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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1993 Commission file number 0-4518
DEPOSIT GUARANTY CORP.
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0472169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 EAST CAPITOL STREET, JACKSON, MS 39201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 354-8564
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendment to this Form 10-K. ( )
Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of February 25, 1994: $391,616,442.
Common stock, no par value, outstanding as of February 25, 1994: 17,667,852
shares
Portions of the Proxy Statement of Registrant for the Annual Meeting of
Shareholders to be held on April 19, 1994, are incorporated in Parts III and IV
of this report.
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<PAGE> 2
CROSS REFERENCE INDEX
Page
----
PART I Item 1 Business 4-8
Statistical data required by Exchange Act
Guide 3 and Securities Act Guide 3 included
in Management's Discussion and Analysis 11-30
Item 2 Properties 9
Item 3 Legal Proceedings 10
Item 4 There has been no submission of matters
to a vote of shareholders during the
quarter ended December 31, 1993.
PART II Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 26,30
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operation 11-30
Item 8 Financial Statements and Supplementary Data:
Consolidated Statements of Condition -
December 31, 1993 and 1992 31
Consolidated Statements of Earnings - Years
Ended December 31, 1993, 1992, and 1991 32
Consolidated Statements of Changes in
Stockholders' Equity - Years Ended December
31, 1993, 1992, and 1991 33
Consolidated Statements of Cash Flows - Years
Ended December 31, 1993, 1992, and 1991 34
Notes to Consolidated Financial Statements 35-46
Independent Auditors' Report 47
Item 9 There has been no disagreement with
accountants on accounting and financial
matters.
2
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CROSS REFERENCE INDEX
PART III Item 10 Directors and Executive Officers of the
Registrant 7,8,*
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial
Owners and Management *
Item 13 Certain Relationships and Related
Transactions *
PART IV Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a)(1) Financial Statements (See Item 8
for reference)
(2) Financial Statement Schedules
normally required on Form
10-K are omitted since they
are not applicable.
(3) Exhibit index is on page 51 of this
Form 10-K and exhibits are
filed herewith.
(b) No reports on Form 8-K were
filed during the last quarter
of the period covered by this
report.
(c) The response to this portion
of Item 14 is submitted as a
separate section of this
report.
(d) Not applicable
* Information called for by Part III (Items 10 through 13) is
incorporated by reference to the Registrant's Proxy Statement
for the 1994 Annual Meeting of Shareholders filed with the
Securitites and Exchange Commission.
3
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BUSINESS
General
(a) Deposit Guaranty Corp. (the "Company") is a Mississippi business
corporation organized in 1968 as a bank holding company registered under the
Bank Holding Company Act of 1956, as amended. During 1993, the Company
conducted its business through its 98%-owned subsidiary, Deposit Guaranty
National Bank ("Deposit Guaranty"); through its 79%-owned subsidiary, G & W
Life Insurance Company; through its 100%-owned subsidiary, Commercial National
Corporation; and through Deposit Guaranty's 100%-owned subsidiaries, Deposit
Guaranty Mortgage Company (the "Mortgage Company") and Deposit Guaranty
Investments, Inc., Deposit Guaranty Student Loans, Inc., and Commercial
National Corporation's 100%-owned subsidiary, Commercial National Bank
("Commercial") and Commercial's 100%-owned subsidiary Commercial National
Brokerage Services, Inc.
As a bank holding company, the Company's activities and those of its
banking and nonbanking subsidiaries are limited to the business of banking and
activities closely related or incidental to banking. The Company may not
directly or indirectly acquire the ownership or control of more than 5% of any
class of voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board.
The Company's subsidiary banks, Deposit Guaranty National Bank and
Commercial National Bank, are subject to supervision and examination by the
Office of the Comptroller of the Currency ("OCC"). All of the Company's
subsidiary banks are insured by, and therefore subject to the regulations of,
the Federal Deposit Insurance Corporation ("FDIC"), and are also subject to
requirements and restrictions under federal law, including requirements to
maintain reserves against deposits, restrictions on the types and amounts of
loans that may be granted and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the types of
services that may be offered. Other federal and state laws and regulations
also affect the operations of the Company's subsidiaries.
The Company's subsidiary banks are subject to restrictions under
federal law applicable to certain transactions between each of them and the
Company and its nonbanking subsidiaries, including loans, other extensions of
credit, investments or asset purchases. Such transactions between any
subsidiary bank and the Company or any nonbanking subsidiary are limited in
amount to 10% of such subsidiary bank's capital and surplus. The total of such
transactions between any subsidiary bank and the Company and certain of its
affiliates, with certain exceptions, is limited to an aggregate of 20% of such
subsidiary bank's capital and surplus. Furthermore, loans and extensions of
credit from a subsidiary bank to the Company or its nonbank affiliates are
required to be secured in specified amounts by specified types of collateral.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act ("FIRREA") on August 9, 1989, a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled FDIC-insured depository institution or (ii)
any assistance provided by the FDIC to a commonly controlled depository
institution in danger of default if the FDIC notifies the depository
institution within two years of incurring such loss. Under Federal Reserve
policy, the Company is expected to act as a source of financial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary.
4
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BUSINESS (CONTINUED)
On December 19, 1991, the President of the United States signed into
law the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). FDICIA substantially revises the depository institution regulatory
and funding provisions of the Federal Deposit Insurance Act and makes revisions
to several other federal banking statutes. The Company's insured depository
institutions have been categorized as "well capitalized" under the guidelines
of FDICIA.
The Company is a legal entity separate and distinct from its banking
and other subsidiaries. Most of the Company's revenues result from dividends
and management fees paid to it by its bank subsidiaries. There are statutory
and regulatory requirements applicable to the payment of dividends by
subsidiary banks as well as by the Company to its shareholders.
Each national banking association is required by federal law to obtain
the prior approval of the OCC for the declaration and payment of dividends if
the total of all dividends declared by the board of directors of such bank in
any calendar year will exceed the total of (i) such bank's net profits (as
defined and interpreted by regulation) for the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. In addition, these banks may only pay dividends to the extent that
retained net profits (including the portion transferred to surplus which
exceeds statutory requirements) exceed its losses and bad debts (as defined by
regulation). The bank subsidiaries have available for payment of dividends in
1994, without prior regulatory approval, $90.5 million plus their net profits
for 1994.
The payment of dividends by the Company and its bank subsidiaries is
also affected by various regulatory requirements and policies, such as the
requirement to maintain adequate capital above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such practice. The
Board of Governors of the Federal Reserve System ("Federal Reserve Board"), and
the OCC have each indicated that paying dividends that deplete a bank's capital
base to an inadequate level would be an unsafe and unsound banking practice.
The Federal Reserve Board, the OCC and the FDIC have issued policy statements
which provide that bank holding companies and insured companies and insured
banks should generally only pay dividends out of current operating earnings.
The Company's subsidiary banks are subject to FDIC deposit insurance
assessments. The assessment rate for these insured depository institutions is
.23%, the lowest rate allowed by FDICIA. Pursuant to the FDICIA, the FDIC is
authorized to take action to recapitalize the Bank Insurance Fund ("BIF") if
necessary. Therefore, the BIF insurance assessments may be increased and
special assessments may be imposed. Such assessments could have an adverse
impact on the Company's results of operations.
The banking subsidiaries of the Company are limited in the amount they
may lend to the Company to 10% of the banks' capital stock and surplus. At
December 31, 1993, the banks could lend the Company a maximum of approximately
$22.2 million in aggregate. Such loans are required to be on a fully secured
basis.
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BUSINESS (CONTINUED)
The Federal Reserve Board has adopted risk-based capital guidelines
for bank holding companies such as the Company. The guidelines, which became
effective December 31, 1990, were phased in over two years. At the end of
1993, the minimum ratio of total capital to risk-weighted assets, including
certain off-balance-sheet items such as standby letters of credit is 8.00%. At
least half of the total capital is to be comprised of common equity, retained
earnings, and a limited amount of noncumulative perpetual preferred stock, less
goodwill ("tier I capital"). The remainder may consist of a limited amount of
subordinated debt, other preferred stock, certain other instruments, and a
limited amount of allowance for possible loan losses. Under the Federal
Reserve Board's guidelines, the Company's tier I and total capital ratios were
13.28% and 14.54%, respectively, at December 31, 1993.
The OCC also has established risk-based capital guidelines for
national banks. These regulations are generally similar to those established
by the Federal Reserve Board for bank holding companies. According to the OCC
guidelines, at December 31, 1993, the tier I and total capital ratios,
respectively, for Deposit Guaranty National Bank were 12.23% and 13.49%, and
for Commercial National Bank were 17.22% and 18.50%, respectively. These
ratios exceed the 1993 regulatory minimum of tier I and total capital of 4.00%
and 8.00%, respectively, and are well above the minimum 6% and 10% levels
required to be categorized as a "well capitalized" insured depository
institution.
The Federal Reserve Board and the OCC also have adopted minimum
leverage ratios for holding companies and national banks, respectively,
requiring such banking organizations to maintain tier I capital of at least
3.00% of total assets (which is total consolidated assets net of the allowance
for possible loan losses) less goodwill. FDICIA also established a minimum
leverage ratio requirement of 5% for "well capitalized" institutions. At
December 31, 1993, the leverage ratio for the Company was 8.13% compared to
6.80% at December 31, 1992. Leverage ratios for Deposit Guaranty National Bank
and Commercial National Bank at December 31, 1993 were 7.89% and 8.72%,
respectively.
Federal Reserve Board guidelines also provide that bank organizations
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels, without significant reliance on intangible assets. Furthermore, the
guidelines indicate that the Federal Reserve Board will continue to consider a
"tangible tier I leverage ratio" in evaluating proposals for expansion or new
activities. The tangible tier I leverage ratio is the ratio of a banking
organization's tier 1 capital, less intangibles, to total assets, less
intangibles. At December 31, 1993, the Company's tangible leverage ratio was
8.02%.
(b) During 1993, the Company and its subsidiaries were engaged
only in the general banking business and activities closely related to banking
or to managing or controlling banks, as authorized by the laws of the United
States and regulations pursuant thereto. The Company's banking subsidiaries
comprise more than 99% of the related combined revenue, profits and assets of
all industry segments of the Company.
(c) A discussion of business activities of the Company and its
operating subsidiaries follows:
The Company is a multi-bank holding company headquartered in Jackson,
Mississippi. The Company offers complete banking and trust services to the
commercial, industrial and agricultural areas which it serves through its two
principal banking subsidiaries, Deposit Guaranty and Commercial.
6
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BUSINESS (CONTINUED)
Deposit Guaranty is located throughout Mississippi with 125 banking
locations and is the second largest bank in Mississippi.
Commercial is located in Shreveport, Louisiana. It is the fifth
largest bank in Louisiana and has eighteen banking locations in the
Shreveport/Bossier market.
There are numerous other banks and financial institutions which
compete with Deposit Guaranty and Commercial in making loans, accepting
deposits, providing credit, and performing other banking services within
particular portions of Deposit Guaranty and Commercial's primary service areas.
Competition is in fees and interest rates as well as quality of service.
Because money markets, loan demand and interest rates are affected by
actions of governmental, monetary and fiscal authorities and by the changing
conditions of the national and international economy, no prediction can be made
as to changes in deposit levels, loan demand, interest rates or earnings of the
Company's banking subsidiaries. No material part of the business of the
Company is dependent upon a single customer or a few customers.
Deposit Guaranty, through its 100%-owned subsidiary, the Mortgage
Company, acts as a mortgage lender, mortgage banker, mortgage broker and
mortgage servicing agent throughout Mississippi and Shreveport/Bossier.
Within the Mortgage Company's service area, there are numerous companies
performing similar services in competition with it. Competition is in fees and
interest rates as well as quality of service. No material part of the business
of the Mortgage Company is dependent upon a single customer or a few customers.
The Company provides investment advice and brokerage services through
its two subsidiaries, Deposit Guaranty Investments, Inc., a subsidiary of
Deposit Guaranty National Bank, and Commercial National Brokerage Services,
Inc., a subsidiary of Commercial National Bank.
The Company provides credit insurance related to extensions of credit
by the Company through G & W Life Insurance Company, a 79%-owned subsidiary.
On December 31, 1993, the Company and its subsidiaries had
approximately 2,575 employees.
Executive Officers of the Registrant
The chart provided below contains certain information concerning the
executive officers of the Company and its principal subsidiaries.
<TABLE>
<CAPTION>
Position(s) And Office(s)
Held With the Company Assumed
Name Age And Subsidiaries Present Office(s)
- -------------------- --- ---------------------------- -----------------
<S> <C> <C> <C>
E. B. Robinson, Jr. 52 Chairman of the Board and January 1, 1984
Chief Executive Officer
of the Company and Deposit
Guaranty
</TABLE>
7
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BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
Position(s) And Office(s)
Held With the Company Assumed
Name Age And Subsidiaries Present Office(s)
- ------------------------ --- ---------------------------- -----------------
<S> <C> <C> <C>
Howard L. McMillan, Jr. 55 President and Chief January 1, 1984
Operating Officer of the
Company and Deposit
Guaranty
Steven C. Walker 44 President and Chief October 17, 1989
Executive Officer of
Commercial
Arlen L. McDonald 45 Executive Vice President March 16, 1976
and Financial Officer of
the Company and
Deposit Guaranty
Robert G. Barnett 60 General Counsel and March 18, 1975
Secretary of the Company
and Deposit Guaranty
William R. Boone 56 Executive Vice President December 17, 1974
of the Company and Deposit
Guaranty
Thomas M. Hontzas 49 Executive Vice President May 18, 1982
of the Company and
Deposit Guaranty
James S. Lenoir 51 Executive Vice President February 15, 1983
and Chief Credit Officer
of the Company and Deposit
Guaranty
Louis E. Mapp 56 Executive Vice President November 15, 1988
of Deposit Guaranty (Retired February
28, 1994)
W. Murray Pate 46 Executive Vice President October 1, 1990
of the Company and Deposit
Guaranty
W. Stanley Pratt 48 Executive Vice President December 20, 1983
of Deposit Guaranty
Stephen E. Barker 37 Controller and Principal February 16, 1993
Accounting Officer of the
Company and Deposit Guaranty
</TABLE>
All executive officers have held executive or senior management positions
with the Company or its principal subsidiaries for more than five years.
8
<PAGE> 9
PROPERTIES
The Company has its principal office in Deposit Guaranty Plaza ("Plaza"),
210 East Capitol Street, Jackson, Mississippi. The Plaza contains
approximately 336,000 square feet of net rentable space. Deposit Guaranty
occupies approximately 119,000 square feet, and the Company and its other
subsidiaries occupy approximately 32,000 square feet. An additional 168,000
square feet is occupied by various tenants under short-term leases and
approximately 17,000 square feet is presently unoccupied.
Deposit Guaranty owns the building at 200 East Capitol Street, Jackson,
Mississippi, adjacent to Deposit Guaranty Plaza. This building, completed in
its present form in 1958, contains approximately 157,000 square feet of net
rentable space. This building was renovated during 1975 and is occupied by the
Company, Deposit Guaranty, the Mortgage Company, and various tenants. Deposit
Guaranty occupies approximately 68,000 square feet and the Company occupies
approximately 42,000 square feet.
