ITEM 1. BUSINESS
General
The Peoples Holding Company (the "Registrant" or "Company"), was organized under the laws of the State of Mississippi and incorporated on November 10, 1982, in order to acquire all of the common stock of The Peoples Bank & Trust Company, Tupelo, Mississippi (the "Bank").
Organization
The Registrant commenced business on July 1, 1983 and the acquisition of the Bank was also consummated at that time. All of the Registrant's banking activities are conducted through the Bank, which on December 31, 1996, had 41 banking offices in Tupelo, Aberdeen, Amory, Batesville, Booneville, Calhoun City, Coffeeville, Corinth, Grenada, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Olive Branch, Plantersville, Pontotoc, Saltillo, Sardis, Shannon, Smithville, Southaven, Verona, Water Valley, West Point, and Winona, Mississippi. All branches are located within a 100 mile radius of Tupelo, Mississippi.
All members of the Board of Directors of the Registrant are also members of the Board of Directors of the Bank. Responsibility for the management of the Bank and its branches remains with the Board of Directors and Officers of the Bank; however, management services rendered to the Bank by the Registrant are intended to supplement the internal management of the Bank and expand the scope of banking services normally offered by them.
The Bank, which is the Registrant's sole subsidiary, was established in February 1904, as a state chartered bank. It is insured by the Federal Deposit Insurance Corporation.
As a commercial bank, a complete range of banking services are provided to individuals and small-to medium-size businesses. These services include checking and savings accounts, business and personal loans, interim construction and residential mortgage loans, student loans, equipment leasing, as well as safe deposit and night depository facilities. In addition to a wide variety of fiduciary services, the Bank administers (as trustee or in other fiduciary or representative capacities) pension, profit-sharing and other employee benefit plans and personal trusts and estates. The Bank also offers accounts receivable factoring to qualified businesses. Neither the Registrant nor the Bank has any foreign activities. The Bank also offers to its customers the VISA and MasterCard credit cards.
Competition
Vigorous competition exists in all major areas where the Registrant and its subsidiary are engaged in business. Not only does the Registrant compete through its subsidiary bank with state and national banks in its service areas, but also, with savings and loan associations, credit unions, and finance companies for available loans and depository accounts.
In the following paragraph reference is made to the Registrant's competitive position as measured in terms of total assets on December 31, 1996. Any such reference is used solely as a method of placing the competition in perspective as of that particular date. Due to the intense local competition, the Registrant makes no representation that its competitive position has remained constant, nor can it predict whether its position will change in the future.
On December 31, 1996, the Registrant and its subsidiary had total assets of $893,089,352 and, as such, ranked sixth in Mississippi. The Registrant receives a large part of its competition from BankCorp South, the Tupelo branch operation of Deposit Guaranty National Bank and Union Planters Bank of Memphis, TN. On December 31, 1996, BankCorp South, Deposit Guaranty National Bank, and Union Planters Bank of Mississippi had total assets of approximately $3,617,239,000, $4,510,498,000, and $2,319,000,000, respectively.
The Bank also receives competition from several locally owned banks in several of the towns it serves. The National Bank of Commerce of Mississippi, Starkville, Mississippi has branch banks in Amory and Aberdeen which are in competition with the Bank's branches in those towns.
Supervision and Regulation
The Registrant is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Act"), and is registered as such with the Board of Governors of the Federal Reserve System (the "Board"). The Registrant is required to file with the Board an annual report and such other information as the Board may require. The Board may also make examinations of the Registrant and its subsidiary pursuant to the Act. The Board also has the authority (which it has not exercised) to regulate provisions of certain bank holding company debt.
The Act requires every bank holding company to obtain prior approval of the Board before acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority-owned by the Registrant. The Act provides that the Board shall not approve any acquisition, merger or consolidation which would result in monopoly or which would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking, or any other transaction the effect of which might substantially lessen competition, or in any manner be a restraint on trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.
The Act also prohibits a bank holding company, with certain exceptions, from itself engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities. The principal exception is for engaging in or acquiring shares of a company whose activities are found by the Board to be so closely related to banking or managing banks as to be a proper incident thereto. In making such determinations the Board is required to consider whether the performance of such activities by a bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency of resources, versus the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest or unsound banking practices.
The Act prohibits the acquisition by a bank holding company of more than 5% of the outstanding voting shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the state in which the bank to be acquired is located.
The Registrant and its subsidiary are subject to certain restrictions imposed by the Federal Reserve Act and the Federal Deposit Insurance Act on any extensions of credit to the bank holding company or its subsidiary, on investments in the stock or other securities of the bank holding company or its subsidiary, and on taking such stock or other securities as collateral for loans of any borrower.
