 1,868,370 1,774,975 1,532,835
Net amortization of securities
premiums/discounts ................................... 131,421 1,180,503 475,229
Gains on sales of trading securities .................... (114,221)
Proceeds from sales of trading securities ............... 8,241,556
Purchases of trading securities ......................... (3,187,429)
Gain on sale of loans ................................... (585,304)
(Gains) losses on sales/calls of securities ............. 507,344 (2,701) (524,622)
Increase in other liabilities ........................... 1,192,858 720,883 954,812
Deferred income tax credits ............................. (459,499) (800,550) (733,521)
(Gains) losses on sales of premises and equipment ....... 129,726 21,735 (3,955)
Increase in other assets ................................ (461,230) (819,410) (239,043)
---------- ---------- ----------
Net Cash Provided By Operating Activities ...... 14,354,243 12,285,365 17,002,463
---------- ---------- ----------
Investing Activities
Net (increase) decrease in balances with other banks ...................... (8,625,862) (110,662) 46,071
Proceeds from sales of securities ......................................... 4,934,639
Proceeds from sales of securities held-to-maturity ........................ 489,287
Proceeds from sales of securities available-for-sale ...................... 28,989,992 10,746,669
Proceeds from maturities/calls of securities .............................. 83,667,180
Proceeds from maturities/calls of securities
held-to-maturity ................................................. 2,495,029 4,369,626
Proceeds from maturities/calls of securities
available-for-sale ............................................... 65,464,778 55,120,283
Purchases of securities ................................................... (131,709,918)
Purchases of securities held-to-maturity .................................. (5,949,418) (7,304,699)
Purchases of securities available-for-sale ................................ (89,190,035) (51,199,932)
Net increase in loans ..................................................... (36,170,506) (63,625,715) (36,203,252)
Proceeds from sale of loans ............................................... 12,690,078
Proceeds from sales of premises and equipment ............................. 169,850 80,692 116,633
Purchases of premises and equipment ....................................... (5,119,632) (2,190,754) (1,599,887)
----------- ----------- -----------
Net Cash Used In Investing Activities .......... (35,245,726) (53,625,205) (80,748,534)
----------- ----------- -----------
Financing Activities
Net increase (decrease) in noninterest-bearing deposits ................... (1,816,953) 19,014,257 16,400,533
Net increase in certificates of deposit exceeding $100,000 ................ 3,636,440 (4,953,714) 5,649,550
Net increase in other interest-bearing deposits ........................... 41,446,103 26,674,106 29,511,403
Net increase (decrease) in treasury tax and loan note account ............. (714,688) (995,078) 472,121
Net increase (decrease) in borrowings ..................................... (337,379) 4,892,591 207,307
Issuance of common stock by pooled
Company reflected in pooling-of-interests adjustment ............. 105,926
Cash dividends paid ....................................................... (2,676,398) (2,342,876) (2,275,224)
Cash paid on fractional shares for stock dividend
and pooling-of-interests ......................................... (40,578)
---------- ---------- ----------
Net Cash Provided By Financing Activities ...... 39,537,125 42,354,635 49,965,690
---------- ---------- ----------
Increase (Decrease) In Cash and Cash Equivalents 18,645,642 1,014,795 (13,780,381)
Cash and Cash Equivalents at Beginning of Year ................................ 45,273,177 44,258,382 58,038,763
---------- ---------- ----------
Cash and Cash Equivalents at End of Year ....... $ 63,918,819 $ 45,273,177 $ 44,258,382
========== ========== ==========
Non-cash Transactions
Transfer of loans to other real estate .................................... $ 2,284,916 $ 862,682 $ 2,360,311
========== ========== ==========
See notes to consolidated financial statements
Notes To Consolidated Financial Statements December 31, 1995
Note A - Significant Accounting Policies
The Peoples Holding Company (the Company) is a one-bank holding company,
offering a diversified range of banking services to retail and commercial
customers, primarily in North Mississippi, through The Peoples Bank & Trust
Company (the Bank).
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, the Bank. All
significant intercompany balances and transactions have been eliminated. The
Company carries its investment in subsidiary at its equity in the underlying net
assets.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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.
Investment 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. Investment
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 investment 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 established through
provisions for loan losses charged against income. Loans deemed uncollectible
are charged against the allowance for loan losses, and any subsequent recoveries
are credited to the allowance.
Beginning in 1995, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"
which was amended by FASB Statement No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." Under these new
standards, the 1995 allowance for loan losses related to loans that are
identified for evaluation in accordance with Statement No. 114 is based on
discounted cash flows using the loan's initial effective interest rate or fair
value of the collateral for certain collateral-dependent loans. The adoption of
these new standards did not have a significant effect on the allowance for loan
losses or the method of income recognition for impaired loans.
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. This evaluation is inherently
subjective, as it requires material estimates that may be susceptible to
significant change.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed primarily by
use of the straight-line 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 $1,357,051 and $230,494 at December 31,
1995 and 1994, 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. The net cost of holding other real estate and
losses on the sale of properties totaled $95,267 and $846,149 in 1995 and 1994,
respectively.
Unamortized Cost in Excess of Fair Value of Net Assets Acquired: Goodwill,
included in other assets, represents unamortized cost in excess of fair value of
net assets acquired and is being amortized on a straight-line method over 13 to
15 years. Goodwill was $4,759,183 and $5,268,228 at December 31, 1995 and 1994,
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. As of January 1, 1993, the
cumulative effect 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. As of January 1, 1993, the
cumulative effect of adopting Statement No. 106 decreased net income, net of tax
effect of $84,218, by $163,482, or $.06 per share.
Earnings Per Share: 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
pooling-of-interests in 1994.
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 1995, 1994, and 1993, cash paid for interest was $24,254,488,
$18,230,987, and $16,891,833, respectively. During 1995, 1994, and 1993, cash
paid for income taxes was $4,455,448, $2,354,158, and $2,927,410, respectively.
Reclassifications: Certain reclassifications have been made to the 1994 and 1993
consolidated financial statements to conform with the 1995 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.
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.
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 noninterest-bearing, are, by definition, equal to the
amount payable on demand at the reporting date. The fair values of certificates
of deposit and individual retirement accounts are estimated using a discounted
cash flow based on currently effective interest rates for similar types of
accounts.
Treasury Tax And Loan Note Account: The carrying amounts reported in the
consolidated balance sheet approximate the fair value.
Borrowings: The fair value was determined by discounting the cash flow
using the current market rate.
Off-Balance Sheet: The fair value was determined by replacing the current rate
with a market rate and applying that to the standby letters of credit and
commitments.
December 31
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ------------ ---------- ----------
Financial assets:
Cash and due from banks ................... $ 46,918,819 $ 46,918,819 $ 45,123,177 $ 45,123,177
Federal funds sold ........................ 17,000,000 17,000,000 150,000 150,000
Interest-bearing balances
with banks ....................... 8,814,411 8,814,411 188,549 188,549
Securities ................................ 217,744,325 218,491,324 212,994,410 212,169,487
Loans net of unearned income .............. 518,788,365 520,440,000 499,201,867 495,501,571
Allowance for loan losses ........ (8,815,130) (8,815,130) (8,182,801) (8,182,801)
Net loans ................................. 509,973,235 511,624,870 491,019,066 487,318,770
Financial liabilities:
Deposits .................................. 739,545,299 738,378,297 696,279,709 697,174,710
Treasury tax and loan note account ........ 2,400,495 2,400,495 3,115,183 3,115,183
Borrowings ................................ 4,313,109 4,235,000 4,650,488 4,299,000
Off-balance sheet:
Standby letters of credit ................. 5,003,644 4,914,683 6,233,000 6,192,350
Commitments to extend credit .............. 114,747,000 113,784,627 107,778,678 105,008,148
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, 1995, was approximately $19,540,000.