Deposit Guaranty owns eighty-two of its one hundred and one full-service
branch banking facilities. The remaining nineteen branch banking facilities
are occupied under leases expiring from 1993 through 2018. Deposit Guaranty
also owns and occupies an operations center in Jackson, Mississippi, completed
in 1967, containing approximately 58,000 square feet. Deposit Guaranty's
management considers all of its buildings and leased premises to be in good
condition.
Deposit Guaranty holds fee title to seven tracts of land held as locations
for additional banking facilities in the future.
The Company also has an office in the Commercial Center, located in
downtown Shreveport, Louisiana, at 333 Texas Street. Commercial Center is
comprised of a twenty-four story office tower which was placed in service in
1986, a fifteen story office building constructed in 1940, and an adjoining
parking garage which was completed in 1986.
The complex contains approximately 492,000 net rentable square feet.
Commercial occupies approximately 201,000 net rentable square feet. An
additional 220,000 net rentable square feet is occupied by various tenants and
approximately 71,000 net rentable square feet is presently unoccupied. This
complex, as well as the entire city block on which it is located, is owned by
Commercial.
Commercial also owns a 12,800 square foot, single story facility at 600
Market Street (also located in downtown Shreveport) which is currently being
used by Commercial as a supplies warehouse.
At December 31, 1993, Commercial owned and operated eleven banking
locations.
None of the properties described above are subject to any significant
encumbrances. Commercial's management believes that all of its properties are
in good condition.
The home office of the Mortgage Company is located at 200 East Capitol
Street in Deposit Guaranty's building adjacent to the Plaza. This month-to-
month lease covers approximately 8,400 square feet of space. The Mortgage
Company also owns and occupies the building at 1485 Livingston Lane, Jackson,
Mississippi, which was purchased in 1986, and contains approximately 15,350
square feet. The Mortgage Company's other fifteen branch offices are located
in premises held under short-term leases. All premises leased by the Mortgage
Company are considered to be in good condition.
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LEGAL PROCEEDINGS
The Company's subsidiary, Commercial National Bank (CNB), is a defendant in
litigation originally filed on December 20, 1990 by First National Bank of
Fairfield, Texas, against Louisiana Housing Finance Agency, First Executive
Corporation, Executive Life Insurance Company, Fred Carr, Michael Milken,
Howard, Weil, Labouisse, Fredricks, Inc., Kutak, Rock and Campbell, and CNB.
The litigation against CNB and the other defendants arises out of a Louisiana
Housing Finance Agency Municipal Bond Issue. The litigation was
consolidated for pretrial purposes with seven other suits arising out of seven
other issues of bonds by various issuing authorities across the country. The
consolidated litigation is styled and numbered: "In re: Taxable Municipal
Bond Securities Litigation", M.D.L. #863 in the United States District Court
for the Eastern District of Louisiana. In May of 1991, First National Bank
filed an amended complaint adding as defendants numerous broker dealer firms
serving as a member of the underwriting syndicate for the bonds. Also, named
as defendants were some officers of some corporate defendants. CNB was
trustee for the Louisiana Housing Finance Agency Municipal Bond Issue and in
general, it is claimed that fraud was practiced on the bondholders in that the
proceeds of the issue were not used for the purpose stated in the official
statement. Additionally, the claim alleges conspiracy and improper conduct
concerning CNB's role as trustee. In addition, some of the codefendants of CNB
have asserted claims against CNB for contribution in the event those defendants
are found to be liable to plaintiff. Likewise, CNB has asserted contribution
claims against its codefendants. Although the litigation currently involves
only one bondholder, certification as a class action suit has been requested.
The claims do not specify damages, but involve a $150 million bond issue. While
the ultimate outcome of the lawsuit at this time cannot be predicted with
certainty, management believes that CNB has good and meritorious defenses and
should prevail.
The Company's subsidiary, Deposit Guaranty National Bank (DGNB), is a
defendant in two cases - Peterson and Winters v. DGNB, Civil Action No.
1:93cv287-S-D filed in the United States District Court for the Northern
District of Mississippi on September 27, 1993, and Winters v. DGNB, Civil
Action No. 93-77-77 filed in the Circuit Court of the First Judicial District
of Hinds County, Mississippi, on October 25, 1993. The allegations in both
cases are substantially the same. The plaintiffs in both cases are some of the
beneficiaries of the same trust and DGNB is the trustee of the trust. The
plaintiffs claim that DGNB was negligent in its dealings with the trust
property, breached its trust duties by allegedly abusing its discretion and
negligently handling trust assets, engaged in self dealing, and was grossly
negligent in its handling of the trust. Both cases seek $180 million as actual
damages for waste of trust assets and loss of profits, $180 million as punitive
damages, and attorney fees and court costs. While the ultimate outcome of the
lawsuits cannot be predicted with certainty, management believes that the
ultimate resolution of these matters will not have a material effect on the
Company's consolidated financial statements.
In addition, the Company is subject to numerous other pending and
threatened legal actions arising in the normal course of business and
management believes that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial statements.
10
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MANAGEMENTS DISCUSSION AND ANALYSIS
Deposit Guaranty Corp. and Subsidiaries
TABLE 1 - SELECTED FINANCIAL DATA
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
Interest income $ 299,327 $ 322,114 $ 382,432 $ 406,724 $ 335,216
Interest expense 124,687 155,459 231,473 257,023 206,890
--------------------------------------------------------------------------
Net interest income 174,640 166,655 150,959 149,701 128,326
Provision for possible loan losses (16,000) 10,378 17,260 46,409 16,895
--------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 190,640 156,277 133,699 103,292 111,431
Other operating income 74,781 67,977 61,439 74,955 48,154
Other operating expense 171,567 164,470 152,828 145,315 121,334
--------------------------------------------------------------------------
Income before income taxes 93,854 59,784 42,310 32,932 38,251
Income tax expense 27,302 14,270 10,090 8,407 6,600
--------------------------------------------------------------------------
Net income $ 66,552 $ 45,514 $ 32,220 $ 24,525 $ 31,651
==========================================================================
NET INCOME PER SHARE
Primary $ 3.77 $ 2.67 $ 2.04 $ 1.55 $ 1.99
Fully diluted 3.77 2.63 1.93 1.49 1.88
Weighted average shares outstanding
Primary 17,649,852 17,033,664 15,799,996 15,799,996 15,892,740
Fully diluted 17,649,852 17,465,282 17,442,388 17,442,388 17,554,318
CASH DIVIDENDS PER SHARE $ .93 $ .80 $ .78 $ .78 $ .77
STATEMENT OF CONDITION - AVERAGES
Securities available for sale
and investment securities $ 1,704,645 $ 1,616,658 $ 1,417,299 $ 1,036,123 $ 622,336
Loans, net of unearned income 2,293,416 2,261,034 2,411,731 2,633,394 2,202,348
Total deposits 3,867,669 3,876,927 3,990,963 3,692,556 2,826,735
Long-term debt -- 6,320 24,020 24,236 24,841
Total assets 4,826,726 4,777,596 4,814,533 4,522,212 3,557,327
Total stockholders' equity 367,592 315,833 275,345 259,644 246,846
SELECTED RATIOS
Return on average assets 1.38% .95% .67% .54% .89%
Return on average equity 18.10 14.41 11.70 9.45 12.82
Net interest margin - tax equivalent 4.18 4.12 3.77 4.04 4.42
Allowance for possible loan losses to
loans, net of unearned income 2.56 3.30 3.74 3.46 1.38
Net charge-offs (recoveries) to average loans,
net of unearned income (.14) 1.02 .77 1.14 .68
Dividend payout 24.67 29.96 38.24 50.32 38.44
Average equity to average assets 7.62 6.61 5.72 5.74 6.94
Leverage ratio 8.13 6.80 5.42 5.19 6.87
Tier I risk-based 13.28 12.00 9.95 8.25 10.26
Total risk-based 14.54 13.27 12.11 10.31 12.47
</TABLE>
All share data reflects a 2 for 1 stock split declared in 1992.
The dividend payout ratio is calculated using historical Deposit
Guaranty Corp. dividends per share.
FINANCIAL REVIEW
The following discussion reviews the results of operations and assesses the
financial condition of Deposit Guaranty Corp. (the Company). This discussion
should be read in conjunction with the consolidated financial statements
included in this Annual Report.
The Company's net income for 1993 was $66.6 million compared to $45.5
million in 1992 and $32.2 million in 1991. Fully diluted net income per share
for 1993 was $3.77 compared to $2.63 in 1992 and $1.93 in 1991.
The improvement in 1993's earnings as compared to 1992 was primarily
the result of continued improvement in credit quality and increased net
interest income. Nonperforming assets declined 23% in 1993 and the Company
recorded recoveries in excess of loan charge-offs of $3.2 million. As a result
of the improving economic environment, the significant improvement in
nonperforming assets, the net recoveries, and
11
<PAGE> 12
TABLE 2 - SUMMARY OF QUARTERLY RESULTS
(In Thousands Except Per Share Data)
The summary of quarterly results of operations is presented in the following
table.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
----------------------------------------------------
<S> <C> <C> <C> <C>
1993
Interest income $74,589 $75,015 $75,203 $ 74,520
Net interest income 45,219 44,033 43,386 42,002
Provision for possible
loan losses (5,000) -- (11,000) --
Income before income taxes 23,450 20,852 30,445 19,107
Net income 16,427 15,028 21,176 13,921
Net income per share:
Primary .93 .85 1.20 .79
Fully diluted .93 .85 1.20 .79
1992
Interest income $77,777 $78,714 $80,182 $ 85,441
Net interest income 43,930 42,177 40,761 39,787
Provision for possible
loan losses -- 2,250 3,564 4,564
Income before income taxes 18,572 16,418 14,345 10,449
Net income 14,061 12,584 11,147 7,722
Net income per share:
Primary .81 .72 .65 .49
Fully diluted .81 .72 .64 .46
</TABLE>
All per share data reflects a 2 for 1 stock split declared in 1992.
Gains and losses on the sales of securities were not material to the quarterly
results for 1993 and 1992.
management's assessment of credit quality, the allowance for possible loan
losses was reduced by $16 million in 1993. This reduction, recorded at
Commercial National Bank, resulted in a negative provision for possible loan
losses of $16 million compared to additions to the allowance for possible loan
losses of $10.4 million and $17.3 million for 1992 and 1991, respectively.
Net income for 1993 includes the effect of the adoption of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The cumulative effect of this change as of January 1, 1993, was to increase net
income by $657 thousand and increase both primary and fully diluted net income
per share by $.04. Net income for 1992 includes the effect of the adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." The cumulative effect of this change as of January 1, 1992 was to
decrease net income by $1.3 million and decrease primary and fully diluted net
income per share by $.08. During the third quarter of 1993, the federal income
tax rate for the Company increased from 34% to 35%, applied retroactively to
January 1, 1993. This rate change resulted in an increase of $827 thousand in
current income tax expense and a decrease in deferred income tax of $932
thousand due to the Company's level of net deferred tax assets.
Commercial National Corporation (CNC) and its banking subsidiary,
Commercial National Bank, are located in Shreveport, Louisiana, with assets of
approximately $1 billion, and were acquired in 1990 in a purchase transaction.
CNC increased its contribution to the Company's net income by $18 million in
1993. CNC contributed $21.3 million, net of the amortization of purchase
accounting adjustments, to the Company's net income in 1993 compared to $7
million in 1992 and $4.8 million in 1991. CNC's contribution in 1993 was
substantially higher than 1992 due to the $16 million reduction in its
allowance for possible loan losses. CNC's net income contribution without the
allowance reduction would have been $10.9 million in 1993.
Total average assets increased slightly to $4.8 billion in 1993. The
return on average assets for 1993 was 1.38% compared to .95% in 1992 and .67%
in 1991. The return on average equity in 1993 was 18.10% compared to 14.41% in
1992 and 11.70% in 1991.
The Company's capital ratios continue to be higher than the minimum
regulatory guidelines. At December 31, 1993, the leverage ratio was 8.13%, tier
I capital was 13.28%, and total risk-based capital was 14.54%, compared to
6.80%,12.00% and 13.27%, respectively, for year-end 1992. Additionally, the
capital ratios of the Company's two major banking subsidiaries classify them as
"well capitalized" according
12
<PAGE> 13
TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
(Dollars in Thousands)
The following table shows the major categories of interest-earning assets and
interest-bearing liabilities with their corresponding average balances, related
interest income or expense and the resulting yield or rate for 1993, 1992 and
1991.
<TABLE>
<CAPTION>
1993 1992
-----------------------------------------------------------------------
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE Balance Expense Rate
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
income $2,293,416 $182,047 7.94% $2,261,034 $187,422 8.29%
Investment securities:
Taxable 281,589 25,116 8.92 1,265,334 91,210 7.21
Exempt from Federal
income tax 114,422 12,903 11.28 155,630 18,096 11.63
Securities available
for sale:
Taxable 1,306,209 74,167 5.68 194,224 18,062 9.30
Exempt from Federal
income tax 2,425 269 11.09 1,470 118 8.03
Trading account
securities 4,018 283 7.04 3,811 264 6.93
Federal funds sold
and securities purchased
under agreements to resell 277,127 8,576 3.09 296,032 10,913 3.69
Interest-bearing
bank balances 54,534 1,732 3.18 97,810 4,408 4.51
----------------------------------------------------------------------
Total interest-earning
assets 4,333,740 305,093 7.04 4,275,345 330,493 7.73
Noninterest-earning assets:
Cash and due from
banks 281,448 273,589
Bank premises and
equipment 125,009 120,484
Other assets 157,145 194,641
Allowance for possible
loan losses (70,616) (86,463)
-----------------------------------------------------------------------
Total assets $4,826,726 $4,777,596
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
1991
-----------------------------------------
Interest Average
Average Income/ Yield/
ASSETS Balance Expense Rate
-----------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
income $2,411,731 $231,250 9.59%
Investment securities:
Taxable 1,203,333 107,355 8.92
Exempt from Federal
income tax 213,966 24,572 11.48
Securities available
for sale:
Taxable -- -- --
Exempt from Federal
income tax -- -- --
Trading account
securities 3,798 326 8.58
Federal funds sold
and securities purchased
under agreements to resell 381,194 23,179 6.08
Interest-bearing
bank balances 115,314 7,233 6.27
-----------------------------------------
Total interest-earning
assets 4,329,336 393,915 9.10
Noninterest-earning assets:
Cash and due from
banks 277,176
Bank premises and
equipment 125,313
Other assets 171,154
Allowance for possible
loan losses (88,446)
-----------------------------------------
Total assets $4,814,533
=========================================
</TABLE>
For purposes of these computations, nonaccruing loans are included in the daily
average loan amounts outstanding. Interest income and average yield on
tax-exempt assets have been calculated on a fully tax equivalent basis using a
tax rate of 35% for 1993 and 34% for 1992 and 1991.
to the Federal Deposit Insurance Corporation Improvement Act of 1991 guidelines
(FDICIA).