The Bank was chartered under the laws of the State of Mississippi and is subject to the supervision of, and is regularly examined by, the Department of Banking and Consumer Finance of the State of Mississippi. The Bank is also insured by the Federal Deposit Insurance Corporation and is subject to examination and review by that regulatory authority.
Mississippi banks are permitted to merge with other existing banks statewide and to acquire or be acquired, by banks or bank holding companies of a state within a region consisting of Alabama, Arkansas, Florida, Kentucky, Louisiana, Missouri, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West Virginia, provided, however, that the state of an acquired bank has to have reciprocal legislation which would allow banks or bank holding companies in that state to acquire or be acquired by banks or bank holding companies in Mississippi. Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 will remove territorial restrictions for interstate bank mergers. This section will become effective May 1, 1997.
Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans, or advances. The approval of the Mississippi Department of Banking and Consumer Finance is required prior to the Bank paying dividends and is limited to earnings retained in the current year plus retained net profits.
Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specific obligations. At December 31, 1996, the maximum amount available for transfer from the Bank to the Company in the form of loans was 11% of consolidated net assets.
Mississippi laws authorize multi-bank holding companies but there are no statutes regulating the operation of such companies.
Monetary Policy and Economic Controls
The earnings and growth of the banking industry, the Bank and, to a larger extent, the Registrant, are affected by the policies of regulatory authorities, including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in U. S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These instruments are used in varying degrees to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid for deposits.
The monetary policies of the Federal Reserve System have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future. In view of changing conditions in the national economy and in the various money markets as well as the effect of actions by monetary and fiscal authorities including the Federal Reserve System, the effect on future business and earnings of the Registrant and its subsidiary cannot be predicted with accuracy.
In the past few years, the trend seems to be toward competitive equality within the financial services industry. This was evidenced in 1980 by the formation of the Depository Institution Deregulation Committee (the "DIDC"). The DIDC's sole purpose was to eliminate the restrictions imposed upon the rates of interest a depository institution could pay on a deposit account. The trend was again evidenced in 1982 with the passage of the Garn-St. Germain Depository Institutions Act. This act provided for, among other things, the money market account. This account was designed to operate in a manner similar to the money market mutual funds being offered by the stock and similar to the money market mutual funds being offered by the stock and investment brokers. It would earn a market rate of interest, with limited third-party withdrawals and a minimum balance requirement.
Source and Availability of Funds
The funds essential to the business of the Registrant and its subsidiary consist primarily of funds derived from customer deposits and borrowings of federal funds by the banking subsidiary, and from loans under established lines of credit. The availability of such funds is primarily dependent upon the economic policies of the federal government, the economy in general and the general credit market for loans.
Personnel
At December 31, 1996, the Registrant and its subsidiary employed 551 persons on a full-time basis.
Dependence Upon a Single Customer
Neither the Registrant nor its subsidiary is dependent upon a single customer or upon a limited number of customers.
Line of Business
The Registrant operates in the field of finance, and its activities are solely in commercial banking. The Registrant has derived substantially all of its consolidated total operating income from the commercial banking business of its subsidiary bank.
Acquisition of Certain Assets and Liabilities
In the past several years, the Bank has acquired several banks and continues to examine other possible candidates for acquisition by cash or stock or a combination of both.
Executive Officers of The Registrant
The principal executive officer of the Company and its subsidiary as of December 31, 1996, is as follows:
Name Age ---- --- John W. Smith 61
Position and Office: Director and Executive Vice President of the Company from July, 1983, until July 1993, and Director and President since August, 1993. Director and Executive Vice President of the Bank from 1978 and 1976, respectively, until August, 1993, and Director and President of the Bank since August, 1993.
Mr. Smith has been employed by the Registrant or its subsidiary in a management position for the last eight (8) years. All of the Registrant's officers are appointed annually by the appropriate Board of Directors to serve at the discretion of the Board.
The following table sets forth for The Peoples Holding Company, as of December 31 for the years indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and rates. The change in volume and rate is calculated using the tax equivalent basis.
[CAPTION] 1996 COMPARED TO 1995
INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) [S] [C] [C] [C] Earning assets: Loans, net of unearned income ................ $ 1,580 $ (315) $ 1,265
Securities U. S. government securities and agencies ...... 1,160 333 1,493 Obligations of states and political subdivisions ....... 440 (132) 308 Mortgage-backed securities ..... 549 27 576 Other securities ............... (18) (25) (43)
Other ............................ (40) (95) (135) -------- -------- -------- Total earning assets ............. $ 3,671 $ (207) $ 3,464 -------- -------- --------
Interest-bearing liabilities: Interest-bearing demand deposit accounts ............... $ 173 $ 743 $ 916 Savings accounts ................. 58 (125) (67) Time deposits .................... 1,591 73 1,664 Other ............................ 159 (49) 110 -------- -------- -------- Total interest-bearing liabilities .................... $ 1,981 $ 642 $ 2,623 -------- -------- -------- Change in net interest income ......................... $ 1,690 $ (849) $ 841 ======== ======== ========
(1) The change in interest due to both volume and rate has been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.
