UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
Commission File Number 0-12154
THE PEOPLES HOLDING COMPANY
-------------------------------------------------------
(Exact name of the registrant as specified in its charter)
MISSISSIPPI 64-0676974
------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
209 Troy Street, P. O. Box 709, Tupelo, Mississippi 38801
----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code 601-680-1001
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES__X__NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as to the latest practicable date.
Common stock, $5 Par Value, 3,906,675 shares outstanding
as of November 12, 1996
1
THE PEOPLES HOLDING COMPANY
INDEX
PART 1. FINANCIAL INFORMATION PAGE
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995............. 3
Consolidated Statements of Income - Nine Months
Ended September 30, 1996 and 1995.................... 4
Consolidated Statements of Income - Three Months
Ended September 30, 1996 and 1995.................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995........ 5
Notes to Consolidated Financial Statements................ 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings....................................... 10
Item 6.(b)
Reports on Form 8-K..................................... 10
Signatures.............................................. 10
2
[CAPTION]
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
1996 1995
------------ -----------
(Unaudited) (Note 1)
[S] [C] [C]
Assets
Cash and due from banks ................ $ 48,332,727 $ 46,918,819
Federal Fund Sold ...................... 17,000,000
---------- ----------
48,332,727 63,918,819
Interest bearing balances with banks .... 107,635 8,814,411
Securities held-to-maturity (market
value-$50,870,418 and $46,584,144
at September 30, 1996 and December 31,
1995, respectively) .................. 50,812,883 45,837,145
Securities available-for-sale (amortized
cost-$196,020,792 and $170,056,282 at
September 30, 1996 and
December 31, 1995, respectively) .... 195,597,190 168,381,798
Loans .................................. 556,170,624 533,545,333
Unearned Income ..................... (8,705,911) (11,231,586)
Allowance for loan losses ........... (9,013,681) (8,815,130)
----------- ------------
Net Loans ........................ 538,451,032 513,498,617
Premises and equipment ................. 20,697,570 20,323,492
Other assets ........................... 23,639,094 20,925,126
----------- ------------
Total Assets .................. $ 877,638,131 $ 841,699,408
=========== ============
Liabilities
Deposits:
Noninterest-bearing ................. $ 118,639,941 $ 116,894,919
Certificates of deposit exceeding
$100,000 ........................ 75,799,970 62,620,549
Interest bearing .................... 563,295,813 560,029,831
------------ ------------
Total Deposits ............ 757,735,724 739,545,299
Treasury tax and loan note account ..... 10,000,000 2,400,495
Borrowings ............................. 10,034,954 4,313,109
Other liabilities ...................... 11,685,268 10,480,085
------------ ------------
Total Liabilities ......... $ 789,455,946 $ 756,738,988
Shareholders' Equity
Common Stock, $5 par value-7,500,000
authorized, 3,906,675 and 2,604,760
shares issued and outstanding at
September 30, 1996 and
December 31, 1995, respectively ....... 19,533,375 13,023,800
Additional paid-in capital .............. 39,875,796 39,875,796
Unrealized gains (losses) on securities
available-for-sale, net of tax ......... (265,596) 1,169,262
Retained earnings ....................... 29,038,610 30,891,562
------------ ------------
Total Shareholders' Equity .... 88,182,185 84,960,420
------------ ------------
Total Liabilities and
Shareholders' Equity ........ $ 877,638,131 $ 841,699,408
============ ============
See Notes to Consolidated Financial Statements
3
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30 THREE MONTHS ENDED SEPTEMBER 30
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
Interest Income
Loans ................................ $ 37,534,320 $ 36,520,022 $ 12,764,539 $ 12,648,072
Securities:
Taxable ......................... 9,152,374 7,411,152 3,068,053 2,598,563
Tax-exempt ...................... 2,116,570 2,060,993 768,450 700,299