Identification of the changes in the signifcant components of earnings
from quarter-to-quarter aids in understanding the results of operations of the
Company. The Company reduced the allowance for possible loan losses in the
second quarter of 1993 by $11 million and further reduced the allowance in the
fourth quarter by an additional $5 million, due to the improving economic
conditions, improved credit quality trends, net recoveries and management's
assessment of the adequacy of the allowance for possible loan losses. The first
quarter of 1993 includes the adoption of SFAS No. 109 which increased net
income by $657 thousand. Net income for 1993 reflects adjustments to the
Company's accruals for deferred compensation and pension costs. The net effect
of these adjustments was to decrease net income for the year by approximately
$293 thousand. Included in this amount is a reduction in net income of $1.4
million (primary and fully diluted per share effect of $.08) that relates to
years prior to 1993.
Net interest income for each quarter of 1992 increased primarily due to
a widening of the interest spread throughout 1992 as a result of funding costs
being lowered more rapidly than earning asset yields. The provision for
possible loan losses decreased each quarter in 1992 with no provision in the
fourth quarter. The first quarter of 1992 includes the adoption of SFAS No. 106
which decreased net income by $1.3 million. The second quarter of 1992 includes
a one-time fee of $1.1 million received from the processor of the Company's
official checks as a result of their error in calculating fees in prior years.
13
<PAGE> 14
TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1993 1992
--------------------------------------------------------------------------
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
LIABILITIES BALANCE EXPENSE RATE Balance Expense Rate
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Savings deposits $1,497,249 $ 34,296 2.29% $1,428,639 $ 43,555 3.05%
Time deposits 1,572,564 75,899 4.83 1,722,113 94,708 5.50
Federal funds purchased,
securities sold under
agreements to repurchase and
other short-term borrowings 525,221 14,492 2.76 514,073 16,633 3.24
Long-term debt -- -- -- 6,320 563 8.91
--------------------------------------------------------------------------
Total interest-bearing
liabilities 3,595,034 124,687 3.47 3,671,145 155,459 4.23
Noninterest-bearing
liabilities:
Deposits 797,856 726,175
Other liabilities 66,244 64,443
--------------------------------------------------------------------------
Total liabilities 4,459,134 4,461,763
Stockholders' equity 367,592 315,833
--------------------------------------------------------------------------
Total liabilities and
stockholders' equity $4,826,726 $4,777,596
===========================================================================
Net interest income/
margin - tax equivalent 180,406 4.18% 175,034 4.12%
===========================================================================
Tax equivalent adjustment:
Loans 1,801 2,121
Investment securities 3,841 6,202
Securities available
for sale 58 --
Other 66 56
--------------------------------------------------------------------------
Total tax equivalent
adjustment 5,766 8,379
--------------------------------------------------------------------------
Net interest income $174,640 $166,655
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
1991
---------------------------------------
Interest Average
Average Income/ Yield/
LIABILITIES Balance Expense Rate
---------------------------------------
<S> <C> <C> <C>
Interest-bearing liabilities:
Savings deposits $1,350,291 $ 66,158 4.90%
Time deposits 1,983,928 138,399 6.98
Federal funds purchased,
securities sold under
agreements to repurchase and
other short-term borrowings 456,552 24,814 5.44
Long-term debt 24,020 2,102 8.75
---------------------------------------
Total interest-bearing
liabilities 3,814,791 231,473 6.07
Noninterest-bearing
liabilities:
Deposits 656,744
Other liabilities 67,653
---------------------------------------
Total liabilities 4,539,188
Stockholders' equity 275,345
---------------------------------------
Total liabilities and
stockholders' equity $4,814,533
========================================
Net interest income/
margin - tax equivalent 162,442 3.77%
========================================
Tax equivalent adjustment:
Loans 3,052
Investment securities 8,364
Securities available
for sale --
Other 67
---------------------------------------
Total tax equivalent
adjustment 11,483
---------------------------------------
Net interest income $150,959
========================================
</TABLE>
NET INTEREST INCOME
Net interest income is the largest component of the Company's net income and
represents the income earned on interest-earning assets less the cost of
interest-bearing liabilities. This major source of income represents the
earnings from the Company's primary business of gathering funds from deposit
sources and investing those funds in loans and securities. The Company's
long-term objective is to manage those assets and liabilities to provide the
largest possible amount of income while balancing interest rate, credit,
liquidity and capital risks.
Net interest income is presented in this discussion on a tax equivalent
basis, so that the income from assets having special tax attributes is adjusted
based on the statutory Federal income tax rate of 35% in 1993 and 34% for all
prior years presented.
The tax equivalent net interest margin (the margin) provides an
indication of the efficiency of the earnings from balance sheet activities and
is calculated by dividing the tax equivalent net interest income by
interest-earning assets. The margin is affected by changes in the spread
between interest-earning asset yields and interest-bearing liability costs
(interest spread) and the percentage of interest-earning assets funded by
interest-bearing liabilities (liability funding).
Tax equivalent net interest income in 1993 was $180.4 million compared
to $175.0 million in 1992 and $162.4 million in 1991. The margin increased to
4.18% during 1993
14
<PAGE> 15
TABLE 4 - TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
(In Thousands)
The following table sets forth, for the periods indicated, a summary of the
changes in interest income and expense resulting from changes in volume and
changes in rates.
<TABLE>
<CAPTION>
1993 COMPARED TO 1992 1992 Compared To 1991
----------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO Increase (Decrease) Due To
----------------------------------------------------------------------------
VOLUME RATE NET Volume Rate Net
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans $ 2,684 $ (8,059) $ (5,375) $ (14,450) $ (29,378) $ (43,828)
Investment securities:
Taxable (70,912) 4,818 (66,094) 4,797 (20,942) (16,145)
Exempt from Federal income tax (4,791) (402) (5,193) (6,649) 173 (6,476)
Securities available for sale:
Taxable 103,410 (47,305) 56,105 18,062 -- 18,062
Exempt from Federal income tax 77 74 151 118 -- 118
Trading account securities 14 5 19 -- (62) (62)
Federal funds sold and securities purchased
under agreements to resell (697) (1,640) (2,337) (5,178) (7,088) (12,266)
Interest-bearing bank balances (1,950) (726) (2,676) (1,098) (1,727) (2,825)
----------------------------------------------------------------------------
Total 27,835 (53,235) (25,400) (4,398) (59,024) (63,422)
============================================================================
Interest expense on:
Savings deposits 2,092 (11,351) (9,259) 3,839 (26,442) (22,603)
Time deposits (8,224) (10,585) (18,809) (18,264) (25,427) (43,691)
Federal funds purchased, securities sold
under agreements to repurchase, and other
short-term borrowings 361 (2,502) (2,141) 3,126 (11,307) (8,181)
Long-term debt (563) -- (563) (1,549) 10 (1,539)
----------------------------------------------------------------------------
Total (6,334) (24,438) (30,772) (12,848) (63,166) (76,014)
----------------------------------------------------------------------------
Changes in net interest income
- tax equivalent $ 34,169 $(28,797) $ 5,372 $ 8,450 $ 4,142 $ 12,592
============================================================================
</TABLE>
The increase (decrease) due to changes in average balances reflected in the
above table was calculated by applying the preceding year's rate to the current
year's change in the average balance. The increase (decrease) due to changes in
average rates was calculated by applying the current year's change in the
average rates to the current year's average balance. Using this method of
calculating increases (decreases), any increase or decrease due to both changes
in average balances and rates is reflected in the changes attributable to
average rate changes.
from 4.12% in 1992 and 3.77% in 1991. The increase in 1993 is primarily due to
the increase in average interest-earning assets, a decrease in the liability
funding ratio, significant improvement in the effect of nonperforming loans and
a slight increase in the interest spread. Average interest-earning assets
increased 1.4% to $4.3 billion in 1993. The liability funding ratio decreased
from 85.8% in 1992 to 82.9% in 1993 as a result of interest-earning assets
increasing while interest-bearing liabilities decreased. Interest-bearing
liabilities decreased 2.1% to $3.6 billion in 1993 while interest-free funds
increased, primarily noninterest-bearing deposits which increased 10% from $726
million in 1992 to $798 million in 1993.
The increase in the interest spread was the result of the Company
continuing to reduce interest rates paid on many of its deposit accounts. After
two years of declining market rates experienced in 1991 and 1992, the decline
subsided in 1993 with the prime rate remaining constant at 6%. Rates paid on
interest-bearing deposits decreased 76 basis points to 3.47% in 1993 while
yields on interest-earning assets decreased only 69 basis points to 7.04% in
1993. Interest rate spreads began decreasing from the levels experienced in
late 1992 and early 1993 as a result of relatively higher yielding
interest-earning assets maturing and the funds from prepayments on
mortgage-backed securities being reinvested at lower rates.
The interest spread widened during 1992 largely as a result of the cost
of funds declining more rapidly than the yield on interest-earning assets. The
prime rate decreased from 7.5% to 6.5% just before year-end 1991 and declined
further in midyear 1992 to 6%. As rates dropped, the Company aggressively
repriced interest-bearing deposits, continuing to reduce interest rates paid
on many of its deposit accounts which were traditionally considered fixed rate.
15
<PAGE> 16
TABLE 5 - INTEREST SENSITIVITY
(In Thousands)
The following table reflects the interest sensitivity of the Company over
various periods as of December 31, 1993, based on contractual maturities as of
that date.
<TABLE>
<CAPTION>
0-3 4-12 1-5 Over 5
Months Months Years Years Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned income $1,261,491 $236,089 $ 720,296 $ 200,709 $2,418,585
Investment securities 35,701 54,706 99,646 126,805 316,858
Securities available for sale 428,855 34,344 510,681 391,848 1,365,728
Trading account securities 596 -- -- -- 596
Federal funds sold and securities purchased
under agreements to resell 208,140 -- -- -- 208,140
Interest-bearing bank balances 70,000 -- -- -- 70,000
----------------------------------------------------------------------
Total interest-earning assets 2,004,783 325,139 1,330,623 719,362 4,379,907
Noninterest-earning assets -- -- -- 518,173 518,173
----------------------------------------------------------------------
Total assets $2,004,783 $325,139 $1,330,623 $ 1,237,535 $4,898,080
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $1,554,268 $ -- $ -- $ -- $1,554,268
Time deposits 430,419 477,753 482,057 101,356 1,491,585
Short-term borrowings 509,496 -- -- -- 509,496
----------------------------------------------------------------------
Total interest-bearing liabilities 2,494,183 477,753 482,057 101,356 3,555,349
Noninterest-bearing deposits -- -- -- 875,288 875,288
Other liabilities -- -- -- 71,555 71,555
Stockholders' equity -- -- -- 395,888 395,888
----------------------------------------------------------------------
Total liabilities and stockholders'
equity $2,494,183 $477,753 $ 482,057 $ 1,444,087 $4,898,080
======================================================================
Interest rate swaps $ (380,000) $340,000 $ 125,000 $ (85,000)
Interest sensitive gap (869,400) 187,386 973,566 (291,552)
Cumulative interest sensitive gap (869,400) (682,014) 291,552 --
Cumulative interest sensitive gap
as a percent of total assets (17.75)% (13.92)% 5.95% -- %
</TABLE>
INTEREST RATE SENSITIVITY
The interest spread and margin discussed previously are directly related to
changes in mix, volumes, maturities and repricing opportunities of
interest-earning assets and interest-bearing liabilities. Interest-sensitive
assets and liabilities are those which are subject to being repriced in the
near term, including those instruments containing floating or adjustable rates,
those approaching contractual maturity and those subject to prepayment. The
interest sensitivity gap as shown in Table 5 provides one measure of the
Company's interest sensitivity and is the difference between total
interest-sensitive assets and total interest- sensitive liabilities, as of
December 31, 1993, based on contractual repricing adjusted for estimated
mortgage-related prepayments. At December 31, 1993, the Company had a one-year
cumulative negative gap of $682 million, representing approximately 13.9% of
total assets. A negative gap implies that more interest-bearing liabilities
reprice in a given period than interest-earning assets, indicating that in an
environment of rising interest rates, net interest income would be expected to
decrease. Management does not feel that this negative gap measure provides a
complete representation of the Company's exposure to movements in interest
rates and does not incorporate many of the factors that affect net interest
income. Some of these factors are future balance sheet volumes, changes in
relationships between rates earned and paid and the ability of management to
reprice a substantial balance of interest-bearing checking and savings
accounts more slowly than market rates in a changing rate environment.
16
<PAGE> 17
TABLE 6 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
(In Thousands)
Effective October 1, 1992, securities which may be sold prior to maturity are
classified as securities available for sale and are stated at the lower of
amortized cost or aggregate market value. The carrying amounts of securities
available for sale and investment securities are presented as of the dates
indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1993 1992 1991
-----------------------------------
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U. S. Treasury and other U. S. Government agencies $ 793,043 $ 758,785 $ --
Obligations of states and political subdivisions 200 3,737 --
Mortgage-backed securities 572,485 268,120 --
-----------------------------------
Total securities available for sale 1,365,728 1,030,642 --
-----------------------------------
INVESTMENT SECURITIES
U. S. Treasury and other U. S. Government agencies 60,434 87,943 539,735
Obligations of states and political subdivisions 109,495 120,391 199,481
Mortgage-backed securities 137,356 306,492 910,271
Other securities 9,573 12,803 17,372
-----------------------------------
Total investment securities 316,858 527,629 1,666,859
-----------------------------------
TOTAL SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES $1,682,586 $1,558,271 $1,666,859
==================================
</TABLE>
The Company's policy limits the amount of interest rate risk that is
acceptable for the Company, as measured by earnings simulations. An initial
"baseline" simulation forecasts net interest income for the year assuming no
change in interest rates. To measure the potential variability of net interest
income due to variables beyond management's control, two additional simulations
are run which assume an increase and decrease in interest rates of 200 basis
points in one year. The Company's policy limits the negative variation from
baseline to not more than 10% from the baseline. The Company manages its
interest rate sensitivity position well within policy limits under normal
operating circumstances and at December 31, 1993 the Company was under 2%
variability in net interest income given the assumptions used in the model.
DERIVATIVE ACTIVITIES
The Company participated in various activities involving derivative products
during 1993 in an effort to generate additional noninterest income and to
effectively manage interest rate risk. These financial instruments include
interest rate swaps, options, and forward and futures contract commitments.
Interest rate swap agreements are entered into by the Company as a means of
managing interest rate exposure. These are contractual agreements between
counterparties to exchange interest streams based on notional principal amounts
over a set period of time. The notional amount does not represent an amount at
risk, but is used only as a basis for determining the actual cash flows related
to the interest rate contracts. The Company entered into interest rate swap
agreements during 1993 that contributed $684 thousand to interest income. As of
December 31, 1993, the Company had interest rate swap contracts with a total
notional value of $465 million. This amount is composed of agreements where the
Company receives fixed rates on notional amounts totaling $380 million with an
average rate of 3.81% and agreements where the Company pays fixed rates on
notional amounts totaling $85 million with an average rate of 6.51%. The cost
to replace these contracts if the counterparty defaults is $1.8 million. All
counterparties are AAA rated by Standard and Poors or have collateral
arrangements with the Company.