Note E - Securities
The amortized cost and estimated market values of securities held-to-maturity
and available-for-sale at December 31, 1995, are as follows:
Securities Held-to-Maturity
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Values
---- ----- ------ -------------
Obligations of states and
political subdivisions $49,362,527 $ 1,034,250 $ (287,251) $ 50,109,526
========== ========= ======== ==========
Securities Available-For-Sale
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Values
---- ----- ------ -------------
U.S. Treasury securities ........... $ 70,797,698 $ 625,574 $ (86,933) $ 71,336,339
Obligations of other U.S. Government
agencies and corporations . 29,044,357 531,327 29,575,684
Mortgage-backed securities ......... 58,117,693 1,010,007 (229,077) 58,898,623
Preferred stock .................... 8,564,165 8,564,165
Other debt securities .............. 6,987 6,987
----------- --------- --------- -----------
$ 166,530,900 $ 2,166,908 $ (316,010) $ 168,381,798
=========== ========= ========= ===========
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 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 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 value of securities
held-to-maturity and available-for-sale at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Securities Held-to-Maturity Cost Value
- --------------------------- ---- -----
Due in one year or less .............. $ 2,000,134 $ 2,013,380
Due after one year through five years 11,310,780 11,690,973
Due after five years through ten years 23,824,866 24,149,942
Due after ten years .................. 12,226,747 12,255,231
---------- ----------
$49,362,527 $50,109,526
========== ==========
Estimated
Amortized Market
Securities Available-For-Sale Cost Value
- ----------------------------- ---- -----
Due in one year or less .............. $ 20,887,603 $ 20,979,829
Due after one year through five years 65,508,314 66,216,832
Due after five years through ten years 13,453,125 13,722,349
---------- -----------
99,849,042 100,919,010
Mortgage-backed securities ........... 58,117,693 58,898,623
Preferred Stock ...................... 8,564,165 8,564,165
----------- -----------
$166,530,900 $168,381,798
=========== ===========
At December 31, 1995 and 1994, securities with an amortized cost of
approximately $118,022,000and $103,979,000, respectively, were pledged to secure
government, public and trust deposits.
Note F - Borrowings
Borrowings primarily consist of balances due to the Federal Home Loan Bank of
$4,287,833 and $4,500,952 at December 31, 1995 and 1994, respectively.
During 1995, the Company obtained two advances from the Federal Home Loan Bank
totaling $632,000. The advances were $132,000 and $500,000, with interest rates
of 6.33% and 6.73%, respectively. Maturity dates are January 3, 2011, and
October 1, 2015, respectively. All advances are secured by one-to-four family
first mortgages equal to the amount of outstanding aggregate advances.
During 1994, the Company obtained several advances from the Federal Home Loan
Bank. 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.
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, 1995:
1996 $ 893,706
1997 950,124
1998 998,779
1999 802,009
2000 32,355
Thereafter 610,860
---------
Total $4,287,833
=========
Note G - Loans to Related Parties
Certain Bank officers and directors and their associates are customers of and
have other transactions with the Bank. Related party loans and commitments are
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than a normal risk of collectibility. The
aggregate dollar amount of these loans was $3,990,176 and $4,664,132 at December
31, 1995 and 1994, respectively. During 1995, $1,636,157 of new loans were made
and payments received totaled $2,310,113.
Note H - Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
Year Ended December 31
1995 1994 1993
---- ---- ----
Balance at beginning of year ............................. $ 8,182,801 $ 6,387,902 $ 6,613,972
Charge-offs .............................................. (2,438,312) (1,095,363) (3,495,835)
Recoveries ............................................... 243,994 889,252 404,235
---------- --------- ---------
Net Charge-offs ................................. (2,194,318) (206,111) (3,091,600)
Provision for loan losses ................................ 2,826,647 2,001,010 2,865,530
---------- --------- ---------
Balance at End of Year $ 8,815,130 $ 8,182,801 $ 6,387,902
========== ========= =========
At December 31, 1995, the recorded investment in loans that are considered to be
impaired under Statement No. 114 was $2,874,169, of which $729,265 were on a
nonaccrual basis. Included in this amount is $1,545,960 of impaired loans for
which the related allowance for loan losses is $572,281, and $1,328,209 of
impaired loans that do not have a specific allowance for loan losses due to
sufficient collateral value. The average recorded investment in impaired loans
during the year ended December 31, 1995, was approximately $2,500,000. For the
year ended December 31, 1995, the Company recognized interest income on these
impaired loans of $203,337, which included $44,233 of interest income recognized
using the cash basis method of income recognition.
Note I - Nonaccrual and Past Due Loans
Nonaccrual and past due loans were as follows:
December 31
1995 1994
---- ----
Nonaccrual loans outstanding .. $ 803,237 $ 877,409
Accruing loans past due 90 days
or more outstanding .. 2,626,333 1,196,464
At December 31, 1995 and 1994, 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:
December 31
1995 1994
---- ----
Land ......................................... $ 2,796,278 $ 2,862,865
Premises ..................................... 16,522,457 16,344,040
Equipment, furniture and fixtures ............ 10,894,411 10,494,109
Construction in progress ..................... 4,193,783 238,385
---------- ----------
34,406,929 29,939,399
Accumulated depreciation and amortization .... (14,083,437) (13,158,433)
---------- ----------
$ 20,323,492 $ 16,780,966
========== ==========
Depreciation expense ......................... $ 1,277,530 $ 1,248,374
========== ==========
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, 1995 and 1994, are as
follows:
(In Thousands)
1995 1994
---- ----
Deferred tax assets:
Provision for loan losses ........................... $3,290 $2,715
Net unrealized losses on securitiesavailable-for-sale 1,818
Deferred compensation ............................... 1,052 702
Other ............................................... 199 549
----- -----
Total deferred tax assets .................. 4,541 5,784
Deferred tax liabilities:
Depreciation ........................................ 1,215 1,478
Net unrealized gains on securities available-for-sale 682
Other ............................................... 825 446
----- -----
Total deferred tax liabilities ............. 2,722 1,924
----- -----
Net deferred tax assets .................... $1,819 $3,860
===== =====
Significant components of the provision for income taxes (credits) attributable
to continuing operations are as follows:
1995 1994 1993
---- ---- ----
Current
Federal ............ $ 3,981,791 $ 3,421,454 $ 3,800,025
State .............. 408,505
--------- --------- ---------
4,390,296 3,421,454 3,800,025
--------- --------- ---------
Deferred
Federal ............ (397,904) (800,550) (733,521)
State .............. (61,595)
--------- -------- ---------
(459,499) (800,550) (733,521)
---------- --------- ---------
$ 3,930,797 $ 2,620,904 $ 3,066,504
========= ========= =========
The reconciliation of income taxes (credits) attributable to continuing
operations computed at the United States federal statutory tax rates to income
tax expense is:
1995 1994 1993
---- ---- ----
Tax at U.S. statutory rate ............... $ 4,465,800 34.0% $ 3,682,140 34.0% $ 3,494,956 34.0%
Tax-exempt interest income ...... (965,064) (7.3%) (910,676) (8.4%) (755,617) (7.4%)
State income tax, net of federal
deduction ................... 228,961 1.7%
Amortization of intangible assets 70,146 0.5% 53,292 0.5% 61,295 0.6%
Dividends received deduction .... (23,152) (0.2%) (35,682) (0.3%) (24,644) (0.3%)
Other items - net ............... 154,106 1.2% (168,170) (1.6%) 290,514 2.9%
--------- ----- --------- ----- --------- -----
$ 3,930,797 29.9% $ 2,620,904 24.2% $ 3,066,504 29.8%
========= ===== ========= ===== ========= =====
Income taxes provided on gains (losses) on the sales of investment securities
were approximately $(189,000), $1,000, and $217,000 for the years ended December
31, 1995, 1994, and 1993, 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 BankOs capital stock. At December 31, 1995, the unrestricted
surplus was approximately $31,696,000.