Other ................................ 671,362 657,974 126,852 245,598
------- ------- ----- -------
Total interest income ...... 49,474,626 46,650,141 16,727,894 16,192,532
Interest Expense
Time deposits exceeding $100,000 ..... 2,857,708 2,405,411 1,014,664 866,922
Other deposits ....................... 17,730,990 15,837,862 5,842,221 5,649,314
Borrowings .......................... 300,842 290,180 157,168 92,669
------- ------- ------ ------
Total interest expense ..... 20,889,540 18,533,453 7,014,053 6,608,905
---------- ---------- --------- ---------
Net interest income ........ 28,585,086 28,116,688 9,713,841 9,583,627
Provision for loan losses .................. 1,894,808 2,122,306 634,358 922,306
--------- --------- ------- -------
Net interest income after
provision for loan losses .. 26,690,278 25,994,382 9,079,483 8,661,321
Noninterest income:
Service charges on deposit accounts .. 4,888,371 4,488,585 1,676,670 1,432,707
Fees and commissions ................. 1,299,305 1,115,379 462,852 398,583
Trust department ..................... 405,000 391,500 135,000 130,500
Security gains(losses) ............... 191,723 (511,221) 30,300 (97,258)
Other ................................ 1,176,964 2,390,944 380,427 1,587,357
------- ------- ------- -------
Total noninterest income ... 7,961,363 7,875,187 2,685,249 3,451,889
Noninterest expenses:
Salaries and employee benefits ....... 13,984,828 13,580,649 4,727,575 4,728,227
Net occupancy ........................ 1,649,284 1,635,728 530,204 522,460
Equipment ............................ 1,146,504 956,898 399,860 312,909
Other ................................ 8,075,320 7,641,460 2,843,150 2,741,081
--------- --------- --------- ---------
Total noninterest expenses . 24,855,936 23,814,735 8,500,789 8,304,677
---------- ---------- --------- ---------
Income before income taxes ................. 9,795,705 10,054,834 3,263,943 3,808,533
Income taxes ............................... 2,946,622 2,989,827 985,198 1,171,772
--------- --------- --------- ---------
Net income ................. $ 6,849,083 $ 7,065,007 $ 2,278,745 $ 2,636,761
========== ========== ============ ============
Earnings per share ........................ $ 1.75 $ 1.81 $ .58 $ .67
====== ====== ====== ======
Weighted average shares outstanding ....... 3,906,675 3,906,675 3,906,675 3,906,675
========= ========= ========= =========
See Notes to Consolidated Financial Statements
4
[CAPTION]
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
---- ----
(Unaudited)
[S] [C] [C]
Operating Activities
Net Income ............................. $ 6,849,083 $ 7,065,007
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses .............. 1,894,808 2,122,306
Provision for depreciation and
amortization ...................... 1,604,176 1,398,537
Net amortization (accretion) of
securities premiums/discounts ..... 84,331 1,579,392
Losses (gains) on sales/calls of
securities ........................ (191,723) 511,221
Increase in other liabilities .......... 1,205,183 1,823,888
Deferred income tax (credits)........... 180,740 (331,727)
Gain on sale of loans .................. (585,304)
Losses (gains) on sales of
premises and equipment ............ (78,651) 13,917
Increase in other assets ............... (1,087,010) (1,952,719)
-------- ----------
Net Cash Provided by Operating
Activities ................... 10,460,937 11,644,518
Investing Activities
Net (increase) decrease in balances
with other banks .................. 8,706,776 (489,778)
Proceeds from maturities/calls of
securities held-to-maturity ....... 2,361,056 1,349,041
Proceeds from maturities/calls of
securities available-for-sale ..... 42,748,943 52,003,805
Proceeds from sales of
securities available-for-sale ..... 23,691,723 26,511,221
Purchases of securities
held-to-maturity .................. (7,367,988) (4,726,114)
Purchases of securities
available-for-sale ................ (95,791,972) (82,796,018)
Net increase in loans .................. (28,253,132) (36,526,651)
Proceeds from sales of loans ........... 12,690,078
Proceeds from sales of premises
and equipment ..................... 84,636 167,504
Purchases of premises and equipment .... (1,546,377) (2,903,074)
---------- ----------