Option contracts allow the holder of the option to buy or sell a specific
financial instrument at a specified price during a specified time period. The
holder is not required to exercise the option. As a writer of options, the
Company's objective is to generate fee income or to adjust the yield on
specific securities. As of December 31, 1993, the Company did not have any
outstanding option contracts; however, the Company was a counterparty to
several short-term option contracts during 1993 and recognized $1.9 million in
premium income. At year-end 1992, the Company had outstanding option contracts
totaling $10 million and $200 million for year-end 1991.
Forward commitments are contracts for the delayed delivery of securities,
foreign currencies or money market instruments in which the seller agrees to
make delivery of a specified instrument at a specified future date and a
specified price or yield. Risks arise from the possibility that counterparties
may not have the ability to fulfill their commitments or from movements in
interest rates and security values. As of December 31, 1993, the contract
amounts for the forward commitments totaled $130 million compared to $84
million in 1992. The majority of these forward contracts represent agreements
to sell mortgage loans.
17
<PAGE> 18
TABLE 7 - MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES
(Dollars in Thousands)
The following table shows the maturities and weighted average yields of the
Company's securities available for sale and investment securities at December
31, 1993.
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------------------------------------------------------
Within After One Year But After Five Years But After Mortgage-Backed
One Year Within Five Years Within Ten Years Ten Years Securities
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES
AVAILABLE FOR SALE
U. S. Treasury
and other U. S.
Government
agencies $ -- --% $428,032 6.66% $365,011 6.25% $ -- --% $ -- --%
Obligations of states
and political
subdivisions -- -- -- -- -- -- 200 7.15 -- --
Mortgage-backed
securities -- -- -- -- -- -- -- -- $572,485 5.17
---------------------------------------------------------------------------------------------------------
Total securities
available
for sale -- -- 428,032 6.66 365,011 6.25 200 7.15 572,485 5.17
---------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES
U. S. Treasury
and other U. S.
Government
agencies 10,148 7.32 12,664 8.89 37,622 9.35% -- -- -- --
Obligations of states
and political
subdivisions 2,576 6.89 29,043 7.76 20,431 7.17% 57,445 8.54 -- --
Mortgage-backed
securities -- -- -- -- -- -- -- -- 137,356 9.89
Other securities 8,410 5.43 575 5.30 338 12.50% 250 6.00 -- --
---------------------------------------------------------------------------------------------------------
Total investment
securities 21,134 6.51 42,282 8.06 58,391 8.60% 57,695 8.53 137,356 9.89
---------------------------------------------------------------------------------------------------------
TOTAL SECURITIES
AVAILABLE FOR SALE
AND INVESTMENT
SECURITIES $ 21,134 6.51% $470,314 6.79% $423,402 6.58% $57,895 8.52% $709,841 6.08%
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Carrying
Amount
--------
<S> <C>
SECURITIES
AVAILABLE FOR SALE
U. S. Treasury
and other U. S.
Government
agencies $ 793,043
Obligations of states
and political
subdivisions 200
Mortgage-backed
securities 572,485
----------
Total securities
available
for sale $1,365,728
----------
INVESTMENT SECURITIES
U. S. Treasury
and other U. S.
Government
agencies 60,434
Obligations of states
and political
subdivisions 109,495
Mortgage-backed
securities 137,356
Other securities 9,573
----------
Total investment
securities 316,858
----------
TOTAL SECURITIES
AVAILABLE FOR SALE
AND INVESTMENT
SECURITIES $1,682,586
==========
</TABLE>
At December 31, 1993, the Company held investment securities issued by the State
of Mississippi with an aggregate carrying amount of $27.7 million and a market
value of $31.6 million. The yield on obligations of states and political
subdivisions has been calculated on a fully tax equivalent basis.
Futures contracts are similar in most aspects to forward contracts,
except margin accounts are maintained and daily settlements are required. The
Company utilized futures contracts in 1993 as a means of locking in price and/or
interest rates on securities and as hedges of interest rate swaps. The contract
designed to convert the fixed rate yield on $100 million of two-year U.S.
Treasury securities into a variable yield based on Libor. This instrument
matured in 1993. The Company had no outstanding futures contracts as of
December 31, 1993 compared to $333 million in 1992.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
The securities portfolio is the second largest component of interest-earning
assets at $1.7 billion at December 1993 compared to $1.6 billion at year-end
1992 and $1.7 billion at year-end 1991. The available for sale classification of
securities, established in 1992, includes all investment securities which
management believes are subject to sale prior to their contractual maturities.
This classification allows the Company to take advantage of significant changes
or anticipated changes in the direction and levels of interest rates as well as
changes in yield-curve and inter-market spread relationships. Additionally,
this portfolio is a secondary liquidity
18
<PAGE> 19
TABLE 8 - LOAN PORTFOLIO
(In Thousands)
Loans outstanding at the indicated dates are shown in the following table
classified by type of loan.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1993 1992 1991 1990 1989
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 712,522 $ 757,582 $ 886,079 $1,028,560 $ 804,369
Real estate - construction 70,506 81,320 91,718 136,918 147,338
Real estate - mortgage 1,051,752 929,966 840,303 799,345 675,089
Consumer 604,261 523,322 573,699 669,107 699,820
------------------------------------------------------------------
$2,439,041 $2,292,190 $ 2,391,799 $2,633,930 $2,326,616
==================================================================
</TABLE>
source and provides a balance to interest rate and credit risks in other
categories of the balance sheet.
Presently, securities in the available for sale classification are
recorded at the lower of cost or market. The Financial Accounting Standards
Board has issued SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" which changes the accounting for securities classified as
available for sale. These securities will be accounted for at fair value with
unrealized gains or losses excluded from earnings and reported as a separate
component of stockholders' equity, net of deferred income taxes. At December
31, 1993, had SFAS No. 115 been adopted, the impact on the consolidated
statement of condition would have been to increase stockholders' equity by
approximately $31.6 million, net of deferred income taxes. The Company will
adopt the Statement in the first quarter of 1994.
The investment securities portfolio consists of debt securities which
provide the Company with a long-term, relatively stable source of income with
minimal credit risk. Additions to the investment portfolio are made with the
intent to hold to maturity and are carried at amortized cost.
These two segments of the securities portfolio are managed to optimize
the long-term total return from this portion of the Company's assets.
Securities available for sale totaled $1.4 billion at December 31,
1993 compared to $1.0 billion at December 31, 1992. This classification
represented 81% of the combined securities portfolio in 1993 compared to 66% in
1992. This increase is indicative of the high level of liquidity in the
consolidated statement of condition due to the lower-than-desired yields versus
long-term targets available in the market place as these funds became available
for investing.
Average securities increased $88 million, or 5%, in 1993 and $199
million, or 14%, in 1992. As a percent of average interest-earning assets,
average investments increased to 39% in 1993, up from 38% in 1992 and 33% in
1991. Most of the purchases in 1993 were mortgage-backed securities, increasing
$135.2 million, and representing 42% of total investments compared to 37% in
1992 and 55% in 1991. The increase in 1993 was a result of interest rates being
lower than the Company's long-term targets; therefore, the Company purchased
floating rate mortgage-backed securities to position itself with the
flexibility to take advantage of a rise in interest rates, to optimize the
total return on the available for sale portfolio and to limit the volatility of
capital.
The majority of the purchases in 1992 were in U.S. Treasury and U.S.
Government agency securities maturing within two to seven years. U.S. Treasury
and U.S. Government agency securities represented 51% of total investments in
1993 compared to 54% in 1992 and 32% in 1991. This increase in the level of
short-term U.S. Treasury and U.S. Government agency securities over the three-
year period is due to a desire to keep relatively short maturities during a
period of generally lower rates.
Securities, excluding mortgage-backed securities, maturing within five
years or less at December 31, 1993, represented 51% of total securities
compared to 45% at December 31, 1992. Approximately 7% of the mortgage-backed
securities outstanding at year-end had durations of one year or less based on
prepayment rates prevailing at year-end 1993.
Securities exempt from Federal taxes represented 7% of the year-end
total portfolio in 1993 compared to 8% in 1992 and 12% in 1991. As securities
exempt from Federal taxes reached maturity, those securities were replaced in
the portfolio with tax exempt loans due to the unavailability of tax exempt
securities with desirable rates.
LOANS
Loans are the Company's largest and most profitable component of
interest-earning assets. Reversing a two-year trend of declining volumes, total
loans increased $147 million, or 6%, to $2.4 billion at December 31, 1993 from
the prior year-end. Average total loans grew only 1% in 1993 versus 1992 as all
the growth occurred in the latter part of the year. Average total loans
represented 53% of interest-earning assets in 1993, unchanged from 53% in 1992
and under 56% in 1991. The increase in loans was concentrated in consumer and
real estate
19
<PAGE> 20
TABLE 9 - LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(In Thousands)
The following table shows the amounts of loans, excluding consumer and real
estate mortgage loans, in certain categories outstanding as of December 31,
1993, which, based on remaining scheduled repayments of principal, are due in
the periods indicated. Also, the amounts due after one year are classified
according to their sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------------
After One But
Within One Year Within Five Years After Five Years Total
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, Financial and agricultural $482,285 $189,892 $40,345 $712,522
Real estate - construction 51,636 18,870 -- 70,506
-------------------------------------------------------------
$533,921 $208,762 $40,345 $783,028
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Interest Sensitivity
---------------------------------------
Fixed Rate Variable Rate Total
---------------------------------------
<S> <C> <C> <C>
Due after one, but within five years $ 91,916 $116,846 $208,762
Due after five years 15,933 24,412 40,345
---------------------------------------
$107,849 $141,258 $249,107
=======================================
</TABLE>
loans resulting in a loan portfolio mix at year-end 1993 of 46% real estate
loans, 29% commercial, financial, and agricultural loans, and 25% consumer
loans.
Diversification in the loan portfolio is a means of reducing the risks
associated with fluctuations in economic conditions. At December 31, 1993, the
Company had no concentrations of 10% or more of total loans in any single
industry. Geographically, the Company's loans are primarily in the Mississippi
and Louisiana markets with 75% of total loans located in Mississippi and 17% in
Louisiana.
Loans secured by real estate are the largest category of loans at $1.1
billion at year-end 1993. This loan portfolio is comprised of $525 million of
loans on one-to-four family residential properties including both loans held
for sale and held for investment, $61 million of loans on multi-family
properties, $412 million of loans to businesses for intermediate and longer
term financing of land and buildings, and $71 million of loans for construction
and land development. Additionally, this category contains various other loans
secured by real estate.
Real estate loans increased $111 million from year-end 1992 to 1993
following a $79 million increase in 1992. The increase in 1993 was largely the
result of a 14% increase in residential mortgage loans, of which approximately
half related to mortgage loans held for sale, and a 13% increase in nonfarm
nonresidential loans. Real estate construction loans decreased $8.7 million or
11% in 1993 following a $10.4 million or 11% decrease in 1992. At year-end
1993, 77% and 15% of the Company's real estate loans were located in Mississippi
and Louisiana, respectively. The Company will continue to emphasize
Mississippi- and Louisiana-based lending, concentrating on those markets
traditionally served by the Company.
One-to-four family residential property loans are underwritten to take
into consideration family incomes available to service debt, credit histories
and the value of the properties being financed. While this group is considered
low risk, it can be adversely impacted by economic recession or regional
economic patterns. Consequently, stability of family income and underlying real
estate values become important during economic downturns.
Loans to businesses for the financing of land and buildings are
underwritten taking into consideration the quantity and quality of the
business' cash flow, its future prospects and the property's value. Sufficient
margin in the financed property is required should repayment ability be
misjudged and the sale of the property becomes necessary to repay the loan.
Construction and land development loans are made in markets that the
Company is familiar with and to developers and builders who have a proven
record of success. These loans are underwritten through the use of feasibility
studies, sensitivity analysis of absorption rates and financial analysis of the
developers and its owners. Sources of repayment may be pre-committed permanent
loans, sales of developed properties or an interim or mini-permanent loan
commitment from the Company. These types of loans are closely monitored by
on-site inspections and architects' reports. They are considered more risky
than the other real estate loans due to their ultimate repayment being
sensitive to interest rate changes, general economic conditions and the
availability of long-term financing.
Commercial, financial and agricultural loans decreased to $713 million
at year-end 1993 from $758 million and $886 million at year-end 1992 and 1991,
respectively, as substantial growth in loans to small to medium sized companies
was more than offset by declines in large regional and national
20
<PAGE> 21
TABLE 10 - REAL ESTATE LOANS
(In Thousands)
The following table shows the composition of real estate loans outstanding at
December 31, 1993.
<TABLE>
<CAPTION>
Percent of Percent of
Balance Real Estate Loans Gross Loans
---------------------------------------------
<S> <C> <C> <C>
COMMERCIAL REAL ESTATE
Construction and land development $ 70,506 6.3% 2.9%
Multifamily 61,445 5.5 2.5
Nonfarm nonresidential 411,960 36.7 16.9
---------------------------------------------
543,911 48.5 22.3
---------------------------------------------
RESIDENTIAL AND FARMLAND
Residential 524,913 46.8 21.5
Farmland 53,434 4.7 2.2
---------------------------------------------
578,347 51.5 23.7
---------------------------------------------
$1,122,258 100.0% 46.0%
=============================================
</TABLE>
credits. The commercial, financial and agricultural loan portfolio is a diverse
group of loans to small, medium and large businesses. The purpose of these
loans vary from supporting seasonal working capital needs to the term financing
of equipment. These loans are underwritten by a thorough analysis of
management, financial condition and the business' ability to generate
sufficient cash flow to repay the debt in an orderly manner. While some of the
short-term loans may be made on an unsecured basis, most are secured by the
assets being financed with appropriate margins. Additionally, loans to closely
held corporations are generally guaranteed by their owners.
The Company utilizes various Federal and state loan guarantee programs
to provide credit enhancements for loans to small businesses. The use of these
programs enables financing to be provided in amounts and on terms which might
not be otherwise available to the small business.
The commercial loan portfolio is sufficiently diverse to minimize the
impact of a decline in a single industry. It is geographically concentrated in
Mississippi and Louisiana and therefore is exposed to the risk of a general
downturn in the economies of these two states.
Consumer loans increased $81 million or 15.5% from year-end 1992 to
year-end 1993 which was consistent with the Company's goal of increasing the
consumer loan portfolio as a percentage of total loans and compares to a
decrease of $50 million from year-end 1991 to year-end 1992.
The consumer loan portfolio is composed of instalment loans, home
equity loans, unsecured revolving credit products, and other similar types of
credit facilities. Instalment loans are made to consumers for a variety of
purposes -- from the purchase of automobiles to home improvements or vacation
loans. Home equity loans are revolving credit products or term loans which are
secured by a lien on the borrower's residence. Home equity loans have
guidelines for loan to value ratios which apply to each loan.
Consumer credits are underwritten using a computer based multiple
discriminant analysis which is commonly called credit scoring. This analysis
considers factors such as income, debt levels and credit history. This system
provides uniformity in the decision making process and better quality control
during the process.
Consumer loans are concentrated in Mississippi and Louisiana. They
would be adversely impacted by an economic recession or other conditions which
would affect consumer incomes.