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, 1995, 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, one-twelfth of which is payable monthly for life with 120 payments
guaranteed, is determined as the sum of (A) 1.4% of average earnings, plus (B)
0.6% of average earnings in excess of covered compensation, times (C) years of
service at retirement limited to 25.
The Company's funding policy is to contribute annually an amount that falls
within the minimum and maximum amount determined by consulting actuaries in
accordance with the Employee Retirement Income Security Act of 1974.
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
1995 1994
---- ----
Actuarial present value of accumulated
benefits, including vested benefits of $8,041,324 and
$6,699,365 at December 31, 1995 and 1994, respectively $ (8,122,371) $ (6,761,400)
========== ==========
Plan assets at fair value ..................................... $ 9,350,383 $ 6,963,692
Projected benefit obligation .................................. (11,393,191) (9,559,173)
---------- ---------
Projected benefit obligation in excess of plan assets (2,042,808) (2,595,481)
Unrecognized net asset ........................................ (354,426) (418,483)
Prior service cost not yet recognized in net periodic cost .... 708,483 770,116
Unrecognized net loss from past experience
different from that assumed .......................... 1,853,592 2,119,947
---------- ---------
Prepaid (accrued) pension cost ................................ $ 164,841 $ (123,901)
========== =========
Net pension expense as determined by consulting actuaries included the following
components:
Year Ended December 31
1995 1994 1993
---- ---- ----
Service costs-D benefits earned during the year $ 440,232 $ 456,660 $ 455,506
Interest cost on projected benefit obligation . 794,954 748,988 678,844
Actual return on plan assets .................. (1,696,670) 456,472 (265,861)
Net amortization and deferral ................. 1,093,212 (1,051,402) (275,678)
--------- --------- -------
Net pension expense ........................... $ 631,728 $ 610,718 $ 592,811
========= ========= =======
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 8.0% and 5.0%, respectively, at December
31, 1995, and 8.5% and 5%, respectively, at December 31, 1994. The expected
long-term rate of return on investments was 9.25% for 1995, 1994 and 1993.
The unrecognized net asset is being recognized over 15.53 years. Plan
assets consist mainly of U. S. Treasury obligations, equity securities, and
other fixed income securities. The actual return was 20.8%, (6.7%), and
4.2% for years ending 1995, 1994, and 1993.
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. 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 amounts recognized in the Company's balance sheet:
December 31
1995 1994
---- ----
Accumulated postretirement benefit obligation:
Retirees ................................... $ (4,200) $ (8,700)
Fully eligible active plan participants .... (84,800) (79,400)
Other active plan participants ............. (189,600) (179,700)
-------- -------
Accumulated postretirement benefit obligation ....... (278,600) (267,800)
Unrecognized net gain ...................... (84,100) (56,100)
-------- --------
Accrued postretirement benefit cost $(362,700) $(323,900)
======== ========
Net periodic postretirement benefit cost includes the following components:
Year ended December 31
1995 1994 1993
---- ---- ----
Service cost ................................ $ 20,600 $ 21,700 $ 22,000
Interest cost ............................... 19,600 19,300 19,300
Transition obligation ....................... 247,700
Amortization of net gain from earlier periods (2,100)
------- ------ -------
Net periodic postretirement benefit cost . $ 38,100 $ 41,000 $ 289,000
======= ====== =======
The Company has limited its liability for the rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate ) to the rate of
inflation assumed to be 4% each year. The health care cost trend rate assumption
has little effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would not
increase the accumulated postretirement benefit obligation nor the service and
interest cost components of net periodic postretirement benefit cost as of
December 31, 1995, and for the year then ended. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
8.0% and 8.5% at December 31, 1995 and 1994, respectively.
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 CompanyOs common stock. Total
contributions to the Plan charged to operating expenses were $400,000, $399,992,
and $353,890 in 1995, 1994, and 1993, respectively.
Note N - Other Noninterest Income and Expenses
Components of other noninterest income and expenses which exceed 1% of total
revenues were as follows: other noninterest expenses in 1995 - computer
processing costs, $2,133,604; stationery and supplies, $783,625; FDIC/state
banking assessment, $1,145,127; other noninterest income in 1994 - life
insurance proceeds, $673,494; other noninterest expenses in 1994 - computer
processing cost, $1,963,510; stationery and supplies, $640,603; other fees,
$650,105; FDIC/state banking assessment, $1,851,883; 1993-FDIC/state banking
assessment, $1,585,024; stationery and supplies, $577,813.
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.
Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Company's normal credit
policies. Collateral (e.g., securities, receivables, inventory, equipment) is
obtained based on management's credit assessment of the customer.