Net Cash Used in Investing
Activities ................... (55,366,335) (34,719,986)
Financing Activities
Net (increase) decrease in
noninterest-bearing deposits ...... 1,745,022 (2,421,374)
Net increase in certificate of deposits
exceeding $100,000 ................. 13,179,421 7,560,200
Net increase in other
interest-bearing deposits .......... 3,265,982 26,596,533
Net increase (decrease) in treasury
tax and loan note account ......... 7,599,505 (8,702)
Net increase (decrease) in borrowings .. 5,721,845 (246,950)
Cash dividends paid .................... (2,192,469) (1,992,646)
---------- ----------
Net Cash Provided by Financing
Activities ................... 29,319,306 29,487,061
---------- ----------
Increase (Decrease) in Cash
and Cash Equivalents ......... (15,586,092) 6,411,593
Cash and Cash Equivalents at
beginning of period ............... 63,918,819 45,273,177
---------- ----------
Cash and Cash Equivalents at
end of period ..................... $ 48,332,727 $ 51,684,770
============ ============
Non-cash transactions:
Transfer of loans to other real
estate .............................. $ 1,405,909 $ 1,912,124
============ ============
See Notes to Consolidated Financial Statements
5
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
Note 1 Basis of Presentation:
The consolidated balance sheet at December 31, 1995, has been derived from the
audited financial statements at that date. The accompanying unaudited
consolidated financial statements reflect all adjustments (consisting only of
normally recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
statements should be read in conjunction with the summary of accounting policies
and notes to consolidated financial statements included in the Registrant's
annual report for the year ended December 31, 1995. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the rules of the Securities and Exchange Commission.
Note 2 Changes in Accounting Methods:
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 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.
Beginning in 1996, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 122 "Accounting for Mortgage Servicing rights, an Amendment
of FASB Statement No. 65." Under this new standard, the company is required to
capitalize the cost of mortgage servicing rights separate from the cost of
originating the loan, when a definitive plan to sell or securitize the loan and
retain the mortgage servicing rights exists. The adoption of this new standard
did not have a significant impact on the financial condition or results of
operations of the Company.
Note 3 Stock Dividend:
Effective May 20, 1996, for shareholders of record at April 30, 1996, the
Company declared a 50% stock dividend. The stock dividend increased the
number of shares outstanding from 2,604,760 to 3,906,675, which is net of
465 fractional shares paid in cash by the Company. Per share data has been
restated to reflect the stock dividend. The Company also increased the
quarterly dividend from $.175 per share for the third quarter of 1995 to
$.19 per share for the third quarter of 1996.
Note 4 Reclassifications:
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the 1996 presentation.
6
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Total assets of The Peoples Holding Company grew from $841,699,408 on
December 31, 1995, to $877,638,131 on September 30, 1996, or 4.27% for the nine
month period. Total securities increased from $214,218,943 on December 31, 1995,
to $246,410,073 on September 30, 1996, in accordance with management's strategic
plan. Loans, net of unearned income, increased $25,150,966 or 4.82% comparing
September 30, 1996 to December 31, 1995.
Total deposits for the first nine months of 1996 grew from $739,545,299 on
December 31, 1995 to $757,735,724 on September 30, 1996, or an increase of
2.46%, with the majority of growth in certificates of deposit exceeding
$100,000.
The Treasury tax and loan note account increased $7,599,505 due to short-term
borrowings made in September 1996. The Company also borrowed, on a short-term
note, approximately $4,000,000 from the Federal Home Loan Bank, which increased
borrowings for 1996 compared to 1995. The short-term borrowings were
subsequently paid in October 1996.
