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, 1998, 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 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 primary 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 and financial 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. Automated teller machines located throughout our market area provide 24-hour banking services. The Bank also offers to its customers the VISA and MasterCard credit cards. Accounts receivable factoring is also available to qualified businesses. 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 Company also offers annuities and mutual funds. Neither the Registrant nor the Bank has any foreign activities.
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, finance companies, mortgage companies, insurance companies, brokerage firms, and investment companies for available loans and depository accounts. All of these institutions compete in the delivery of services and products through availability, quality, and pricing. Within the Registrant's market area, none of the competitors are dominant.
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 transactions 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. Section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed territorial restrictions for interstate bank mergers, effective May 1, 1997. Out-of-state bank holding companies may establish a bank in Mississippi only by acquiring a Mississippi bank or Mississippi bank holding company.
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 earned surplus in excess of three times the Bank's capital stock.
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, 1998, 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 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
Alex Sheshunoff Management Services completed a comprehensive strategic assessment of the Bank and designed an action plan to facilitate organization-wide structural changes. The action plan addressed operational costs, risk management, redundant activities, manual processes, under-utilized automation, and the future automation of inefficient work methods. With this move to automation came the need to displace selected jobs. Normal attrition, retirement, and our displacement schedule have reduced the Registrant's number of employees to 480 on a full-time basis at December 31, 1998.
Dependence Upon a Single Customer
Neither the Registrant nor its subsidiary is dependent upon a single customer or upon a limited number of customers.
Segment Reporting
The information under the caption "Note P - Segment Reporting" on Pages 19 and 20 of the Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
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. During December 1998, the Company entered into an agreement with Inter-City Federal Bank for Savings in Louisville, Mississippi, to acquire approximately $34,890,000 in loans and $38,530,000 in deposits. The information under the caption "Note B - Mergers and Acquisitions" on Page 10 of the Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
Executive Officers of The Registrant
The principal executive officer of the Company and its subsidiary as of December 31, 1998, is as follows:
Name Age ---- --- John W. Smith 63
Position and Office: Director and Executive Vice President of the Company from July 1983 until August 1993; Director and President of the Company since August 1993, and Vice Chairman of the Board since April 1997. Director and Executive Vice President of the Bank from 1978 and 1976, respectively, until August 1993; Director, President, and Chief Executive Officer of the Bank since August 1993, and Vice Chairman of the Board since April 1997.
All of the Registrant's officers are appointed annually by the appropriate Board of Directors to serve at the discretion of the Board.
Net Interest Income
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.
1998 COMPARED TO 1997
INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) Earning assets: Loans, net of unearned income ................ $ 5,390 $ (986) $ 4,404
Securities U. S. government securities and agencies ...... (802) (19) (821) Obligations of states and political subdivisions ....... 928 (229) 699 Mortgage-backed securities ..... 1,459 (296) 1,163 Other securities ............... 13 4 17
Other ............................ 243 7 250 -------- -------- -------- Total earning assets ............. $ 7,231 $ (1,519) $ 5,712 -------- -------- --------
Interest-bearing liabilities: Interest-bearing demand deposit accounts ............... $ (14) $ 14 $ 0 Savings accounts ................. 1,133 307 1,440 Time deposits .................... 1,911 288 2,199 Other ............................ 183 17 200 -------- -------- -------- Total interest-bearing liabilities .................... $ 3,213 $ 626 $ 3,839 -------- -------- -------- Change in net interest income ......................... $ 4,018 $ (2,145) $ 1,873 ======== ======== ========
(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.
1997 COMPARED TO 1996
INCREASE(DECREASE) DUE TO ------------------------- VOLUME RATE NET (1) ------ ---- ------- (In Thousands) Earning assets: Loans, net of unearned income ................ $ 5,362 $ (292) $ 5,070
Securities U. S. government securities and agencies ...... (199) (62) (261) Obligations of states and political subdivisions ....... 242 (56) 186 Mortgage-backed securities ..... 1,158 (31) 1,127 Other securities ............... (25) 10 (15)
Other ............................ (339) 8 (331) -------- -------- -------- Total earning assets ............. $ 6,199 $ (423) $ 5,776 -------- -------- --------
Interest-bearing liabilities: Interest-bearing demand deposit accounts ............... $ (1,042) $ 32 $ (1,010) Savings accounts ................. 967 552 1,519 Time deposits .................... 1,901 383 2,284 Other ............................ 558 209 767 -------- -------- -------- Total interest-bearing liabilities .................... $ 2,384 $ 1,176 $ 3,560 -------- -------- -------- Change in net interest income ......................... $ 3,815 $ (1,599) $ 2,216 ======== ======== ========
(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:
December 31 ----------- 1998 1997 1996 --------- -------- -------- (In Thousands)
U.S. Government and Agency Securities .... $ 104,997 $ 110,683 $ 125,087 Obligations of State and Political Subdivisions 76,893 59,893 52,051 Other Securities ....... 107,852 77,153 68,610 ------ ------ ------ $ 289,742 $ 247,729 $ 245,748 ========= ========= ========
The following table sets forth the maturity distribution in thousands and weighted average yield by maturity of securities at December 31, 1998:
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 35% and a Mississippi state tax rate of 3.3%, which is net of federal tax benefit.
Loans Outstanding
The following table sets forth loans outstanding as of December 31, 1998, which based on remaining scheduled repayments of principal, are due in the periods indicated. Real estate mortgage loans and consumer loans are excluded, while net receivables on leased equipment are included in commercial, financial and agricultural loans in the consolidated financial statements. Also, amounts due after one year are classified according to their sensitivity to changing interest rates.