The Company's unfunded loan commitments (unfunded loans and unused lines of
credit) and standby letters of credit outstanding at December 31, 1995, was
approximately $114,747,000 and $5,003,000, respectively, compared to
December 31, 1994, which was approximately $107,779,000 and $6,233,000,
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
1995 1994
---- ----
Assets
Cash* ............................................. $ 31,807 $ 4,866
Interest-bearing balances with banks* ............. 81,042
Dividends receivable* ............................. 683,752 603,248
Investment in bank subsidiary* .................... 84,910,554 73,696,858
Other assets ...................................... 165 70,365
---------- ----------
Total Assets .................... $85,707,320 $74,375,337
========== ==========
Liabilities and Shareholders' Equity
Dividends payable ................................. $ 683,752 $ 603,248
Accrued interest payable and other liabilities .... 63,148 38,208
Shareholders' equity .............................. 84,960,420 73,733,881
---------- ----------
Total Liabilities and Shareholders' Equity $85,707,320 $74,375,337
========== ==========
Statements of Income
Year Ended December 31
1995 1994 1993
---- ---- ----
Income:
Dividends from bank subsidiary* ..... $ 2,776,398 $ 2,342,876 $ 2,500,224
Other dividends ..................... 59,025 45,092 53,019
Interest income from bank subsidiary* 1,042 410
--------- --------- ---------
2,836,465 2,387,968 2,553,653
Expenses:
Other ............................... 213,408 184,936 80,249
--------- --------- ---------
213,408 184,936 80,249
--------- --------- ---------
Income before income tax credits and
equity in undistributed net income of
bank subsidiary ..................... 2,623,057 2,203,032 2,473,404
Income tax credits ........................... (66,184) (57,700) (21,877)
--------- --------- ---------
2,689,241 2,260,732 2,495,281
Equity in undistributed net
income of bank subsidiary* .......... 6,514,669 5,948,188 5,240,011
--------- --------- ---------
Net Income ........ $ 9,203,910 $ 8,208,920 $ 7,735,292
========= ========= =========
*Eliminated in consolidation
Statements of Cash Flows
Year Ended December 31
1995 1994 1993
---- ---- ----
Operating Activities:
Net income .................................................. $ 9,203,910 $ 8,208,920 $ 7,735,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income
of bank subsidiary ..................... (6,514,669) (5,948,188)
(5,240,011)
(Increase) decrease in dividends receivable (80,504) 77,853
(149,179)
(Increase) decrease in other assets ....... 70,200 (70,200)
Increase (decrease) in other liabilities .. 105,444 64,355 (18,150)
--------- --------- ---------
Net Cash Provided By Operating Activities . 2,784,381 2,332,740 2,327,952
Investing Activities:
Increase in investment in subsidiaries ...................... (106,000)
Purchase of certificates of deposit ......................... (81,042) (60,000)
Proceeds from matured certificates of deposit ............... 60,000
--------- --------- ---------
Net Cash Used In Investing Activities ..... (81,042) (106,000)
Financing Activities:
Issuance of common stock
by pooled Company reflected in
pooling-of-interests adjustment ................. 105,926
Cash dividends .............................................. (2,676,398) (2,342,876) (2,275,224)
Payment of fractional shares on stock dividend .............. (40,578)
----------- ---------- ----------
Net Cash Used In Financing Activities ..... (2,676,398) (2,277,528) (2,275,224)
----------- ---------- ----------
Increase (Decrease) In Cash ............... 26,941 (50,788) 52,728
Cash at beginning of year ...................................... 4,866 55,654 2,926
----------- ---------- ----------
Cash At End Of Year ....................... $ 31,807 $ 4,866 $ 55,654
=========== ========== ==========
*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, 1995 and 1994:
Three Months Ended
Mar 31 June 30 Sept 30 Dec 31
------ ------- ------- ------
1995
Interest income .......... $14,712,503 $15,745,106 $16,192,532 $16,358,780
Interest expense ......... 5,606,144 6,318,404 6,608,905 7,087,752
Net interest income ...... 9,106,359 9,426,702 9,583,627 9,271,028
Provision for loan losses 600,000 600,000 922,306 704,341
Noninterest income ....... 2,031,591 2,391,707 3,564,764 2,583,053
Noninterest expenses ..... 7,891,742 7,618,316 8,417,552 8,069,867
Income before income taxes 2,646,208 3,600,093 3,808,533 3,079,873
Income taxes ............. 758,101 1,059,954 1,171,772 940,970
Net income ............... 1,888,107 2,540,139 2,636,761 2,138,903
Earnings per share ....... $ .72 $ .98 $ 1.01 $ .82
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
Noninterest income ....... 2,501,182 2,425,146 2,376,082 2,396,008
Noninterest 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 ............. 425,103 536,084 840,66 819,055
Net income ............... 1,999,952 2,128,403 1,956,482 2,124,083
Earnings per share ....... $ .77 $ .82 $ .75 $ .81
The amounts presented for the first three quarters of 1994 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, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1995, 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 /s/ Ernst & Young LLP
January 17, 1996
Selected Financial Information
(Not covered by the Accountants' Report)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
For the year ended December 31:
Interest Income ............ $63,008,921 $53,069,453 $48,439,225 $51,270,958 $ 57,437,770
Interest Expense ........... 25,621,205 18,890,081 16,963,155 20,676,034 29,786,414
Provision for Loan Losses .. 2,826,647 2,001,010 2,865,530 4,401,001 2,888,938
Noninterest Income ......... 10,571,115 9,698,418 9,353,490 7,862,593 7,703,632
Noninterest Expense ........ 31,997,477 31,046,956 27,684,752 25,771,388 24,003,557
Income Before Taxes ........ 13,134,707 10,829,824 10,279,278 8,285,128 8,462,493
Income Taxes ............... 3,930,797 2,620,904 3,066,504 2,131,465 1,871,102
Cumulative Effect of Changes
in Accounting Principles 522,518
Net Income ................. 9,203,910 8,208,920 7,735,292 6,153,663 6,591,391
Per Common Share:
Net Income ................ $ 3.53 $ 3.15 $ 2.97 $ 2.36 $ 2.53
Book Value at December 31 . 32.62 28.31 27.43 25.33 23.77
Market Value at December 31 44.00 35.00 33.60 24.33 22.12
Cash Dividends Declared
and Paid ......... 1.03 0.90 0.84 0.81 0.76
Total at Year-End:
Loans, Net of
Unearned Income $518,788,365 $499,201,867 $436,644,945 $405,893,604 $413,011,064
Allowance for Loan Losses 8,815,130 8,182,801 6,387,902 6,613,972 5,762,429
Securities .............. 217,744,325 212,994,410 231,741,575 193,523,989 168,807,551
Assets .................. 841,699,408 787,066,488 739,311,816 680,656,022 667,398,720
Deposits ................ 739,545,299 696,279,709 655,545,060 603,983,574 590,649,184
Borrowings .............. 4,313,109 4,650,488 259,797 292,674 279,073
Shareholders' Equity .... 84,960,420 73,733,881 71,438,180 65,978,112 61,927,960
Selected Ratios:
Return on Average:
Total Assets ......... 1.13% 1.05% 1.07% 0.90% 0.99%
Shareholders' Equity . 11.45% 11.24% 11.24% 9.57% 10.99%
Average Shareholders' Equity
to Average Assets .... 9.83% 9.34% 9.52% 9.38% 9.03%
At December 31:
Shareholders' Equity
to Assets ............ 10.09% 9.37% 9.66% 9.69% 9.28%
Tier 1 Leverage ............... 9.67% 9.22% 9.52% 9.48% 9.07%
Risk-Based Capital Ratios
Tier 1 ............... 14.87% 14.86% 17.40% 14.70% 14.26%
Total (8.00% Required) 16.14% 16.12% 18.65% 15.95% 15.62%
Allowance for Loan Losses
to Total Loans ....... 1.70% 1.64% 1.46% 1.63% 1.40%
Allowance for Loan Losses
to Nonperforming Loans 257.03% 394.57% 137.15% 128.12% 98.91%
Nonperforming Loans to
Total Loans .......... .66% .42% 1.07% 1.27% 1.41%
Dividend Payout ............... 29.08% 29.03% 29.41% 34.18% 30.23%
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, 1995, there
were approximately 2,300 shareholders of record.
DIVIDENDS PRICES
PERIOD PER SHARE LOW HIGH
------ --------- --- ----
1995
1st Quarter $.2400 $36.25 $40.00
2nd Quarter .2625 37.25 41.16
3rd Quarter .2625 38.50 46.50
4th Quarter .2625 42.75 48.00
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
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-one branches located
in North and North Central Mississippi.
