A $1 billion-asset Mississippi bank company said last week that it will lay off one-fifth of its work force despite solid earnings in the third quarter.

Peoples Holding Co. of Tupelo plans to eliminate about 130 of its 585 jobs before March 31 through retirement and layoffs. John W. Smith, president and chief executive officer, said it must slim down to remain independent.

The company reported third-quarter net income of $2.9 million, 15% more than a year earlier. Through the first nine months net income was up 9%.

Mr. Smith said the restructuring is meant to improve efficiency. Peoples' first-half efficiency ratio was 65.83%, compared with 60.64% for all Mississippi banks, according to Federal Deposit Insurance Corp. statistics.

Peoples has already identified more than $4 million in potential cost reductions and is well on its way to its goal of $5.5 million, Mr. Smith said. The company, parent of 42-branch Peoples Bank and Trust Co., will outsource back-office functions.

Christopher T. Kelley, an analyst at Morgan Keegan & Co. in Memphis, commended Peoples. It is one thing for a bank to consider such tough changes to improve margins, he said, but another to actually do it.

"A bank that size laying off that many people is a big step," Mr. Kelley said. "My hat's off to them. I don't think it was an easy decision to make."

Mr. Smith said he is not worried about a backlash in Tupelo, a town of 30,000 in rural northeastern Mississippi. Management has tried to ease the blow by holding meetings with employees over the past year to explain why decisions are being made, he said.

"Will there be some disgruntled people? Of course," he said. "But I honestly believe most of our employees understand that we have to do this to survive as an independent bank."

He estimated that if Peoples were acquired by another bank, twice as many jobs would be cut.

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