[CAPTION] 1995 COMPARED TO 1994
INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands)
[S] [C] [C] [C] Earning assets: Loans, net unearned income ................. $ 4,607 $ 4,832 $ 9,439
Securities: U. S. Government securities and agencies ....... (1,508) 989 (519) Obligations of states and political subdivisions ........ 280 80 360 Mortgage-backed securities ...... 156 563 719 Other securities ................. (31) 94 63
Other ............................. 172 328 500 -------- -------- -------- Total earning assets .............. $ 3,676 $ 6,886 $ 10,562 -------- -------- --------
Interest-bearing liabilities: Interest-bearing demand deposits accounts ............... $ (513) $ 630 $ 117 Savings accounts .................. (155) 186 31 Time deposits ..................... 2,253 4,346 6,599 Other ............................. (77) 61 (16) -------- -------- -------- Total interest-bearing liabilities ..................... $ 1,508 $ 5,223 $ 6,731 -------- -------- -------- Change in net interest income .......................... $ 2,168 $ 1,663 $ 3,831 ======== ======== ========
(1) The change in interest due to both volume and rate has been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.
INVESTMENT PORTFOLIO
The following table sets forth the amortized cost of securities at the dates indicated:
[CAPTION] December 31 ----------- 1996 1995 1994 --------- -------- -------- (In Thousands)
[S] [C] [C] [C] U.S. Government and Agency Securities .... $ 125,087 $ 99,842 $124,463 Obligations of State and Political Subdivisions 52,051 45,837 42,910 Other Securities ....... 68,610 66,688 48,124 ------ ------ ------ $ 245,748 $212,367 $215,497 ========= ======== ========
The following table sets forth the maturity distribution in thousands and weighted average yield by maturity of securities at December 31, 1996:
The maturity of mortgage-backed securities, included as other securities, reflects scheduled repayments when the payment is due.
Weighted average yields on tax-exempt obligations have been computed on a fully tax-equivalent basis assuming a federal tax rate of 34% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit.
The following table sets forth loans (excluding real estate mortgage loans, consumer loans, and net receivables on leased equipment, which are included in commercial, financial and agricultural loans in the consolidated financial statements) outstanding as of December 31, 1996, which, based on remaining scheduled repayments of principal, are due in the periods indicated; also, amounts due after one year are classified according to their sensitivity to changing interest rates.
[CAPTION]
Loans Maturing --------------------------------------------
After One After Within But Within Five One Year Five Years Years Total -------- ---------- ----- -----
[S] [C] [C] [C] [C] Commercial, financial and agricultural $ 72,439 $ 26,514 $ 8,636 $107,589 Real estate- construction 19,852 799 20,651 -------- -------- -------- -------- $ 92,291 $ 27,313 $ 8,636 $128,240 ======== ======== ======== ========
[CAPTION]
Interest Sensitivity --------------------
Fixed Variable Rate Rate ---- ----
(In Thousands) [S] [C] [C] Due after 1 but within 5 years ................. $25,031 $ 2,282 Due after 5 years ....... 8,636 ------- ------ $33,667 $ 2,282 ======= =======
Allowance for Loan Losses
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 the primary responsibilities 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 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 losses, including losses on loans assessed as impaired under SFAS No. 114, "Accounting by Creditors For Impairement 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 and the regulators. If the allowance is deemed inadequate, management sets aside additional reserves by increasing the charges against income. [CAPTION]
The anticipated net charge-offs by loan category during 1997 include:
In Thousands -------------
[S] [C] Commercial, financial and agricultural $ 314 Real estate - construction ........... 58 Real estate - mortgage ............... 843 Consumer ............................. 385 ------ TOTAL ................................ $1,600 ======
ITEM 2.
ITEM 2. PROPERTIES
The main offices of the Registrant and its subsidiary, The Peoples Bank and Trust Company, are located at 209 Troy Street, Tupelo, Mississippi. All floors of the five-story building are occupied by various departments within the Bank. The Technology Center located in Tupelo, MS houses the electronic data processing, proof, purchasing, statement rendering, and voice response operations. In addition, the Bank operated thirty (30) full-service branches, and eleven (11) limited-service branches all of which are located within a 100 mile radius of Tupelo, Mississippi. The Bank has two (2) full-service branches in Southaven; one (1) full-service branch and two (2) limited-service branches in Booneville; one (1) full-service branch and one (1) limited-service branch in Amory, Corinth, Pontotoc, Grenada, Olive Branch, and West Point; one (1) full-service branch each at Aberdeen, Batesville, Calhoun City, Coffeeville, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Saltillo, Sardis, Shannon, Verona, and Winona, Mississippi; one (1) limited-service branch each at Plantersville, and Smithville, Mississippi and six (6) full-service branches and one (1) limited-service branch in Tupelo, Mississippi.