The Company will continue to aggressively market credit products with
special emphasis on small businesses and consumers. Additionally, the Company
will continue to be sensitive to the needs of low- to moderate-income borrowers
and continue to expand the credit facilities tailored to their special needs.
An extensive branch network brings loan officers in close contact with small
business customers and consumers. The expanded use of government credit
enhancement programs is anticipated in order to improve the ability to meet the
needs of small businesses and differentiate the Company from competitors.
Consumer credit products will continue to be aggressively marketed and new ones
developed utilizing the high level of technology available.
The Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" in May 1993. SFAS No. 114
requires a creditor to measure impaired and restructured loans at the present
value of expected future cash flows, discounted at the loan's effective
21
<PAGE> 22
TABLE 11 - AVERAGE DEPOSITS
(In Thousands)
The daily average amounts of deposits for the periods indicated are summarized
in the following table.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Demand deposits $ 755,099 $ 694,772 $ 635,053
Savings deposits 1,497,249 1,428,639 1,350,291
Time deposits 1,615,321 1,753,516 2,005,619
---------- ---------- ----------
Total $3,867,669 $3,876,927 $3,990,963
========== ========== ==========
</TABLE>
TABLE 12 - TIME DEPOSITS OF $100,000 OR MORE, MATURITY DISTRIBUTION
(In Thousands)
Maturities of time certificates of deposit of $100 thousand or more outstanding
at December 31, 1993, are summarized in the following table.
Time remaining until maturity
<TABLE>
<S> <C>
3 months or less $123,401
Over 3 through 6 months 54,869
Over 6 through 12 months 27,989
Over 12 months 105,420
--------
Total $311,679
========
</TABLE>
interest rate. For purposes of this Statement, a loan is considered impaired
when it is probable that a creditor will be unable to collect all amounts due
according to the contractualterms of the loan agreement. SFAS No. 114 is
effective for fiscal years beginning after December 15, 1994 and adoption is
not expected to have a material impact on the consolidated financial statements.
DEPOSITS
Deposit liabilities are the Company's primary funding source for loans and
investments. The mix and repricing alternatives can significantly affect the
cost of this source of funds and therefore impact the margin. Strategies used
to manage deposit liabilities are designed to be flexible so that changes can be
made in consideration of interest rate movements and liquidity issues. Local
retail and commercial customers provide the majority of deposits to the
Company. Average deposits decreased $9 million in 1993 to $3.9 billion,
following a $114 million decrease from 1991 to 1992. The slight decline in
deposits was a result of the low interest rate environment which caused
customers to invest in higher-yielding nonbankinvestments.
Average time deposits, primarily long-term certificates of deposits,
decreased $138 million in 1993 compared to 1992. Average savings deposits and
average noninterest-bearing deposits increased $69 million and $60 million,
respectively, in 1993 compared to 1992. As interest rates have declined and
remained at relatively low levels, customers have moved the mix of deposits
from long-term certificates of deposits to shorter term deposits while waiting
to take advantage of increasing interest rates.
LIQUIDITY
Liquidity for a financial institution can be expressed in terms of maintaining
sufficient funds available to meet both expected and unanticipated obligations
in a cost effective manner. Adequate liquidity allows the Company to meet the
demands of both the borrower and the depositor on a timely basis, as well as to
pursue other business opportunities as they arise. Thus, liquidity is maintained
through the Company's ability to convert assets into cash, manage the maturities
of liabilities and generate funds on a short-term basis either through the
national Federal funds market, backup lines of credit, or through the national
CD market.
The consolidated statements of cash flows can be used to review the Company's
cash flows from operating, investing and financing activities. Cash and cash
equivalents decreased $38 million during 1993 to $294 million at December 31,
1993. Net cash provided by operating activities of $24.0 million for 1993 and
$65.7 million for 1992 included net income,adjusted for various noncash charges
to income, as well as changes in the balance of loans held for sale. The
decrease from 1993 to 1992 in cash provided by operations was primarily due to
an increase in mortgage loans held for sale.
22
<PAGE> 23
TABLE 13 - SHORT-TERM BORROWINGS
(Dollars in Thousands)
The following table presents a summary of the Company's short-term borrowings
at December 31 for each of the last three years by category and the
corresponding interest rates.
<TABLE>
<CAPTION>
Daily Average Maximum
December 31 Average Interest Month-End
Balance Balance Rate Balance
----------- -------- ---- --------
<S> <C> <C> <C> <C>
1993
Federal funds purchased and securities sold
under agreements to repurchase $504,475 $520,590 2.8% $572,783
Other short-term borrowings 5,021 4,631 2.6 5,995
--------- -------- ---
Total short-term borrowings $509,496 $525,221 2.8%
--------- -------- ---
1992
Federal funds purchased and securities sold
under agreements to repurchase $575,221 $509,246 3.2% $595,603
Other short-term borrowings 5,191 4,827 3.1 6,722
-------- -------- ---
Total short-term borrowings $580,412 $514,073 3.2%
-------- --------
1991
Federal funds purchased and securities sold
under agreements to repurchase $591,831 $451,077 5.4% $591,831
Other short-term borrowings 5,541 5,475 5.1 8,000
-------- -------- ---
Total short-term borrowings $597,372 $456,552 5.4%
-------- --------
</TABLE>
Investing activities, primarily in loans and securities, were a net
provider of cash during 1993 and 1992, as investing activities required
less funds due to a decline in short-term investments in 1993 and declines
in loans and securities in 1992.
Financing activities are the primary funding source ofinvesting activities
and primarily include the taking of deposits and use of purchased funds.
Financing activities for 1993 and 1992 had the effect of reducing cash flows by
$166.3 million in 1993 and $101 million in 1992, as total deposits and
purchased funds decreased in both years.
Short-term investments totaling $209 million and securities available for
sale which totaled $1.4 billion provide the major source of liquidity at
December 31, 1993. Cash flows from repayments and maturities from the loan
portfolio provide an additional source of liquidity.
The Company relies largely on core deposits to fund loan demand and
long-term investments. Core deposits, defined as total deposits less time
deposits of $100 thousand or more, have remained relatively stable, ending
the year at $3.6 billion which compares to $3.7 billion at the end of 1992.
Additional funding is provided from an established Federal funds market
within Mississippi, Louisiana and other contiguous states. Although the
Company prefers to meet liquidity requirements through internally generated
funding sources and through the matching of maturities of assets and
liabilities, it also maintains funding relationships with numerous other
financial institutions.
The parent company requires liquidity to pay dividends to its shareholders
and to meet operating expenses. Dividends paid by the parent company are
primarily funded from dividends received from its banking subsidiaries. The
dividends paid by the banking subsidiaries are subject to certain regulations
controlling national banks that restrict the amount of dividends that may be
distributed. The subsidiary banks have available for payment of dividends in
1994, without prior regulatory approval, $90.5 million plus their net profits
for 1994. The operating expenses of the parent company are primarily incurred
in providing management and other services for the subsidiaries and are
reimbursed monthly to provide the cash flow necessary for these operations.
From time to time the parent company uses short-term lines of credit and issues
long-term debt to meet acquisition and expansion needs. At December 31, 1993,
the parent company had no active lines of credit and had no long-term debt
outstanding.
CREDIT RISK MANAGEMENT
For several years, the Company has managed its asset quality by utilizing a
credit process that has as its basis the separation of the credit
administration function from the line lending function. This process
includes a system of loan committees to review and approve loans, a system
of credit quality review committees that monitors the progress of action
plans on loans
23
<PAGE> 24
TABLE 14 - ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars in Thousands)
The following table summarizes the activity in the allowance for possible
loan losses over the past five years.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses - beginning balance $ 74,856 $ 87,493 $ 88,862 $ 31,328 $ 29,321
Charge-offs:
Commercial, financial and agricultural 2,881 22,348 7,577 9,046 1,626
Real estate - construction 40 80 1,073 7,510 2,482
Real estate - mortgage 1,846 3,772 8,706 4,605 2,481
Consumer 5,375 7,708 13,579 19,061 15,018
---------- ---------- ---------- ---------- ----------
Total charge-offs 10,142 33,908 30,935 40,222 21,607
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural 5,164 2,037 2,476 1,271 895
Real estate - construction 1,398 803 302 565 729
Real estate - mortgage 2,077 2,723 3,403 2,182 1,000
Consumer 4,679 5,330 6,125 6,087 4,095
---------- ---------- ---------- ---------- ----------
Total recoveries 13,318 10,893 12,306 10,105 6,719
---------- ---------- ---------- ---------- ----------
Net charge-offs (recoveries) (3,176) 23,015 18,629 30,117 14,888
Provision for possible loan losses (16,000) 10,378 17,260 46,409 16,895
Addition due to acquisition -- -- -- 41,242 --
---------- ---------- ---------- ---------- ----------
Allowance for possible loan losses - ending balance $ 62,032 $ 74,856 $ 87,493 $ 88,862 $ 31,328
========== ========== ========== ========== ==========
Total loans outstanding:
End of period $2,418,585 $2,265,483 $2,339,281 $2,565,452 $2,266,326
========== ========== ========== ========== ==========
Average $2,293,416 $2,261,034 $2,411,731 $2,633,394 $2,202,348
========== ========== ========== ========== ==========
Ratios:
Allowance for possible loan losses to end of
period total loans 2.56% 3.30% 3.74% 3.46% 1.38%
Allowance for possible loan losses to net charge-offs NM 325 470 295 210
Allowance for possible loan losses to nonperforming loans 204 189 106 107 124
Net charge-offs (recoveries) to average total loans (.14) 1.02 .77 1.14 .68
Recoveries to prior year charge-offs 39.28 35.21 30.60 46.77 29.28
</TABLE>
Total charge-offs for 1993, 1992, 1991 and 1990 include $2.8 million, $9.2
million, $9.3 million and $11.5 million, respectively, for CNB.
Total recoveries for 1993, 1992, 1991 and 1990 include $5.4 million, $4.8
million, $6.1 million and $3.5 million, respectively, for CNB.
NM - Not meaningful
requiring special attention and an independent Loan Review Department which
reports to the Directors' Loan Review Committee. Additionally, there are
several senior credit officers in the Credit Administration Division
assigned to the various lending areas who work to ensure that the credit
process is carried out in accordance with the Company's credit
policies.Together, this credit process assists in the early identification
of problem or potential problem credits and assists in determining the
adequacy of the allowance for possible loan losses.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
In conjunction with the credit process, the Company maintains its allowance
for possible loan losses (allowance) at a level that is considered
sufficient to absorb potential losses in the loan portfolio. The allowance
is adjusted by the provision for possible loan losses (provision) and is
increased by recoveries of previously charged-off loans and decreased by
loan charge-offs. The provision is the adjustment necessary to maintain the
allowance at an adequate level. Various factors are taken into consideration
when the Company determines the amount of the provision and the adequacy of
the allowance. These factors include: 1) management's analysis of current
and future economic conditions and their anticipated impact on specific
borrowers; 2) the current level of classified and criticized assets and the
associated risk factors with each; 3) past due and nonperforming assets; 4)
the current level of the allowance in relation to total loans and to
historical and current loss levels; and 5) growth and composition of the
loan portfolio.
24
<PAGE> 25
TABLE 15 - ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars in Thousands)
The following table presents, for analysis purposes only, the allocation of the
allowance by loan categories with respect to individual credits, historical
losses, foreseeable economic conditions and other factors pertaining to
specific industries.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1993 1992 1991 1990
------------------- ------------------- ------------------- -------------------
Percent Loan Percent Loan Percent Loan Percent Loan
Of Gross Loss Of Gross Loss Of Gross Loss Of Gross Loss
Loans Allowance Loans Allowance Loans Allowance Loans Allowance
Out- Alloca- Out- Alloca- Out- Alloca- Out- Alloca-
standing tion standing tion standing tion standing tion
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural 29.2% $22,337 33.1% $29,852 37.2% $43,368 39.2% $34,161
Real estate -
construction 2.9 3,993 3.5 5,022 3.5 6,695 4.8 10,840
Real estate -
mortgage 43.1 13,596 40.4 20,987 35.1 19,080 30.3 16,950
Consumer 24.8 16,344 23.0 13,658 24.2 12,758 25.7 21,390
Unallocated -- 5,762 -- 5,337 -- 5,592 -- 5,521
------ ------- ------ ------- ------ ------- ------ -------
100.0% $62,032 100.0% $74,856 100.0% $87,493 100.0% $88,862
====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------
1989
---------------------
Percent Loan
Of Gross Loss
Loans Allowances
Out- Alloca-
standing tion
--------- ----------
<S> <C> <C>
Commercial, financial
and agricultural 34.4% $11,188
Real estate -
construction 6.3 3,681
Real estate -
mortgage 29.1 6,728
Consumer 30.2 753
Unallocated ------ -------
100.0% $31,328
====== =======
</TABLE>
During 1993, as a result of positive trends in economic conditions and
credit quality as well as management's assessment of the adequacy of the
allowance, the Company determined that no provision was necessary for
Deposit Guaranty National Bank (DGNB) and a reduction in the allowance of $16
million was necessary at Commercial National Bank (CNB). During 1992 and
1991, $10.4 million and $17.3 million, respectively, was charged to expense
for the provision. All four quarters of 1993 reflected charge-off levels
lower than experienced in recent years, resulting in the Company reflecting
recoveries in excess of charge-offs. Net recoveries were $3.2 million in
1993 compared to net charge-offs of $23.0 million in 1992 and $18.6 million
in 1991. Approximately $2.7 million in net recoveries in 1993 was
attributable to CNB compared to net charge-offs of $4.4 million in 1992 and
$3.2 million in 1991. Net recoveries for the Company were .14% of average
loans in 1993, compared to net charge-offs being 1.03% of average loans in
1992, and .78% in 1991.
The allowance at December 31, 1993 was $62.0 million or 2.56% of total
loans and 204% of nonperforming loans. While future losses are difficult to
predict, management believes that the current level of the allowance is
adequate to cover possible losses in the loan portfolio based on regulatory
examinations at both banks, the allowance methodology given the current and
expected economic climate, and the level of nonperforming assets. The
allowance at December 31, was $74.9 million or 3.30% of total loans and at
December 31, 1991 was $87.5 million or 3.74%.
NONPERFORMING ASSETS
The Company's nonperforming assets consist of loans on which interest is no
longer accrued (nonaccrual); certain restructured loans where the interest
rate or other terms have been materially changed due to the financial
condition of the borrowers (restructured); and other real estate. A loan is
placed on nonaccrual when management believes there is reasonable uncertainty
about the full collection of both principal and interest, or when the loan
is contractually past due ninety days or more and not well secured and in
process of collection.
Nonperforming assets showed considerable improvement by decreasing to
$43.7 million at year-end 1993 compared to $57.1 million at year-end 1992 and
$100.7 million at year-end 1991. The decreases in both banks are primarily
attributable to cash collections, property sales and restoration to performing
status, while a portion was also due to charge-offs. The year-end 1993 total
is comprised of $30.4 million of nonaccrual loans, $54 thousand of restructured
loans, and $13.3 million of other real estate.