The Company's banking subsidiary provides a wide range of banking and financial
services to its customers. Those include lending services for commercial,
consumer, and real estate loans; depository services for checking, savings,
money market, IRA's and certificate of deposit accounts; and fiduciary services.
The Bank maintains credit card services and is the issuer of the Mississippi
State University 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, 1995.
The Company ended 1995 with assets totaling $841,699,408, up from the prior year
total of $787,066,488. This represented a 6.9% growth. Earnings were up 12.1%
from the previous year with net income surpassing $9,200,000.
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.
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 61.6% and 63.4% of the total assets at
December 31, 1995 and 1994, respectively. Loan growth was 3.9% for 1995,
maintaining a proportionate mix in the various loan categories as compared to
1994. Total loans increased 14.3% during 1994. 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.
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.
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Commercial, financial, and
agricultural ............... $ 104,032,841 $ 95,921,379 $ 103,061,684 $ 130,610,697 $ 145,606,537
Real estate - construction .......... 16,850,556 18,188,860 25,967,773 15,280,136 12,941,094
Real estate - mortgage .............. 259,918,417 253,153,672 220,363,067 191,861,073 186,964,488
Consumer ............................ 149,218,137 143,948,292 97,095,734 77,844,541 79,336,554
Unearned income ..................... (11,231,586) (12,010,336) (9,843,313) (9,702,843) (11,837,609)
------------ ----------- ----------- ----------- -----------
Total loans, net of
unearned income ... $ 518,788,365 $ 499,201,867 $ 436,644,945 $ 405,893,604 $ 413,011,064
============ =========== =========== =========== ===========
The securities portfolio is used to provide term investments, to provide a
source of meeting liquidity needs, and to supply securities to be used in
collateralizing public funds. The types of securities purchased and the terms of
those securities depend on management's assessment of future economic
conditions.
The securities portfolio was up 2.2% at December 31, 1995, compared to December
31, 1994. The increase in the securities portfolio is due mainly to the effect
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which resulted in an increase in the net unrealized gain on
securities classified as available-for-sale in December 31, 1995, of $7,199,027.
The securities portfolio represented 25.9% and 27.1% of assets at the end of
1995 and 1994, respectively.
Total securities were down 8.1% at December 31, 1994, from 1993. The largest
change came from a decrease in mortgage-backed securities, and the
implementation of SFAS No. 115, which resulted in a net unrealized loss on
securities of $5,348,129.
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 1995 or 1994. 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
$17,000,000 and $150,000, at December 31, 1995 and 1994, respectively. The
changes in these balances between periods is typical of fluctuations caused by
changes in deposits, loans, and securities.
Nonearning assets include cash and due from banks, premises and equipment, and
other assets. Cash and due from banks represented 5.6% and 5.7% of total assets
at December 31, 1995 and 1994, respectively. These funds are available for
meeting day-to-day cash requirements inclusive of reserves required to be held
by the Federal Reserve Bank.
Premises and equipment was $20,323,492 and $16,780,966 at December 31, 1995 and
1994, respectively. The increase in premises and equipment in 1995 is due to the
construction of a new 21,000 square foot Technology Center designed to house the
electronic data processing, proof, purchasing, statement rendering, and voice
response operations. Included in the cost is the purchase of new power proof
machines and imaging equipment which allows the Company to offer its customers
imaged account statements. The increase in premises and equipment in 1994 is
partially due to the acquisition of the Security Federal and New South branches.
Other assets were $20,925,126 and $20,810,320 at December 31, 1995 and 1994,
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 $8,321,434, up from
$6,895,188 at the end of 1994. Other real estate was $1,357,051 and $230,494 at
the end of 1995 and 1994, respectively. The increase is due to several large
parcels recently transferred to other real estate.
Intangible assets, resulting from bank acquisitions, totaled $4,759,183 and
$5,268,228 at December 31, 1995 and 1994, 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 1995 and 1994 was 6.9% and 6.5%, respectively. Growth in
assets for 1995 and 1994 is quite typical of banks across the nation.
The Company relies on deposits as its major source of funds. Noninterest-bearing
deposits were $116,894,919 and $118,711,872 at December 31, 1995 and 1994,
respectively. This represented 13.9% and 15.1% of total assets for 1995 and
1994, respectively. The decrease is due to noninterest-bearing deposits being
transferred to interest-bearing deposits as a result of depositors utilizing new
certificate of deposit products.
Interest bearing deposits were $622,650,380 and $577,567,837 at December 31,
1995 and 1994, respectively, or a 7.8% increase over 1994. The largest growth
contributing to this increase came from certificates of deposit under $100,000.
The increase is due to deposits obtained as a result of new certificate of
deposit products.
The Company maintains a note account with the Federal Reserve Bank for which tax
deposits are accepted. The account is secured through pledging of securities. On
December 31, 1995, the balance in the treasury tax and loan account was
$2,400,495, down from $3,115,183 at the end of 1994. 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 1995, the Company received advances from the Federal Home Loan Bank
(FHLB) totaling $632,000. The balance due to the FHLB at December 31, 1995 and
1994, was $4,287,833 and $4,500,952, respectively. These advances are the result
of asset/liability management decisions matching certain earning assets (first
mortgages and consumer loans) against these advances at positive rate spreads.
Other liabilities totaling $10,480,085 and $9,287,227 at December 31, 1995 and
1994, respectively, include accrued interest, accrued expenses, current taxes,
and dividends payable. Accrued interest payable totaled $4,154,065 and
$2,787,348 at December 31, 1995 and 1994, 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, including losses on
loans assessed as impaired under FAS 114, "Accounting by Creditors for
Impairment of a Loan." The balance of these loans determined as impaired and
their related allowance is included in management's estimation and analysis of
the allowance for loan losses. 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 allowance for loan losses was $8,815,130 and $8,182,801 at December 31, 1995
and 1994, respectively. This represents an allowance to year-end loans of 1.70%
and 1.64%, respectively. Management deems this allowance adequate for future
potential loan losses.
The table below reflects the activity in the allowance for loan losses for the
years ended December 31.