The Registrant leases, on a long-term basis, five branch locations for use in conducting banking activities. The aggregate annual rental for all leased premises during the year ending December 31, 1996, did not exceed five percent of the Bank's operating expenses.
It is anticipated that in the next five years, branch renovations and construction will be completed at Aberdeen, Grenada, Hernando, Corinth and new locations west and north of Tupelo, Mississippi. The other facilities owned or occupied under lease by the Bank are considered by management to be adequate.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending or threatened at December 31, 1996, which in the opinion of the Company could have a material adverse effect upon the Company's business or financial position.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information under the captions "Market Value of Stock by Quarters" on page 29 of the Registrant's 1996 Annual Report is incorporated herein by reference.
At March 14, 1997, the total number of shareholders of the Company's common stock was 2,503.
The Registrant's common stock trades on the Nasdaq Stock Market under the symbol PHCO.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Information" on Page 28 of the Registrant's 1996 Annual Report is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information on pages 30 through 41 of the Registrant's 1996 Annual Report are incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements are included on pages 8 through 27 of the Registrant's 1996 Annual Report and are incorporated herein by reference.
The information on Page 26 of the Registrant's 1996 Annual report reflecting unaudited quarterly results of operations is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and nominees of the Registrant appear under "Election of Directors" on Pages 3 through 4 of the Company's definitive Proxy Statement, dated March 17, 1997, which is incorporated herein by reference.
Information concerning executive officers of the Registrant and its subsidiary appears on Page 5 under the caption "Executive Officers" of the Company's definitive Proxy Statement, dated March 17, 1997, which is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Summary Compensation Table-Annual Compensation" on Pages 5 through 9 of the Company's definitive Proxy Statement, dated March 17, 1997, is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under "Principal Holders of Voting Security" on Page 2 of the Company's definitive Proxy Statement, dated March 17, 1997, is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Transaction with Management: on Page 10 of the Company's definitive Proxy Statement, dated March 17, 1997, is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) and (c) The response to this portion of Item 14 is submitted as a separate section of this report.
(3) Listing of Exhibits: (3) Articles of Incorporation and Bylaws of the Registrant are incorporated herein by reference to exhibits filed with the Registration Statement on Form S-14, File No. 2-21776.
(11) Statement re: Computation of per share earnings
(13) Annual Report to Shareholders for the year ended December 31, 1996
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) No Form 8-K was filed during the quarter ended December 31, 1996.
(d) Financial Statement Schedules -- None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE PEOPLES HOLDING COMPANY
DATED: March 17, 1997 By /s/ John W. Smith - ---------------------- ----------------------------- John W. Smith, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated.
John W. Smith, President and Director (Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer) . /s/ John W. Smith
Robert C. Leake, Chairman of the Board and Director ...................... /s/ Robert C. Leake
William M. Beasley, Director .. /s/ William M. Beasley
George H. Booth, II, Director . /s/ George H. Booth, II
Dr. Walter L. Bourland, Director ...................... /s/ Walter L. Bourland, M.D.
Frank B. Brooks, Director ..... /s/ Frank B. Brooks
Marshall H. Dickerson, Director /s/ Marshall H. Dickerson
A. M. Edwards, Jr., Director .. /s/ A. M. Edwards, Jr.
Eugene B. Gifford, Jr., Director ...................... /s/ Eugene B. Gifford, Jr.
David P. Searcy, Director ..... /s/ David P. Searcy
Jimmy S. Threldkeld, Director . /s/ Jimmy S. Threldkeld
J. Heywood Washburn, Director . /s/ J. Heywood Washburn
Robert H. Weaver, Director .... /s/ Robert H. Weaver
J. Larry Young, Director ...... /s/ J. Larry Young
Form 10-K--Item 14 (a) (1) and (2)
THE PEOPLES HOLDING COMPANY AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements and report of independent auditors of The Peoples Holding Company and subsidiary included in the Annual Report of the registrant to its shareholders for the year ended December 31, 1996, are incorporated by reference in Item 8.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Income--Years ended December 31, 1996, 1995, and 1994
Consolidated Statements of Shareholders' Equity--Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flow--Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements--December 31, 1996
Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are not applicable and therefore, have been omitted.
Exhibit Number Description Page - ------ ----------- ----
11 Statement Re: Computation of Per Share Earnings .......................... 18
13 Annual Report to Shareholders ............... 19
23 Consent of Independent Auditors ............. 57