Loans Maturing -----------------------------------------
After One After Within But Within Five One Year Five Years Years Total -------- ---------- ----- ----- (In Thousands) Commercial, financial and agricultural $ 85,892 $ 37,725 $ 13,655 $ 137,272 Real estate- construction 22,767 2,641 154 25,562 -------- -------- -------- -------- $ 108,659 $ 40,366 $ 13,809 $ 162,834 ======== ======== ======== ========
Interest Sensitivity --------------------
Fixed Variable Rate Rate ---- ----
(In Thousands) Due after 1 but within 5 years ................. $37,493 $ 2,873 Due after 5 years ....... 13,772 37 ------- ------ $51,265 $ 2,910 ======= =======
Allowance for Loan Losses
The allowance for loan losses provides coverage for losses inherent in the Company's loan portfolio. Management reviews the adequacy of the allowance for loan losses each quarter. The overall allowance is evaluated based on a continuing assessment of problem loans, historical loss experience, new lending products, emerging credit trends, changes in the size and character of loan categories, and other factors including its risk rating system, regulatory guidance and economic conditions. Management has determined that the allowance for loan losses is adequate, although financial market volatility, economic reversals or decreased corporate earnings could require an increase in the required allowance.
Management allocates the allowance for loan losses by loan category. Commercial, financial and agricultural and real estate - mortgage allocations are based on a quarterly review of individual loans outstanding and binding commitments to lend. Reserves are allocated based on actual loss experience and to credits with similar risk characteristics. Consumer loan allocations are based on an analysis of product mix, credit scoring, migration analyses, bankruptcy experience and historical and expected delinquency and charge-off statistics.
No portion of the allowance is restricted to any individual loan or group of loans, rather the entire allowance is restricted to absorb losses from the entire loan portfolio.
The Company also maintains an unallocated allowance to recognize the existence of other exposures, including but not limited to, the risk in concentrations to specific borrowers, financings of highly leveraged transactions, products or industries.
The following table presents the allocation of the allowance for loan losses by loan category at December 31 for each of the years presented:
(In Thousands) Allowance for Loan Losses ---------------------------------------------- 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ Commercial, financial, agricultural and real estate - mortgage ........ $ 7,382 $ 6,875 $ 6,681 $ 5,406 $ 4,924 Consumer .................... 1,933 1,892 1,813 1,577 1,348 Unallocated ................. 305 337 815 1,832 1,911 ------ ------ ------ ------ ------ Total ....................... $ 9,620 $ 9,104 $ 9,309 $ 8,815 $ 8,183 ====== ====== ====== ====== ======
Time Deposits
The following table shows the maturity of time deposits over $100,000 in thousands.
Less than 3 Months $ 41,765 3 Months- 6 Months 30,179 6 Months-12 Months 31,109 Over 12 Months 20,862 -------- $ 123,915 =========
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, Mississippi, houses the electronic data processing, proof, purchasing, and statement rendering. In addition, the Bank operated thirty-two (32) full-service branches, and nine (9) limited-service branches. The Bank has two (2) full-service branches in both Southaven and West Point; 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, and Pontotoc; one (1) full-service branch each at Aberdeen, Batesville, Calhoun City, Coffeeville, Grenada, Guntown, Hernando, Iuka, Louisville, New Albany, Okolona, Saltillo, Sardis, Shannon, Verona, Water Valley and Winona, Mississippi; one (1) limited-service branch each at Olive Branch, Plantersville, and Smithville, Mississippi; and seven (7) full-service branches and one (1) limited-service branch in Tupelo, Mississippi.
The Registrant leases, on a long-term basis, two branch locations for use in conducting banking activities. The aggregate annual rental for all leased premises during the year ending December 31, 1998, did not exceed five percent of the Bank's operating expenses.
It is anticipated that in the next several years, branch renovations and construction will be completed at Corinth, Olive Branch, and a new location west 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, 1998, 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 1998.
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 26 of the Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
At March 23, 1999, the total number of shareholders of the Company's common stock was 2,572.
The Registrant's common stock trades on the American Stock Exchange under the symbol PHC.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Financial Information" on Page 25 of the Registrant's 1998 Annual Report to Shareholders 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 26 through 39 of the Registrant's 1998 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Interest Rate Risk" on Pages 32 and 33 of the Registrant's 1998 Annual Report to Shareholders is 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 4 through 24 of the Registrant's 1998 Annual Report to Shareholders and are incorporated herein by reference.
The information on Page 23 of the Registrant's 1998 Annual Report to Shareholders 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 5 of the Company's definitive Proxy Statement, dated March 22, 1999, which is incorporated herein by reference.
Information concerning executive officers of the Registrant and its subsidiary appears on Page 6 under the caption "Executive Officers" of the Company's definitive Proxy Statement, dated March 22, 1999, which is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Summary Compensation Table-Annual Compensation" on Pages 7 through 11 of the Company's definitive Proxy Statement, dated March 22, 1999, 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 3 of the Company's definitive Proxy Statement, dated March 22, 1999, is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Transactions with Management" on Page 12 of the Company's definitive Proxy Statement, dated March 22, 1999, 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.
(13) Annual Report to Shareholders for the year ended December 31, 1998
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(b) No Form 8-K was filed during the quarter ended December 31, 1998.
(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 26, 1999 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) ..... /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
Frank B. Brooks, Director ..... /s/ Frank B. Brooks
John M. Creekmore, Director ... /s/ John M. Creekmore
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.
C. Larry Michael, Director .... /s/ C. Larry Michael
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 to Shareholders of the registrant for the year ended December 31, 1998, are incorporated by reference in Item 8.
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Income--Years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Shareholders' Equity--Years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows--Years ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements--December 31, 1998
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 - ------ ----------- ----
13 Annual Report to Shareholders ............... 18
23 Consent of Independent Auditors ............. 58