The equity capital to total assets ratio was 10.05% and 10.09% at September 30,
1996 and December 31, 1995, respectively.
Results of Operations-September 30, 1996 compared to September 30, 1995
- -----------------------------------------------------------------------
The Company's net income for the nine month period ending September 30, 1996 was
$6,849,083 compared to $7,065,007 for the same period in 1995. The following
factors affect the comparability of net income for the nine month periods ending
September 30, 1996 and 1995. Effective September 30, 1996, the Company was
assessed a one-time charge of approximately $240,000 ($150,000 net of tax) by
the Federal Deposit Insurance Corporation (FDIC) to re-capitalize the Savings
Association Insurance Fund (SAIF). All Oakar financial institutions were
assessed based on their deposit base at March 31, 1995. Also, during the third
quarter of 1995, the Company realized a gain on the sale of loans totalling
approximately $330,000, net of tax. These were 25 to 30 year mortgages that were
sold based on management's strategic plan. Finally, during the second quarter of
1995, the Bank received a favorable reversal of a legal judgement, net of tax of
$348,920, which was previously expenses as a loss in 1991. The annualized
returns on average assets for the nine month periods ending September 30, 1996
and 1995 were 1.06% and 1.16%, respectively.
Net income was $2,278,745 and $2,636,761 for the third quarter ending September
30, 1996 and 1995, respectively. The decrease in net income for the third
quarter of 1996 compared to 1995 is due to the FDIC assessment in 1996 and gain
on loans in 1995, previously mentioned.
7
Net interest income, the difference between interest earned on assets and the
cost of interest-bearing liabilities, is the largest component of the Company's
net income. The primary items of concern in managing net interest income are the
mix and maturity balance between interest-sensitive assets and
interest-sensitive liabilities. Net interest income for the nine month periods
ending September 30, 1996 and 1995 was $28,585,086 and $28,116,688,
respectively. Net interest income was $9,713,841 and $9,583,627 for the three
month periods ending September 30, 1996 and 1995, respectively. Earning assets
averaged $770.6 million for the nine month period ending September 30, 1996
compared to $740.7 million for the same period in 1995. Net interest margin was
5.08% and 5.24% for the nine month periods ending September 30, 1996 and 1995,
respectively. The decrease in net interest margin is due to the increase in the
volume and rate of costing liabilities in 1996.
The provision for loan losses charged to operating expense is an amount
which, in the judgement of management, is necessary to maintain the
allowance for loan losses at a level that is adequate to meet the present
and potential risks of losses on the Company's current portfolio of loans.
The appropriate level of the allowance is based on a quarterly analysis of
the loan portfolio including consideration of such factors as the risk
rating of individual credits, size and diversity of the portfolio, economic
conditions, prior loss experience, and the results of periodic credit
reviews by internal loan review, regulators, and the Company's independent
accounting firm. The provision for loan losses totaled $1,894,808 and
$2,122,306 for the nine month periods ending September 30, 1996 and 1995,
respectively. The allowance for loan losses as a percentage of net loans
outstanding was 1.65% and 1.69% as of September 30, 1996 and December 31, 1995,
respectively. Net charge-offs to average loans was .32% and .35% for the
nine month periods ending September 30, 1996 and 1995, respectively.
Noninterest income was $7,961,363 for the nine month period ending September 30,
1996, compared to $7,875,187 for the same period in 1995. The increase between
1996 and 1995 is due to the net effect of security gains of $191,723 in 1996
compared to security losses of $511,221 in 1995, offset by the gain of
approximately $525,000, before tax, from loans sold in the third quarter of
1995. The increase in deposits at September 30, 1996 compared to same period in
1995 resulted in an increase in service charges along with fees and commissions.