DGNB's nonperforming assets decreased to $33.1 million at year-end 1993
from $38.2 million at year-end 1992 and $59.7 million in 1991. Nonperforming
loans increased slightly, from $25.2 million in 1992 to $25.6 million in 1993,
primarily due to the addition of one large credit of $12.1 million. Other real
estate decreased from $13.0 million at year-end 1992 to $7.5 million at
year-end 1993. CNB's nonperforming assets
25
<PAGE> 26
TABLE 16 - NONPERFORMING ASSETS
(In Thousands)
The amounts of the Company's nonperforming assets at the indicated dates
are shown in the following table.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $30,425 $39,456 $ 82,213 $82,916 $25,287
Restructured loans 54 249 240 289 29
------- ------- -------- ------- -------
Nonperforming loans 30,479 39,705 82,453 83,205 25,316
Other real estate 13,256 17,349 18,251 13,739 11,922
------- ------- -------- ------- -------
Nonperforming assets $43,735 $57,054 $100,704 $96,944 $37,238
======= ======= ======== ======= =======
Accruing loans past due 90 days or more $ 2,935 $ 3,670 $ 11,548 $16,538 $ 9,585
======= ======= ======== ======= =======
Ratios:
Nonperforming assets to loans plus other
real estate 1.80% 2.50% 4.27% 3.76% 1.63%
Nonperforming assets to total assets .89 1.14 1.99 1.97 .99
</TABLE>
Interest income of approximately $2.8 million on nonaccrual and
restructured loans at December 31, 1993, would have been recorded in 1993
if such loans had been in compliance with their original terms. Interest
income actually recorded on such loans in 1993 was $3.5 million.
In 1993, nonaccrual loans, restructured loans, other real estate and
accruing loans past due 90 days or more included $4.8 million, $54
thousand, $5.8 million and $502 thousand, respectively, for CNB. In 1992,
nonaccrual loans, restructured loans, other real estate and accruing loans
past due 90 days or more included $14.3 million, $208 thousand, $4.4
million and $356 thousand, respectively, for CNB. In 1991, nonaccrual
loans, restructured loans, other real estate and accruing loans past due 90
days or more included $36.0 million, $240 thousand, $4.8 million and $1.1
million, respectively, for CNB. In 1990, nonaccrual loans, restructured
loans, other real estate and accruing loans past due 90 days or more
included $31.0 million, $287 thousand, $4.7 million and $3.2 million,
respectively, for CNB.
decreased to $10.6 million at year-end 1993 from $18.8 million at year-end
1992 and $41.0 million in 1991. Nonperforming loans for CNB decreased from
$14.5 million to $4.8 million at year-end 1993. CNB's other real estate
increased from $4.4 million to $5.8 million due to the foreclosure of two
loans totalling approximately $2 million.
The Company had an additional $511 thousand of outstanding loans which
were not considered nonperforming at December 31, 1993, but whose borrowers,
in management's opinion at this time, are experiencing financial difficulties
severe enough that serious doubt exists as to the borrowers' continued
ability to comply with the present terms of these loans.
CAPITAL AND DIVIDENDS
Dividends paid by the Company are substantially provided from dividends
from the banking subsidiaries. The approval of the Comptroller of the
Currency is required if the total of all dividends declared by a national
bank in any calendar year exceeds the total of its net profits for that year
combined with its retained net profits of the preceding two years. At
December 31, 1993, the banking subsidiaries had available forpayment of
dividends to the Company, without approval of the Comptroller of the
Currency, approximately $90.5 million.
The Company's two sources of capital are internally generated capital
and the capital markets. Primary reliance historically has been on
internally generated capital. Net income for 1993, 1992 and 1991 added
$66.6 million, $45.5 million and $32.2 million, respectively, to capital.
Capital was further increased by $1.4 million with the issuance of 65,146
shares of common stock as a result of the exercise of executive stock
options. Capital was decreased by dividends of $16.4 million, $13.7 million
and $12.3 million declared in 1993, 1992, and 1991, respectively. Average
stockholders' equity to average assets for 1993 was 7.62% compared to 6.61%
in 1992 and 5.72% in 1991.
Under the risk-based capital guidelines adopted by the Federal Reserve
Board for bank holding companies such as the Company, the minimum ratio of
total capital to risk-weighted assets, including certain off-balance-sheet
items such as standby letters of credit (total capital), is 8%. At least
half of the total capital is to be comprised of common equity, retained
earnings, and a limited amount of noncumulative perpetual preferred stock,
certain other instruments, and a limited amount of allowance for possible
loan losses (tier I capital). Under these guidelines, the Company's tier I
and total capital ratios were 13.28% and 14.54%, respectively, at December
31, 1993 compared to 12.00% and 13.27%, at year-end 1992 and 9.95% and
12.11%, at year-end 1991.
The Comptroller of the Currency also has established risk-based
capital guidelines for national banks. These regulations
26
<PAGE> 27
are generally similar to those established by the Federal Reserve Board for
bank holding companies. The Company's strategy related to risk-based
capital is to maintain capital levels which will be sufficient to qualify
the Company's banking subsidiaries as "well capitalized" under the
guidelines set forth by FDICIA. Maintaining capital ratios at the "well
capitalized" level avoids certain restrictions which, for example, could
impact the Company's banking subsidiaries' FDIC assessments, trust services
and asset/liability management. At December 31, 1993, the tier I and total
capital ratios, respectively, for Deposit Guaranty National Bank were
12.23% and 13.49%, and for Commercial National Bank were 17.22% and
18.50%.These ratios are well above the minimum 6% and 10% levels required to
be categorized as a "well capitalized" insured depository institution.
The Federal Reserve Board and the Comptroller of the Currency have
established minimum leverage ratios for bank holding companies and national
banks, respectively, requiring such banking organizations to maintain tier
I capital of at least 3.00% of total assets (net of the allowance for
possible loan losses) less goodwill and other non-qualifying intangible
assets. FDICIA also established a minimum leverage ratio requirement of
5% for "well capitalized" institutions. The Company's leverage ratios for
December 31, 1993, 1992 and 1991 were 8.13%, 6.80% and 5.42%, respectively.
Leverage ratios for Deposit Guaranty National Bank and Commercial National
Bank at December 31, 1993 were 7.89% and 8.72%, respectively.
Capital adequacy is continuously monitored by the Company to ensure
that appropriate levels of capital are maintained to meet both current
operating needs and anticipated future requirements. The capital guidelines
play a crucial role in a banking organization's plans for business, asset
allocations, acquisitions, and expansion. Maintaining capital within these
guidelines is one of the ongoing challenges that bank management faces that
will significantly influence the manner in which business is conducted in
the 1990s.
OTHER OPERATING INCOME
The Company continues to emphasize the importance of growth in noninterest
related sources of income. The Company's strategy is to develop new sources
of noninterest related income and to reprice services and products to
reflect their related costs. Other operating income includes fees for trust
services, deposit service charges, mortgage loan servicing fees, income
from broker/dealer services and many other corporate and retail products.
During 1993, other operating income was $74.8 million compared to
$68.0 million in 1992, an increase of 10%. This increase can be attributed
largely to increases in service charges on deposit accounts, trust fees,
and other service charges, commissions and fees.
Service charges on deposit accounts increased approximately $2.5
million in 1993 as compared to 1992. This increase was primarily the result
of growth in business volumes and a $1.6 million reclassification of service
charge income on the deposit accounts of our customers utilizing our cash
management services. These fees have previously been inseparable from fees
from cash management services and were classified as other service charges,
commissions and fees. Therefore, other service charges, commissions and
fees were correspondingly reduced by this reclassication.
Fees for trust services increased $1.8 million in 1993 as compared to
1992. This increase was primarily the result of new trust business.
Other service charges, commissions and fees were $33 million in 1993
compared to $29.4 million in 1992. Income on futures and options contracts
increased $1.4 million in 1993 as compared to 1992, primarily as a result
of income recognized on expired call option contracts. The favorable
interest rate environment combined with expanded services and an emphasis
on sales contributed to an increase in broker/dealer income to $5.2 million
in 1993 from $3.1 million in 1992. Mortgage banking income increased $653
thousand in 1993 as compared to 1992 primarily due to mortgage brokerage
activities while mortgage loan servicing fees were essentially flat as the
loan servicing portfolio increased only slightly in 1993 to $1.7 billion as
prepayments on loans virtually offset loan originations. Partially
offsetting these increases was the reclassification of $1.6 million to
service charges on deposit accounts and a one-time fee of $1.1 million,
received in 1992 from the processor of the Company's official checks as a
result of their error in calculating fees in prior years.
Other income decreased approximately $1.1 million in 1993 as compared
to 1992. This decrease was primarily due to 1992 including gains totaling
$1.9 million resulting from the sale of stock warrants received from a
commercial borrower, the sale of leased assets, the liquidation of trust
assets held in conjunction with the Company's previously defeased capital
lease obligation and the repurchase and subsequent sale of a 21% ownership
share of G & W Life Insurance Company, a subsidiary of the Company. This
decrease was offset somewhat by a $500 thousand increase in miscellaneous
mortgage loan fee income in 1993.
Losses on sales of securities available for sale in 1993 were $102
thousand compared to a $346 thousand gain in 1992. Since the establishment of
the "available for sale" classification for securities in the fourth quarter
of 1992, no sales have been made out of the investment portfolio.
27
<PAGE> 28
Sales from the investment securities portfolio in the first nine months of
1992 resulted in net losses of $403 thousand.
During 1992, other operating income was $70.9 million compared to $64
million in 1991, an increase of 10.8%. This increase can be attributed
largely to increases in service charges on deposit accounts, other service
charges, commissions and fees and other income.
Service charges on deposit accounts increased approximately $1.8
million in 1992 as compared to 1991. This increase was primarily the result
of adjustments to fee schedules and an increase in the associated volume of
related activities.
Other service charges, commissions and fees were $29.4 million in 1992
compared to $24.8 million in 1991. Other service charges, commissions and
fees for 1992 includes the one-time fee of $1.1 million related to official
checks as previously discussed. Income from broker/dealer services
and mortgage loan servicing is included in other service charges, commissions
and fees. Broker/dealer income increased to $3.1 million in 1992 compared
to $2.0 million in 1991 primarily due to an increase in the volume of
services. Mortgage brokerage and servicing fees increased $1.2 million in
1992 compared to 1991 as the servicing portfolio grew from $1.4 billion at
year-end 1991 to $1.6 billion at year-end 1992. Other income increased to
$7.4 million in 1992 from $5.8 million in 1991. During 1992, the Company
recognized a gain of $550 thousand as a result of the repurchase and
subsequent resale of the 21% ownership share of G & W Life Insurance
Company not owned by the Company. Also reflected in other income in 1992 is
a gain of $520 thousand resulting from the disposal of stock warrants
received from a commercial borrower, a $406 thousand gain on the sale of
leased assets, and a gain of $446 thousand due to the liquidation of trust
assets held in conjunction with the Company's previously defeased capital
lease obligation.
Investment securities losses were $403 thousand in 1992 compared to a
$1.2 million gain in 1991. Gains on sales of securities available for sale
in 1992 were $346 thousand, with no comparable amounts for prior years as
this category of securities was not established until the fourth quarter of
1992.
OTHER OPERATING EXPENSE
Enhancing operational efficiency without sacrificing quality service for the
Company's customers continues to be a priority. The Company continues to
reorganize and refocus its resources whenever it can more effectively and
efficiently deliver products and services to our customers. A key measure used
in the banking industry to assess the level of noninterest expense is the
efficiency ratio, which is defined as noninterest expense divided by the sum
of taxable-equivalent net interest income plus noninterest income
(excluding gains on sales of assets and securities gains). Improvement in
the efficiency ratio is measured by a reduction in the percentage reported.
The efficiency ratios for 1993, 1992 and 1991 were 67.25%, 68.40%, and 69.26%,
respectively. This trend shows improvement as recurring revenues grew at
faster rates than did overhead expenses, and reflects the Company's
commitment to improve efficiency to a long-term goal of 60%. In order to
achieve this goal, the Company must continue to increase revenues,
primarily through loan growth and increased fee income, while controlling
expense growth within a minimal level.
The Company's other operating expense increased $7.1 million, or 4%,
to a total of $171.6 million for 1993. Salaries and employee benefits, which
accounts for 54% of other operating expense, increased $5.5 million from
1992 to $92.8 million in 1993. The increase in salary expense included $3.3
million in normal merit increases, $1.4 million in incentives, bonuses, and
commissions related to improved earnings and increased revenues in mortgage
originations and broker/dealer services, and $344 thousand in part-time and
temporary salaries due to increased mortgage loan originations. Employee
benefits increased $446 thousand as a result of an increase of $3.1 million in
interest expense for the deferred compensation plan, of which $2.2 million
relates to underaccruals in prior years. Partially offsetting this increase was
a decrease of $1.6 million in the retirement income plan due to changes in
assumptions in the pension plan and a decrease of $1.7 million in
postretirement benefits due to the adoption of SFAS No. 106 in 1992. The
adoption of SFAS No. 106 changed the method of accounting for
postemployment health care and life insurance benefits from the cash basis to
the full accrual basis. As a result of the immediate recognition of the
transition obligation during 1992, the cost of the plan for future years is
reduced.
Service fees decreased approximately $900 thousand from 1992 to 1993.
This reduction is primarily due to a decrease in loan servicing costs
related to improved credit quality and increased efficiency in the loan
collection process. Additionally, legal expenses related to the litigation
arising out of a Louisiana Housing Finance Agency Municipal Bond Issue for
which Commercial National Bank was trustee decreased. Offsetting these
decreases was an increase in professional fees related to the increased
cost of new trust business and other miscellaneous professional fees.
28
<PAGE> 29
The FDIC assessment was $8.7 million in 1993 compared to $8.8 million
in 1992. This reduction in the assessment was due to a slight decrease in
deposits from 1992 to 1993. The assessment rate for the Company's banking
subsidiaries is the lowest rate assessed.
Advertising and public relations expense increased $2.0 million. This
increase was the result of an increase of $2.3 million in donations,
contributions, and public relations of which $2 million was a special
contribution made at year-end 1993.
Other expense totaled $18.6 million in 1993 compared to $17.9 million
in 1992. This increase in other expense was primarily the result of an
increase of $1.4 million in the amortization of purchased mortgage
servicing rights due to increased paydowns of mortgage loans serviced by
the Company and an increase of $2.3 million in the cost of life insurance
policies. These increases were partially offset by a $3.7 million decrease
in other real estate expenses primarily due to a decrease in the allowance
for possible losses on other real estate and a decrease of $626 thousand in
the amortization of intangibles.
During 1992, other operating expense was $167.4 million compared to
$155.4 million in 1991. Salaries and employee benefits increased $8.6
million in 1992 compared to 1991. Of this increase, $1.9 million is
attributable to the adoption of SFAS No. 106. Service fees increased to
$11.7 million in 1992 from $11.5 million in 1991 largely as a result of an
increase in legal expenses related to the litigation arising out of a
Louisiana Housing Finance Agency Municipal Bond issue for which Commercial
National Bank was trustee. The FDIC assessment was $8.8 million in 1992
compared to $8.3 million in 1991. This increase was a result of increases
in the FDIC assessment rate which took place during 1991. Other expense
increased $1.7 million primarily as result of a $1.2 million increase in
the amortization of purchased mortgage servicing rights primarily due to
increased prepayments of the underlying mortgages.