Allowance for Loan Losses
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
For the year ended December 31:
Balance at Beginning of Year ........... $ 8,182,801 $ 6,387,902 $ 6,613,972 $ 5,762,429 $ 5,241,944
Provision for Loan Losses ..... 2,826,647 2,001,010 2,865,530 4,401,001 2,888,938
Charge-Offs:
Commercial, Financial,
and Agricultural .. 1,286,161 174,051 2,595,750 3,097,115 962,136
Real Estate - Mortgage 93,452 237,104 1,022,573
Consumer ............. 1,058,699 684,208 900,085 785,961 910,535
---------------------------------------------------------------------
Total Charge-Offs ............. 2,438,312 1,095,363 3,495,835 3,883,076 2,895,244
Recoveries:
Commercial, Financial,
and Agricultural .. 101,116 562,303 150,087 119,217 168,210
Real Estate - Mortgage 6,631 148,866 187,993
Consumer ............. 136,247 178,083 254,148 214,401 170,588
---------------------------------------------------------------------
Total Recoveries .............. 243,994 889,252 404,235 333,618 526,791
---------------------------------------------------------------------
Net Charge-Offs ............... 2,194,318 206,111 3,091,600 3,549,458 2,368,453
---------------------------------------------------------------------
Balance at End of Year ................. $ 8,815,130 $ 8,182,801 $ 6,387,902 $ 6,613,972 $ 5,762,429
=====================================================================
Loan Loss Analysis:
Loans - Average ............... $513,670,074 $463,594,744 $422,041,326 $409,694,187 $404,013,545
Loans - Year End .............. 518,788,365 499,201,867 436,644,945 405,893,604 413,011,064
Net Charge-offs ............... 2,194,318 206,111 3,091,600 3,549,458 2,368,453
Allowance for Loan Losses ..... 8,815,130 8,182,801 6,387,902 6,613,972 5,762,429
Ratios:
Net Charge-offs to:
Loans - Average ......... .43% .04% .73% .87% .59%
Allowance for Loan Losses 24.89% 2.52% 48.40% 53.67% 41.10%
Allowance for Loan Losses to:
Loans - Year End ........ 1.70% 1.64% 1.46% 1.63% 1.40%
Nonperforming Loans ..... 257.03% 394.57% 137.15% 128.12% 98.91%
Nonperforming Loans to:
Loans - Year End .66% .42% 1.07% 1.27% 1.41%
Loans - Average .67% .45% 1.10% 1.26% 1.44%
The Company's net charge-offs for 1995 and 1994 were $2,194,318 and $206,111,
respectively. This represented a net charge-offs to average loans ratio of .43%
and .04% for the two years. The increase in net charge-offs for 1995 compared to
1994 is due to several large customers which, after diligent collection efforts,
required charge-off. During 1994, an individual loan recovery accounted for a
significant portion of the decrease in net charge-offs along with the
improvement in the quality of the loan portfolio.
Nonperforming loans are those on which the accrual of interest has stopped or
the loan is contractually past due 90 days. Generally, the accrual of income is
discounted when the full collection of principal is in doubt, or when the
payment of principal or interest has been contractually 90 days past due unless
the obligation is both well secured and in the process of collection.
The following table shows the principal amounts of nonaccrual and restructured
loans at December 31 in the years indicated.
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Nonperforming Loans
Nonaccruing .................... $ 803,237 $ 877,409 $1,605,076 $ 931,084 $ 984,278
Accruing Loans Past Due
90 Days Or More ....... 2,626,333 1,196,464 3,052,371 4,231,404 4,841,781
-------------------------------------------------------------
Total Nonperforming
Loans ........ 3,429,570 2,073,873 4,657,447 5,162,488 5,826,059
Restructured Loans
Balance Outstanding ... 243,230 259,945 278,416 3,139,551 3,210,538
-------------------------------------------------------------
Total Nonperforming Loans
Including Restructured ......... $3,672,800 $2,333,818 $4,935,863 $8,302,039 $9,036,597
=============================================================
The following table presents the interest income on restructured loans, if these
loans had been current in accordance with their original terms, and the amount
of interest income on these loans that was included in income for the periods
indicated:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Gross Amount Of Interest That
Would Have Been Recorded
At The Original Rate .........$ $ 3,498 $ 10,784 $ 284,267 $ 443,980
Interest That Was Recognized
In Income .................... 16,281 $ 20,529 $ 18,500 $ 255,557 $ 257,267
-------------------------------------------------------
Favorable (Unfavorable) Impact
On Gross Income ..............$ 16,281 $ 17,031 $ 7,716 $ (28,710) $(186,713)
=======================================================
Nonperforming loans totaled $3,429,570 and $2,073,873 at December 31, 1995 and
1994, respectively. These loans represented .67% and .45% of average loans for
1995 and 1994. The allowance for loan losses to nonperforming loans was 257.0%
and 394.6% for the two years. The increase in nonperforming loans for 1995 is
due to an increase in loans over 90 days past due compared to 1994. The increase
is due to loan growth and various economic conditions affecting loan payoffs.
Loans that are considered to be nonperforming are closely monitored by
management and the Loss Management Committee. The decrease in 1994 in
nonperforming 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 the lower of cost or fair market value based on appraised value, less
estimated selling cost at date acquired. Any deficiency between the loan balance
and the purchase price of the property is charged to the allowance for loan
losses. Subsequent sales of the property may result in gains or losses to the
Company.
Restructured loans are those for which concessions have been granted to the
borrower due to a deterioration of the borrower's financial condition. Such
concessions may include a reduction in interest rates, or a deferral of interest
or principal payments.
Loans that had been restructured due to cash flow requirements totaled $243,230
and $259,945 at December 31, 1995 and 1994, 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 Committee'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 and segregated 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 37, the Company will reprice approximately
$102,113,000 more rate-sensitive liabilities than assets during the first six
months of 1996, resulting in a negative gap of 12.15%. At December 31, 1996, the
Company will have repriced approximately $100,617,000 more of rate-sensitive
liabilities than rate-sensitive assets. This results in a cumulative one-year
negative gap of 11.97%.
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 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 -4% to +4%. 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
CompanyOs core deposit base, reducing the dependence on highly liquid assets.
Approximately 92% of the Company's deposits are composed of accounts with
balances less than $100,000. When evaluating the movement of these funds, even
during large interest rate changes, it is apparent that the Company continues to
attract deposits that can be used to meet cash flow needs. Other sources
available for meeting the Company's liquidity needs include available-for-sale
securities. The available-for-sale portfolio is composed of securities with a
readily available market that can be used to convert to cash if the need arises.
In addition, the Company maintains a federal funds position that provides
day-to-day funds to meet liquidity needs and may also obtain advances from the
Federal Home Loan Bank to meet liquidity needs..
Repayments and maturities of loans provide a substantial source of liquidity.
The Company has approximately 73% of loans maturing within the next twelve
months.
Capital Resources
Total shareholders' equity of the Company was $84,960,420 and $73,733,881 at
December 31, 1995 and 1994, respectively. Shareholders' equity grew 15.2% during
1995 and 3.2% during 1994. The growth in capital for both years was attributable
to earnings less dividends declared. In addition, the effect of SFAS No. 115
increased capital by $4,699,027 in 1995 compared to 1994 and reduced capital at
December 31, 1994, by $3,529,765. Shareholders' equity as a percentage of assets
was 10.1% and 9.4% at December 31, 1995 and 1994, 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 1995 and
1994. At December 31, 1995, the total Tier 1 and total risk-based capital was
$78.6 million and $85.2 million, respectively. Risk-weighted assets were $528.0
and $481.3 million at December 31, 1995 and 1994, respectively. Tier 1 and total
risk-based capital at December 31, 1994, were $71.6 million and $77.6 million,
respectively.
1995 1994
---- ----
Shareholders' equity .... 10.09% 9.37%
Tier 1 leverage ......... 9.67% 9.22%
Risk-based capital ratios
Tier 1 ......... 14.87% 14.86%
Total .......... 16.14% 16.12%
Cash dividends have increased each year since 1990. (See selected financial
information for the previous five years.) Book value per share was $32.62 and
$28.31 at December 31, 1995 and 1994, respectively. Management places
significant emphasis on internal growth of capital. The increase in capital for
both years, excluding the effects of SFAS No. 115, was internally generated due
to a retention of earnings of 71.0% during 1995 and 1994, respectively.
Results of Operations
Net income for the Company was $9,203,910, $8,208,920, and $7,735,292 for 1995,
1994, and 1993, respectively. Net income increased $994,990, or 12.1%, over
1994. Earnings for 1994 were up $473,628, or 6.1%, from the 1993 earnings.
Earnings per share was $3.53, $3.15, and $2.97 for 1995, 1994, and 1993,
respectively.