Noninterest income for the quarter ending September 30, 1996 decreased $766,640
or 22.21% compared to the same period in 1995. The decrease is mainly due to the
gain on loans sold in the third quarter of 1995 and the reversal of a legal
judgement in second quarter of 1995 of approximately $585,000 that was expensed
in 1991. All other categories under noninterest income were up in the third
quarter of 1996 compared to 1995 due to increase in deposit base and security
gains in 1996 versus security losses in 1995.
Noninterest expenses were $24,855,936 for nine month period ending September 30,
1996, compared to $23,814,735 for the same period 1995, or an increase of 4.37%.
The components of noninterest expenses reflect normal increases for personnel
related expenses and general inflation in the cost of services and supplies
purchased by the Company. Noninterest expenses for the quarter ending September
30, 1996 increased $196,112 or 2.36% compared to the same period in 1995. In the
third quarter of 1996, the Company offered an early retirement package to
certain employees, which resulted in a lower cost of salaries in
the third quarter of 1996 compared to 1995.
Income tax expense was $2,946,622 for the nine month period ending September 30,
1996, compared to $2,989,827 for the same period in 1995. The decrease is due to
decreased profits for the nine month period ending September 30, 1996 compared
to 1995 and the Company paying State of Mississippi taxes after a net operating
loss carryforward was depleted in the first quarter of 1995. The Company
continues to invest in assets whose earnings are given favorable tax treatment.
8
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 continues to maintain a
satisfactory level of dependency on other public funds. This has added stability
to the Company's core deposit base stabilizing the dependency on highly liquid
assets.
Approximately 90% of the Company's deposits are composed of accounts
withbalances less than $100,000. When evaluating the movement of these funds
even during times of large interest rate changes, it is apparent that the
Company continues to attract deposits that can be used to meet cash flow needs.
Other sources available for meeting the Company's liquidity needs include the
available-for-sale securities portfolio and Federal Home Loan Bank borrowings.
The available-for-sale portfolio is composed of securities with a readily
available market and can be used to convert to cash if the need arises. In
addition the Company will maintain a federal funds position which provides
day-to-day funds to meet liquidity needs.
Capital Resources
The Company is required to comply with the risk-based capital requirements of
the Federal Reserve Board, the FDIC, and the OCC. These requirements apply a
variety of weighing factors which vary according to the level of risk associated
with the particular assets. The Company met the guidelines for a well
capitalized bank at September 30, 1996 and December 31, 1995. The table below
shows the capital ratios of the Company at the dates indicated:
[CAPTION]
September 30 December 31 Well-
1996 1995 Capitalized
--------- ----------- -----------
[S] [C] [C] [C]
Tier 1 Risk-Based Capital 15.11% 14.87% 6% or above
Total Risk-Based Capital 16.37% 16.14% 10% or above
Leverage Ratio 9.69% 9.67% 5% or above
Retained earnings through operations have been the primary source of capital
over the past nine months. The ratio of shareholders' equity to total assets was
10.05% as of September 30, 1996, compared to 10.09% at December 31, 1995. Total
shareholders' equity of the Company was $88,182,185 and $84,960,420 at
September 30, 1996 and December 31, 1995, respectively. This represented an
increase of $3,221,765 or 3.79%.
Management recognizes the importance of maintaining a strong capital base. As
the above ratios indicate, the Company exceeds the requirements for a well-
capitalized bank.
Book value per share was $22.57 and $21.75 at September 30, 1996 and December
31, 1995, respectively. Quarterly cash dividends were raised to $.19 per share,
up from $.175 per share in 1995.
The Company's capital policy is to evaluate future needs based on growth,
earnings trends and anticipated acquisitions.
9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material proceedings pending at September 30,
1996, against the registrant or its subsidiary.
Item 6(b) Reports on Form 8-K
No reports on Form 8-K were filed in the third quarter ending
September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
---------------------------
Registrant
DATE: November 12, 1996 /s/ John W. Smith
---------------------------
John W. Smith
President & Chief Executive Officer
10