INCOME TAXES
Income tax expense was $27.3 million in 1993, compared
to $14.3 million in 1992 and $10.1 million in 1991. The increase in tax
expense over the last two years results primarily from increased pre-tax
earnings. The Company's effective tax rate was 29% for 1993, and 24% for
1992 and 1991. These effective rates are much lower than the statutory
income tax rates, primarily due to tax exempt interest income received on
certain loans and debt securities. The increase in the effective tax rate
for 1993 is primarily a result of three factors. First is a significant
decline in the proportion of tax exempt income to total pretax income as
taxable income increased significantly while tax exempt income continued to
decline. Second is the 1% increase in the federal statutory rate. Finally,
the 1992 rate reflects an alternative minimum tax credit that was not
applicable in 1993.
The Company adopted SFAS No. 109 as of January 1, 1993. This statement
significantly changed the method by which companies account for deferred
income taxes for financial statement purposes. The emphasis in accounting
for deferred income taxes changes from an income statement approach to a
balance sheet approach, thereby ensuring the proper accrual of the
appropriate asset or liability for deferred taxes. In addition the
Statement allows companies to consider the likelihood of earning future
taxable income in recording deferred tax assets.
The cumulative effect of the adoption of the Statement was a benefit of
$657 thousand which is included in income tax expense from operations. In
addition an $11 million tax benefit was allocated to goodwill and other
noncurrent intangible assets as a result of adjustments for prior purchase
business combinations.
As noted above, the tax provision for the Company was calculated under
SFAS No. 109 for 1993. In 1992 and 1991 the tax provision for the Company
was calculated under APB Opinion No. 11. In 1992, income tax expense was
reduced by $2.5 million for an alternative minimum tax credit. The
difference between regular tax and alternative minimum tax for 1991 was $56
thousand. The alternative minimum tax is incurred only if it exceeds
regular tax in the current year, and a credit for the alternative minimum
tax may be carried forward to subsequent years to reduce the regular tax.
OUTLOOK
The Company's growth is closely linked to the growth of the market areas
which it serves. This is primarily the higher-growth areas of the State of
Mississippi and the Shreveport/ Bossier metropolitan area located in the
northwestern part of Louisiana. The Mississippi market area experienced
moderate growth during 1993 and continued improvement in economic activity
is expected during 1994. The Shreveport/Bossier economy experienced growth
in 1993 in certain economic sectors and we are encouraged by continued
growth prospects in 1994.
In 1993, increased demand deposit volumes and continued wide loan and
deposit rate spreads improved the net interest margin. The margin is not
expected to improve significantly again in 1994 as the effects of
increasing loan volumes are expected to be offset by the negative effects of
rising interest rates and narrowing spreads.
29
<PAGE> 30
Following two years of declining loan volumes, loans increased in 1993
and are expected to continue to grow in 1994. Loans to small businesses and
consumers are expected to continue to provide most of the increase, while
outstanding loans to large commercial borrowers will likely continue to
decline. Deposits are expected to grow more slowly than loans in the coming
year, primarily in interest-bearing categories. As a result, the investment
portfolio should decline as a percentage of earning assets but remain at a
level higher than desired.
Following two years of substantial improvements in loan quality,
continued improvement to a level within management's acceptable range is
expected in 1994. Fee income will continue to be emphasized in 1994 as
growth in net interest income slows. New sources of income will continue to
be examined and developed and volumes of existing business will grow due to
a Company wide focus on sales. This category of earnings is expected to
grow at a faster rate than the overall economy and at a faster rate than
operating expenses. Expense control remains a focus as the Company
continues its efforts to improve its efficiency. Ongoing review of product
line and market area profitability is expected to point out areas where
improvements can be made which will favorably affect future long-term
profitability.
BUSINESS
The Company is a multi-bank holding company headquartered in Jackson,
Mississippi. The Company and its subsidiaries engage only in the general
banking business and activities closely related to banking, as authorized
by the banking laws of the United States and the regulations issued
pursuant thereto. The Company offers complete banking and trust services to
the commercial, industrial and agricultural areas which it serves through
its two banking subsidiaries, Deposit Guaranty National Bank and Commercial
National Bank.
Deposit Guaranty National Bank, a 98%-owned banking subsidiary, is
located throughout Mississippi with 101 branches. Commercial National
Corporation, a 100%-owned subsidiary, and its banking subsidiary, Commercial
National Bank, are located in Shreveport, Louisiana. Commercial National
Bank has 11 branches in the Shreveport/Bossier market.
Deposit Guaranty National Bank owns and operates Deposit Guaranty
Mortgage Company, a Mississippi business corporation. The Mortgage Company
acts as a mortgage banker and engages in mortgage lending, brokerage and
servicing in Mississippi and the North Louisiana market. The Mortgage
Company, with a loan servicing portfolio of approximately $1.7 billion, is
one of the largest mortgage servicers in Mississippi.
The Company provides investment advice and brokerage services through
its two subsidiaries, Deposit Guaranty Investments, Inc., a subsidiary of
Deposit Guaranty National Bank, and Commercial National Brokerage Services,
Inc., a subsidiary of Commercial National Bank.
The Company provides credit insurance related to extensions of credit
by the Company through G&W Life Insurance Company, a 79%-owned subsidiary.
DIVIDEND AND MARKET INFORMATION
The Company's common stock is traded in the over-the-counter market under
the NASDAQ symbol "DEPS" and is quoted on NASDAQ's National Market System.
The following table sets forth the range of the high and low prices of the
common stock, as reported by NASDAQ, and the dividends declared per share
for the periods indicated.
<TABLE>
<CAPTION>
Prices
Dividends --------------
Per Share High Low
--------- ---- ---
<S> <C> <C> <C>
1993
First Quarter $.215 $31.00 $26.50
Second Quarter .215 35.75 26.50
Third Quarter .25 32.25 28.75
Fourth Quarter .25 33.00 27.00
1992
First Quarter $.195 $18.88 $16.63
Second Quarter .195 21.75 17.63
Third Quarter .195 22.38 20.50
Fourth Quarter .215 27.00 21.25
</TABLE>
The Company declared a two-for-one stock split in 1992. All shares
outstanding and per share results are calculated assuming the split
occurred at the beginning of the earliest period presented.
It is the present intention of the Board of Directors to continue the
payment of cash dividends on the common stock on a quarterly basis,
dependent on future earnings, the financial condition of the Company, the
assessment of future capital needs of the Company and such other factors as
the Board of Directors may deem relevant. As a bank holding company, the
Company's ability to pay dividends is to a great extent dependent upon
dividend payments it receives from its subsidiaries, which dividend
payments are subject to the limitations described in the notes to the
consolidated financial statements. On February 25, 1994, there were 5,933
stockholders of record of the Company's common stock.
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF CONDITION
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
------ ------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . $ 293,894 $ 331,905
Interest-bearing bank balances . . . . . . . . . . . . . . . 70,000 185,096
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . . . . 208,140 444,510
Trading account securities . . . . . . . . . . . . . . . . . 596 2,426
Securities available for sale
(market value: 1993 - $1,416,120; 1992 - $1,059,713) . . . 1,365,728 1,030,642
Investment securities
(market value: 1993 - $350,451; 1992 - $563,308) . . . . . 316,858 527,629
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,439,041 2,292,190
Less: Unearned income . . . . . . . . . . . . . . . . . . (20,456) (26,707)
Allowance for possible loan losses . . . . . . . . . (62,032) (74,856)
---------- ----------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . 2,356,553 2,190,627
Bank premises and equipment . . . . . . . . . . . . . . . . . 125,506 117,703
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 160,805 163,893
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $4,898,080 $4,994,431
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . $ 875,288 $ 915,804
Interest-bearing . . . . . . . . . . . . . . . . . . . . 3,045,853 3,086,165
---------- ----------
Total deposits . . . . . . . . . . . . . . . . . . . . 3,921,141 4,001,969
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings . . . . . . . . . . . . . 509,496 580,412
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 71,555 67,726
---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 4,502,192 4,650,107
========== ==========
STOCKHOLDERS' EQUITY
Cumulative preferred stock, no par value,
authorized: 10,000,000 shares of class A
voting; and 10,000,000 shares of class B
non-voting; issued and outstanding: none . . . . . . . . . -- --
Common stock, no par value, authorized
50,000,000 shares; issued and outstanding:
1993 - 17,667,852 shares; 1992 - 17,602,706 shares . . . . 19,383 19,312
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,399 154,041
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 221,106 170,971
---------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . 395,888 344,324
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . $4,898,080 $4,994,431
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE> 32
CONSOLIDATED STATEMENTS OF EARNINGS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . $180,246 $185,301 $228,198
Interest on investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . 25,116 91,210 107,355
Exempt from Federal income tax . . . . . . . . . . . . 9,062 11,894 16,208
Interest on securities available for sale:
Taxable . . . . . . . . . . . . . . . . . . . . . . . 74,167 18,062 --
Exempt from Federal income tax . . . . . . . . . . . . 211 118 --
Interest on trading account securities . . . . . . . . . 217 208 259
Interest on Federal funds sold and securities
purchased under agreements to resell . . . . . . . . . 8,576 10,913 23,179
Interest on bank balances . . . . . . . . . . . . . . . . 1,732 4,408 7,233
----------- ----------- -----------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . 299,327 322,114 382,432
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . . 110,195 138,264 204,557
Interest on Federal funds purchased, securities
sold under agreements to repurchase and other
short-term borrowings . . . . . . . . . . . . . . . . 14,492 16,632 24,814
Interest on long-term debt . . . . . . . . . . . . . . . -- 563 2,102
----------- ----------- -----------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . 124,687 155,459 231,473
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . 174,640 166,655 150,959
Provision for possible loan losses . . . . . . . . . . . (16,000) 10,378 17,260
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES . . . . . . . . . . . . . . . . . 190,640 156,277 133,699
----------- ----------- -----------
OTHER OPERATING INCOME
Service charges on deposit accounts . . . . . . . . . . . 25,611 23,082 21,249
Fees for trust services . . . . . . . . . . . . . . . . . 12,902 11,078 10,885
Investment securities gains (losses) . . . . . . . . . . -- (403) 1,231
Securities available for sale gains (losses) . . . . . . (102) 346 --
Other service charges, commissions and fees . . . . . . . 32,986 29,424 24,820
Other income . . . . . . . . . . . . . . . . . . . . . . 3,384 4,450 3,254
----------- ----------- -----------
TOTAL OTHER OPERATING INCOME . . . . . . . . . . . . . 74,781 67,977 61,439
----------- ----------- -----------
OTHER OPERATING EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . 92,785 87,301 78,664
Net occupancy expense . . . . . . . . . . . . . . . . . . 11,587 11,389 11,046
Equipment expense . . . . . . . . . . . . . . . . . . . . 12,676 12,844 13,569
Service fees . . . . . . . . . . . . . . . . . . . . . . 10,817 11,708 11,468
Communication . . . . . . . . . . . . . . . . . . . . . . 7,332 7,297 7,259
FDIC assessment . . . . . . . . . . . . . . . . . . . . . 8,667 8,846 8,268
Advertising and public relations . . . . . . . . . . . . 9,097 7,136 5,988
Other expense . . . . . . . . . . . . . . . . . . . . . . 18,606 17,949 16,566
----------- ----------- -----------
TOTAL OTHER OPERATING EXPENSE . . . . . . . . . . . . 171,567 164,470 152,828
----------- ----------- -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 93,854 59,784 42,310
Income tax expense . . . . . . . . . . . . . . . . . . . 27,302 14,270 10,090
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 66,552 $ 45,514 $ 32,220
=========== =========== ===========
NET INCOME PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . $ 3.77 $ 2.67 $ 2.04
Fully diluted . . . . . . . . . . . . . . . . . . . . 3.77 2.63 1.93
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . . 17,649,852 17,033,664 15,799,996
Fully diluted . . . . . . . . . . . . . . . . . . . . 17,649,852 17,465,282 17,442,388
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE> 33
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK SURPLUS EARNINGS
----- ------- --------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 . . . . . . . . . . . . . . . $ 17,332 $129,139 $119,237
Net income for 1991 . . . . . . . . . . . . . . . . . . . -- -- 32,220
Cash dividends declared ($.78 per share) . . . . . . . . -- -- (12,323)
-------- -------- --------
BALANCE, DECEMBER 31, 1991 . . . . . . . . . . . . . . . 17,332 129,139 139,134
Net income for 1992 . . . . . . . . . . . . . . . . . . . -- -- 45,514
Cash dividends declared ($.80 per share) . . . . . . . . -- -- (13,677)
Conversion of debentures into 1,642,242
shares of common stock . . . . . . . . . . . . . . . . 1,804 22,094 --
Issuance of 160,468 shares of common stock
under executive stock option plan . . . . . . . . . . 176 2,301 --
Tax benefit from exercise of stock options . . . . . . . -- 507 --
-------- -------- --------
BALANCE, DECEMBER 31, 1992 . . . . . . . . . . . . . . . 19,312 154,041 170,971
Net income for 1993 . . . . . . . . . . . . . . . . . . -- -- 66,552
Cash dividends declared ($.93 per share) . . . . . . . . -- -- (16,417)
Issuance of 65,146 shares of common stock
under executive stock option plan . . . . . . . . . . 71 943 --
Tax benefit from exercise of stock options . . . . . . . -- 415 --
-------- -------- --------
BALANCE, DECEMBER 31, 1993 . . . . . . . . . . . . . . . $ 19,383 $155,399 $221,106
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,552 $ 45,514 $ 32,220
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Provision for possible loan losses . . . . . . . . . . . . . . (16,000) 10,378 17,260
Provision for possible losses on other real estate . . . . . . (2,929) 1,183 2,174
Provision for depreciation and amortization . . . . . . . . . 24,091 20,014 19,289
Provision for deferred income tax expense (benefit) . . . . . 3,847 2,082 (1,911)
Accretion of discount on investment securities, net . . . . . (1,278) (3,598) (13,872)
Amortization of premium on securities available for sale, net 1,440 -- --
Deferred loan fees and costs . . . . . . . . . . . . . . . . . (2,943) (2,126) (1,319)
Increase (decrease) in other liabilities . . . . . . . . . . . (4,963) 2,728 (10,889)
(Increase) decrease in other assets . . . . . . . . . . . . . (8,478) 6,985 (20,269)
Net cash paid for loans held for sale . . . . . . . . . . . . (37,855) (17,467) (28,114)
(Gain) loss on sale of investment securities . . . . . . . . . -- 403 (1,231)
(Gain) loss on sale of securities available for sale . . . . . 102 (346) --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 2,379 (97) 1,001
--------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES . . . . . 23,965 65,653 (5,661)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances . . . 115,096 (85,372) 25,283
Proceeds from sales of investment securities . . . . . . . . . . -- 81,834 156,841
Proceeds from sales of securities available for sale . . . . . . 454,696 37,242 --
Proceeds from maturities of investment securities . . . . . . . 231,452 492,913 277,807
Proceeds from maturities of securities available for sale . . . 319,016 -- --
Purchases of investment securities . . . . . . . . . . . . . . . (21,279) (499,754) (824,276)
Purchases of securities available for sale . . . . . . . . . . . (1,108,470) -- --
Net increase (decrease) in Federal funds sold and securities
purchased under agreements to resell . . . . . . . . . . . . . 236,370 (45,846) (35,690)
Net (increase) decrease in loans . . . . . . . . . . . . . . . . (112,807) 61,137 219,775
Proceeds from sales of other real estate . . . . . . . . . . . . 11,648 9,023 12,274
Purchases of bank premises and equipment . . . . . . . . . . . . (21,331) (9,618) (9,656)
Proceeds from sales of bank premises and equipment . . . . . . . 36 177 425
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 550 --
--------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES . . . . . 104,427 42,286 (177,217)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits . . . . . . . . . . . . . . (80,718) (73,512) 65,737
Net increase (decrease) in Federal funds purchased, securities
sold under agreements to repurchase, and other
short-term borrowings (70,916) (16,960) 87,895
Proceeds from exercise of stock options . . . . . . . . . . . . 1,014 2,477 --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . (15,783) (12,974) (12,323)
--------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES . . . . . (166,403) (100,969) 141,309
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS . . . . . . (38,011) 6,970 (41,569)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR . . . . . . . . . 331,905 324,935 366,504
--------- --------- ---------
CASH AND DUE FROM BANKS AT END OF YEAR . . . . . . . . . . . $ 293,894 $ 331,905 $ 324,935
========= ========= =========
</TABLE>
INCOME TAXES:
The Company made income tax payments of $23.6 million, $13.6 million and $16.4
million during years ended December 31, 1993, 1992 and 1991, respectively.