Return on average assets for 1995, 1994, and 1993 was 1.13%, 1.05%, and 1.07%,
respectively. The improvement in earnings for 1995 over the prior two years was
due to several factors, including an increase in net interest margin, an
increase of 10% in noninterest income over 1994 which included the reversal of a
lender liability lawsuit judgment of approximately $575,000 rendered against the
Bank in 1991, coupled with an increase of 3% in noninterest expenses, excluding
income taxes. The improvement in earnings for 1994 over 1993 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 component of net income for the Company. It
is an effective measurement of how well management has balanced the interest
sensitive assets and liabilities and is the difference between the interest
earned on earning assets and the cost paid on interest bearing liabilities. Net
interest income was $37,387,716, $34,179,372, and $31,476,070, for 1995, 1994,
and 1993, respectively. This increase over the three-year period was the result
of management's ability to maximize earnings through changes in interest rates
and increased volume in earnings assets.
Loan interest income was $49,138,054 and $39,913,585 for the years ended
December 31, 1995 and 1994, respectively. The increase in 1995 was due to growth
and repricing of loans which increased the yield from 8.61% to 9.58%.
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. The average balance of loans for 1994 was greater than
1993. The 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 was 6%. The decrease in
loan interest income for 1993 is due to a decrease in the yield of 85 basis
points from 1992.
Interest income from securities was $12,862,058, $12,647,530, and $12,075,535,
for 1995, 1994, and 1993, respectively. Interest income for 1995 increased 1.7%
even though the average balance decreased $20.9 million from 1994. The decrease
in average balance and increase in yield was due to managementOs strategy to
sell lower yielding securities and invest in securities yielding a higher rate.
The tax equivalent yield on securities for 1995 was 89 basis points higher than
1994, due in part to management's decision to sell these securities.
The increase in income for 1994 was attributable to an increase in the average
balances of 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 decrease 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.
The tax equivalent yield on average earning assets was 8.70%, 7.64%, and 7.59%,
for 1995, 1994, and 1993, respectively.
Rate Sensitivity Balance Sheet December 31, 1995
3rd and
1st Qtr 2nd Qtr 4th Qtr 1-3 Years 3-5 Years 5 Years
(In Thousands) 1996 1996 1996 1997-1998 1999-2000 and over Total
- -------------- ---- ---- ---- --------- --------- -------- -----
Assets:
Securities
U.S. Government and
Agency Securities ....... $ $ 10,301 $ 10,580 $ 64,340 $ 1,168 $13,453 $ 99,842
Other Securities ................. 8,754 2,374 7,305 35,958 7,509 4,788 66,688
Obligations of States and
Political Subdivisions .. 488 1,060 1,670 6,565 6,151 33,429 49,363
Loans
Fixed ............................ 84,955 55,588 80,757 110,490 21,852 9,278 362,920
Variable ......................... 135,161 5,350 15,202 155 155,868
Federal Funds Sold ........................ 17,000 17,000
Interest-Bearing Balances
with Banks ....................... 8,814 8,814
Other Assets .............................. 80,035 80,035
------------------------------------------------------------------------------
Total Assets ............ $ 255,172 $ 74,673 $115,514 $217,508 $ 36,680 $140,983 $ 840,530
==============================================================================
Liabilities:
Demand Deposit Accounts ................... $ $ $ $ $ $116,895 $ 116,895
Interest Bearing DDA ...................... 139,570 139,570
Savings and Money Market
Accounts ......................... 103,805 103,805
Certificates of Deposit
(< $100,000) ..................... 82,410 46,735 85,096 42,213 6,743 95 263,292
Time Deposits
(> $100,000) ..................... 24,897 17,674 18,642 10,363 1,516 73,092
Individual Retirement
Accounts(<$100,000) .............. 7,741 6,344 9,887 15,335 3,247 337 42,891
Other Borrowed Funds ...................... 2,590 192 393 1,677 1,862 6,714
Other Liabilities ......................... 10,480 10,480
Realized Equity ........................... 83,791 83,791
------------------------------------------------------------------------------
Total Liabilities and Equity $ 361,013 $ 70,945 $114,018 $ 69,588 $ 13,368 $211,598 $ 840,530
==============================================================================
GAP ...................................... $(105,841) $ 3,728 $ 1,496 $147,920 $ 23,312 $(70,615)
GAP / Total Assets ....................... (12.59%) .44% .18% 17.60% 2.77% (8.40%)
Cumulative GAP ........................... (105,841) (102,113) (100,617) 47,303 70,615
Cumulative GAP / Total Assets ............ (12.59%) (8.40%) (11.97%) 5.63% 8.40%
This analysis excludes the impact of SFAS No. 115 which resulted in an
unrealized gain on securities available-for-sale of $1.851 million, a deferred
tax liability of $.682 million, and an increase in equity of $1.169 million.
The major source of funds for the Company is deposits. Deposits represented
87.9%, 88.5%, and 88.7% of the total assets at December 31, 1995, 1994, and
1993, respectively. Interest-bearing accounts funded 74.0%, 73.4%, and 75.2% of
the assets for those three years. The cost of funds is reflected in interest
expense.
Interest expense was $25,621,205, $18,890,081, and $16,963,155 for the
three-year period. The increase in interest expense for 1995 is due to an
increase in the average balance of interest-bearing deposits of approximately
$24.0 million and an increase in the interest cost of 99 basis points. 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 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 5.27%
on a tax equivalent basis for 1995, comparable to 4.99% for 1994. The net
interest margin was 5.0% for 1993. The increase in the net interest margin for
1995 is due to managementOs repricing strategy and changes in product mix.
The provision for loan losses was $2,826,647 for 1995, up from $2,001,010 for
1994 or 41%. The increase in the provision is the result of management's efforts
to obtain an allowance for loan losses to net loans ratio of 1.75%. At December
31, 1995 and 1994, the allowance for loan losses to net loans was 1.70% and
1.64%, respectively. During 1995, the FDIC premium refund of approximately
$426,000 was used to increase the provision for loan losses. None of this refund
was added to net income for 1995.
The provision for 1994 decreased $864,520 from the 1993 provision of $2,865,530,
while the 1993 provision decreased $1,535,471 from 1992. The reduction in 1994
and 1993 was due to an improvement in the quality of the loan portfolio over the
applicable prior year.
Noninterest income totaled $10,571,115, $9,698,418, and $9,353,490 for the years
ended December 31, 1995, 1994, and 1993, respectively. This represented 28.3%,
28.4%, and 29.7% of net interest income for the applicable year. Included in
noninterest income are service charges on deposit accounts, fees and
commissions, trust department revenue, securities gains and losses, trading
securities gains and losses, and other income.
Service charges were up $407,795, or 7.1%, in 1995 compared to 1994. This
increase is due to deposit growth for 1995. Service charges on deposit accounts
were up $669,417, or 13.1%, in 1994 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 of branches from Sunburst Corporation.
Fees and commissions were $1,215,810, $1,265,031, and $1,256,543, for 1995,
1994, and 1993, respectively. Fees have remained stable over the years
presented.
Securities losses totaled $507,344 for 1995 compared to gains in 1994 and 1993
of $2,701 and $524,622, respectively. The losses in securities for 1995 were due
to restructuring the portfolio, enabling the Company to reinvest funds to
achieve greater yields for 1995 and beyond.
Other income was $3,089,856, $2,100,036, and $1,846,539, for 1995, 1994, and
1993. The increase in other income for 1995 compared to 1994 is due to a gain on
the sale of mortgage loans of approximately $585,000, as well as the reversal of
a lender liability lawsuit judgment of approximately $575,000. Other income was
up for 1994 and 1993 due to the acquisition and gains on the sale of mortgage
loans.
Noninterest expenses include salaries and employee benefits, net occupancy,
equipment, income taxes, and other. The total for these expenses for 1995, 1994,
and 1993 were $35,928,274, $33,667,860, and $30,751,256, respectively.
Noninterest expenses for 1995 were up 6.7%. In 1994 and 1993 expenses were up
9.5% and 10.2%, respectively.
Salaries and benefits, representing a major portion of the Company's operating
expenses, have increased approximately 8.7% and 9.2% during 1995 and 1994,
respectively. Management monitors these costs through the implementation of a
performance evaluation system. Jobs are graded according to levels of difficulty
using a point system which provides for salary adjustments through specified
ranges. Employee performance, in relation to goal achievement, is a major factor
contributing to the employee's salary increase. The increase is due to merit
increases of approximately 4.5% and 4.2% in 1995 and 1994, respectively, and
increases in additional staffing due to acquisitions. Included in salaries is an
incentive plan adopted by the Board of Directors. The cash incentive for 1995,
1994, and 1993 was $685,912, $158,111, and $335,615, respectively, which also
increased salaries and benefits in 1995.
Net occupancy expense includes charges for repairs, janitorial, depreciation,
rental, and other expenses related to occupancy. Expenses for 1995, 1994, and
1993 were $2,178,314, $2,150,588, and $1,993,189, respectively. Net occupancy
expenses have remained stable over the three-year period.
Equipment expenses include computer equipment rental, repairs, and depreciation.
These expenses totaled $1,460,488, $1,149,827, and $1,047,365 for 1995, 1994,
and 1993, respectively. The increase in 1995 is due to expenses incurred in
completing the Technology Center.
Other expenses for 1995, 1994, and 1993 were $10,303,357, $11,128,930, and
$9,419,781, respectively. The decrease in 1995 is mainly due to a reduction in
the third quarter of the FDIC premium from $.23 to $.04 per $100 of deposits.
This significant reduction is afforded only to those banks that are considered
to be well capitalized as defined through regulation. The increase in other
expenses for 1994 was due to losses sustained by the Company in liquidating
certain parcels of other real estate held. The increase in 1993 was due to
expenses incurred to make the acquisition of branches.
Income tax expense for 1995, 1994, and 1993 was $3,930,797, $2,620,904, and
$3,066,504. The increase in income taxes for 1995 is due to increased profits
and the Company paying state of Mississippi taxes after a net operating loss
carryforward was depleted in the first quarter of 1995. The effective tax rate
was approximately 5% for state income taxes. Effective tax rates were 29.9%,
24.2%, and 29.8%. 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 taxes of $522,518. Refer to Note A regarding new
accounting statements adopted by the Company in 1993.
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
1995
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
------- ------- ------------
Earning assets:
Loans, net of unearned income:
Commercial ................................................ $ 22,011,507 $235,276,614 9.36%
Consumer .................................................. 18,801,477 193,146,649 9.73%
Other loans ............................................... 8,325,070 85,246,811 9.83% TE
-------------------------
Total Loans, Net ......................... 49,138,054 513,670,074 9.58% TE
Other ................................................................................ 1,008,809 17,189,987 5.87%
Taxable investment and trading securities:
U.S. Government securities ................................ 4,922,559 90,215,062 5.74% TE
U.S. Government agencies .................................. 1,369,710 19,808,620 7.01% TE
Mortgage-backed securities ................................ 3,547,259 53,937,225 6.58%
Other securities .......................................... 258,193 3,384,496 8.63% TE
-------------------------
Total Taxable Investment and Trading Securities .................... 10,097,721 167,345,403 6.22% TE
Tax-exempt securities:
Obligations of states and political subdivisions .......... 2,764,337 47,382,789 9.03% TE
-------------------------
Total Investment and Trading Securities .. 12,862,058 214,728,192 6.84% TE
-------------------------
Total Earning Assets ..................... 63,008,921 745,588,253 8.70% TE
Cash and due from banks .............................................................. 42,604,018
Other assets, less allowance for loan losses ......................................... 29,741,159
-----------
Total Assets ............................. $817,933,430
===========
Interest-bearing liabilities:
Interest-bearing demand deposit accounts .................................... 3,815,049 $140,218,166 2.72%
Savings accounts ............................................................ 2,434,008 99,392,823 2.45%
Time deposits ............................................................... 18,985,384 365,213,540 5.20%
-------------------------
Total Interest-Bearing Deposits .......... 25,234,441 604,824,529 4.17%
Total Other Interest-Bearing Liabilities . 386,764 6,881,101 5.62%
-------------------------
Total Interest-Bearing Liabilities ....... 25,621,205 611,705,630 4.19%
Noninterest-bearing sources:
Noninterest-bearing deposits ................................................ 115,846,458
Other liabilities ........................................................... 9,977,481
Shareholders' equity ........................................................ 80,403,861
-----------
Total Liabilities and Shareholders' Equity $817,933,430
===========
Net interest income/net interest margin ..................................... $ 37,387,716 5.27%TE
==========
TE - Ratios have been calculated on a tax equivalent basis
1994
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
------- ------- ------------
Earning assets:
Loans, 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, Net 39,913,585 463,594,744 8.61%
Other .............................................................................. 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
Tax-exempt 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 for loan losses .......................................... 25,604,012
------------
Total Assets .............................. $781,643,727
============
Interest-bearing liabilities:
Interest-bearing demand deposit accounts ....................................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-Bearing Liabilities .. 403,041 8,342,756 4.83%
--------------------------
Total Interest-Bearing Liabilities ........ 18,890,081 589,191,793 3.21%
Noninterest-bearing sources:
Noninterest-bearing 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
==========
TE - Ratios have been calculated on a tax equivalent basis
1993
Income Average
Or Balance Sheet
Expense Amounts Yields/Rates
------- ------- ------------
Earning assets:
Loans, 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, Net ........................... 35,745,342 422,041,326 8.47%
Other .................................................................................. 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 securitie ............................................. 145,057 2,762,231 6.60%TE
------------------------
Total Taxable Investment and Trading Securities ...................... 9,832,739 176,563,990 5.59%TE
Tax-exempt 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%TE
Cash and due from banks ................................................................ 42,633,082
Other assets, less allowance for loan losses ........................................... 26,440,043
-----------
Total Assets ............................... $722,696,017
===========
Interest-bearing liabilities:
Interest-bearing demand deposit accounts ...................................... 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-Bearing Liabilities ... 126,701 4,097,013 3.09%
-------------------------
Total Interest-Bearing Liabilities ......... 16,963,155 556,038,381 3.05%
Noninterest-bearing sources:
Noninterest-bearing 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
==========
TE - Ratios have been calculated on a tax equivalent basis