INTEREST:
The Company paid $127.6 million, $162.0 million and $240.8 million in interest
on deposits and other borrowing during the years ended December 31, 1993, 1992
and 1991, respectively.
CONVERTIBLE DEBT:
During 1992, $24.0 million of the Company's convertible subordinated debentures
were redeemed for 1,642,242 shares of common stock.
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
BUSINESS
The Company and its subsidiaries are engaged only in the general banking
business and activities closely related to banking and provide these services
primarily to customers in Mississippi and Louisiana through its banking
subsidiaries. The Company is subject to the regulations of certain federal
agencies and undergoes periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, the Company is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the dates of
the statements of condition and the reported amounts of revenues and expenses
for the years then ended. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
possible loan losses and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for possible loan losses and real estate
owned,the Company obtains independent appraisals for significant properties.
The Company believes that the allowances for possible loan losses and
real estate owned are adequate. While the Company uses available information to
recognize losses on loans and real estate owned, future adjustments to the
allowances may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowances for possible loan losses
and real estate owned. Such agencies may require the Company to recognize
adjustments to the allowances based on their judgments about information
available to them at the time of their examination.
ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements of the Company include Deposit Guaranty
National Bank (98%-owned subsidiary), G & W Life Insurance Co. (79%-owned
subsidiary) and Commercial National Corporation (CNC) (a wholly-owned
subsidiary). All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH FLOWS
For the purposes of the statements of cash flows, the Company considers only
cash and amounts due from banks to be cash equivalents.
TRADING ACCOUNT SECURITIES
Trading account securities are carried at market. Gains or losses on trading
account securities are reflected in other operating income.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
Securities held which are available to be sold prior to maturity are classified
as securities available for sale. These securities are stated at the lower of
cost, adjusted for amortization of premiums and accretion of discounts using
the interest method, or market value. Adjustments to market and gains or losses
on the sale of these securities are classified as gains (losses) on securities
available for sale in other operating income.
Investment securities are securities which the Company has the positive
intent and ability to hold to maturity. Investment securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts using
the interest method.
The amortization of premiums and discounts on mortgage-backed
securities is periodically adjusted to reflect the actual prepayment experience
of the underlying mortgage loans. Gains and losses on sales are computed based
on the carrying value of the specific securities sold.
INTEREST AND FEES ON LOANS
Interest on loans is recognized based on the interest method. The recognition
of interest is suspended (nonaccrual) on commercial loans when principal or
interest is past due ninety days or more and collateral is inadequate to cover
principal and interest or when, in the opinion of management, full collection
is unlikely. Interest on such loans is subsequently recognized only in the
period in which payments are received,and in certain situations, such payments
are applied to reduce principal when loans are unsecured or collateral values
are deficient. A nonaccrual loan is returned to accrual status provided all
principal and interest amounts are reasonably assured of repayment within a
reasonable period and the borrower has demonstrated sustained
payment performance. Nonrefundable loan fees are deferred and recognized as
income over the life of the loan as an adjustment of the yield. Commitment fees
are deferred and recognized as noninterest income over the commitment period.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained at a level considered
adequate to provide for reasonably foreseeable potential losses on loans. The
allowance is based on management's evaluation of the loan portfolio considering
economic conditions, volume and composition of the loan portfolio, past
experience and other relevant factors.
OTHER REAL ESTATE OWNED
Other real estate owned includes assets that have been acquired in
satisfaction of debt or substantively repossessed (in-substance foreclosures).
In-substance foreclosures include properties in the process of foreclosure
and/or where the borrowers have effectively abandoned control of the
properties.
35
<PAGE> 36
Other real estate owned is reported in other assets and is recorded at
the lower of cost or estimated fair value less estimated costs to sell. Any
valuation adjustments required prior to foreclosure are charged to the
allowance for possible loan losses. Subsequent to acquisition, losses on the
periodic revaluation of the property are charged to current period earnings as
other operating expense. Costs of operating and maintaining the properties, net
of related income and gains (losses) on their disposition, are charged to other
operating expense as incurred. Expenditures to complete or improve properties
are capitalized if the expenditures are expected to be recovered upon the
ultimate sale of the property.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost. Depreciation and amortization
are computed principally using the straight-line method over the estimated
useful lives of the assets. Any gain or loss resulting from disposition is
included in other income. Expenditures for maintenance and repairs are
charged against income and renewals and betterments are capitalized.
INTEREST RATE RELATED CONTRACTS
The Company periodically enters interest rate swaps, futures, options and
forward contracts as part of its overall interest rate risk management
strategy. Gains and losses on these contracts that qualify as hedges are
treated in a manner consistent with the treatment of gains and losses on the
instrument they are intended to hedge. Other such contracts are carried at
market value and changes in market value are recognized currently in other
operating income.
POSTRETIREMENT BENEFITS
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", which changes the method of accounting for
postemployment health care and life insurance benefits from the
pay-as-you-go (cash) basis to the full accrual method which recognizes the cost
of providing the benefits over the active service period of the employee. As
permitted by the Statement, the Company immediately recognized the
postretirement benefit transition obligation. The cumulative effect of this
change was to decrease net income by $1.3 million in 1992 and decrease both
primary and fully diluted net income per share by $.08.
INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes" as of January
1, 1993. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized as income or
expense in the period that includes the enactment date.
Pursuant to the deferred method under APB Opinion No. 11, which was
applied in years prior to 1993, deferred income taxes were recognized for
income and expense items that were reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable for the
year of the calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
Prior years' financial statements have not been restated to apply the
provisions of SFAS No. 109. The cumulative effect of this change in accounting
for income taxes is a benefit of $657 thousand and an increase to both primary
and fully diluted net income per share of $.04 and has been recorded in the
1993 tax expense.
NET INCOME PER SHARE
Primary net income per share is based on the weighted average number of shares
outstanding during each year.
Fully diluted net income per share is based on the assumed conversion
of the previously redeemed convertible subordinated debentures into shares of
common stock. This assumption gives effect to the elimination of interest
expense on these debentures, less income tax effect.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the 1993
presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" in November 1992. SFAS No. 112
establishes standards for accounting and reporting the cost of benefits
provided by an employer to its former or inactive employees after employment
but before retirement. SFAS No. 112 will require an employer to recognize an
obligation for such benefits if certain conditions are met. This Statement is
effective for fiscal years beginning after December 15, 1993 and will have an
immaterial impact on the consolidated financial statements.
The Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" in May 1993. SFAS No. 114
requires a creditor to measure impaired and restructured loans at the present
value of expected future cash flows, discounted at the loan's effective
interest rate. For purposes of this Statement, a loan is considered impaired
when it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. SFAS No. 114 is
effective for fiscal years beginning after December 15, 1994, and adoption is
not expected to have a material impact on the consolidated financial
statements.
36
<PAGE> 37
The Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" in May 1993.
SFAS No. 115 addresses the accounting and reporting for marketable equity
securities and all debt securities. Those investments are to be classified into
three categories and accounted for as follows: securities held-to-maturity
reported at amortized cost; trading securities reported at fair value with
unrealized gains and losses included in earnings; and securities available for
sale reported at fair value with unrealized gains and losses excluded from
earnings and reported as a separate component of stockholders' equity.
SFAS No. 115 is effective for fiscal years beginning after December
15, 1993 and is required to be reflected prospectively. Under previously
existing accounting literature, the Company currently classifies securities
according to SFAS No. 115 and accounts for securities held-to-maturity and
trading securities according to the Statement. Securities available for sale
are currently accounted for at the lower of cost or market with aggregate
unrealized losses, if any, included in earnings. With the adoption of SFAS No.
115,the Company will change the accounting for securities available for sale,
and at December 31, 1993, had SFAS No. 115 been adopted, the impact on the
consolidated statement of condition would have been to increase stockholders'
equity by approximately $31.6 million, net of deferred income taxes.
NOTE 2 - CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances with the Federal
Reserve Bank based on a percentage of deposits. The average amount of those
reserves for the year ended December 31, 1993, was approximately $52 million.
NOTE 3 - ACQUISITIONS
On December 13, 1993, the Company commenced a tender offer for any and all
outstanding shares of First Columbus Financial Corporation (FCFC) for $203.50
per share. When the tender offer closed in late January 1994, the Company had
acquired the right to purchase approximately 99% of the shares. It is the intent
of the Company to acquire FCFC and merge FCFC into the Company and FCFC's
wholly owned subsidiary, First Columbus National Bank, into Deposit Guaranty
National Bank. At December 31, 1993, FCFC had total assets of $209 million. The
acquisition will be accounted for as a purchase and is subject to the approval
of the Federal Reserve Board.
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
Effective October 1, 1992, securities which may be sold prior
to maturity are classified as securities available for sale and
are stated at the lower of amortized cost or aggregate market
value. The amortized cost and estimated market value of
securities available for sale follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
SECURITIES GROSS GROSS ESTIMATED
AVAILABLE AMORTIZED UNREALIZED UNREALIZED MARKET
FOR SALE COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1993
U.S. Treasury
and other U.S.
Government
agencies . . . . . $ 793,043 $42,718 $ (492) $ 835,269
Obligations of
states and
political sub-
divisions . . . . 200 21 -- 221
Mortgage-backed
securities . . . . 572,485 8,620 (475) 580,630
---------- ------- ------- -------
$1,365,728 $51,359 $ (967) $1,416,120
========== ======= ======= ==========
1992
U.S. Treasury
and other U.S.
Government
agencies . . . . . $ 758,785 $21,925 $(1,790) $ 778,920
Obligations of
states and
political sub-
divisions . . . . 3,737 141 -- 3,878
Mortgage-backed
securities . . . . 268,120 8,899 (104) 276,915
---------- ------- ------- ----------
$1,030,642 $30,965 $(1,894) $1,059,713
========== ======= ======= ==========
</TABLE>
The amortized cost and estimated market value of securities available
for sale at December 31, 1993, by contractual maturity, are shown below (in
thousands). 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.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
ESTIMATED
SECURITIES AVAILABLE AMORTIZED MARKET
FOR SALE COST VALUE
--------- ---------
<S> <C> <C>
Due after one year through
five years . . . . . . . . . . . $ 428,032 $ 453,211
Due after five years through
ten years . . . . . . . . . . . 365,011 382,058
Due after ten years . . . . . . . . 200 221
---------- ----------
793,243 835,490
---------- ----------
Mortgage-backed securities . . . . 572,485 580,630
---------- ----------
$1,365,728 $1,416,120
========== ==========
</TABLE>
37
<PAGE> 38
Gross gains of $1.1 million and $1.3 million and gross losses of $1.2
million and $1.0 million were realized on sales of securities available for
sale in 1993 and 1992, respectively.
The amortized cost and estimated market value of investment securities
follow (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
GROSS GROSS ESTIMATED
INVESTMENT AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1993
U.S. Treasury
and other U.S.
Government
agencies . . . . $ 60,434 $ 9,160 $ (2) $ 69,592
Obligations of
states and
political sub-
divisions . . . 109,495 13,084 (1) 122,578
Mortgage-backed
securities . . . 137,356 11,343 (24) 148,675
Other
securities . . . 9,573 35 (2) 9,606
--------- -------- ------- --------
$ 316,858 $ 33,622 $ (29) $350,451
========= ======== ======= ========
1992
U.S. Treasury
and other U.S.
Government
agencies . . . $ 87,943 $ 7,657 $ (1) $ 95,599
Obligations of
states and
political sub-
divisions . . . 120,391 11,747 (64) 132,074
Mortgage-backed
securities . . . 306,492 16,331 (53) 322,770
Other
securities . . . 12,803 63 (1) 12,865
--------- -------- ------- --------
$ 527,629 $ 35,798 $ (119) $563,308
========= ======== ======= ========
</TABLE>
The amortized cost and estimated market value of investment securities
at December 31, 1993, by contractual maturity, are shown below (in thousands).
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
ESTIMATED
INVESTMENT AMORTIZED MARKET
SECURITIES COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less . . . . . . . . $ 21,134 $ 21,393
Due after one year through
five years . . . . . . . . . . . . . 42,282 44,609
Due after five years through
ten years . . . . . . . . . . . . . 58,391 68,744
Due after ten years . . . . . . . . . . 57,695 67,030
-------- --------
. . . . . . . . . . . . . . . . . . 179,502 201,776
Mortgage-backed securities . . . . . . 137,356 148,675
-------- --------
$316,858 $350,451
======== ========
</TABLE>
Gross gains of $908 thousand and gross losses of $1.3 million were
realized on sales of investment securities in 1992. No sales of investment
securities took place subsequent to reclassification of certain securities as
available for sale on October 1, 1992. Gross gains of $3.2 million and gross
losses of $2.0 million were realized on sales of investment securities in 1991.
Securities available for sale and investment securities with a
carrying amount of $846.4 million (market value $889.9 million) at December 31,
1993, and $865.3 million (market value $907.3 million) at December 31, 1992,
were pledged to secure public and trust deposits, for repurchase agreements,and
for other purposes.
NOTE 5 - LOANS
The Company makes commercial, financial, agribusiness, real estate and consumer
loans to customers. Although the Company has a diversified loan portfolio, a
substantial portion of its loan portfolio is concentrated in the states of
Mississippi and Louisiana. The loan portfolio also includes loans held for
sale at December 31, 1993 and 1992 of $136.7 million and $98.9 million,
respectively. The Company services mortgage loans for others and at December
31, 1993, 1992 and 1991 the loan servicing portfolio approximated $1.7 billion,
$1.6 billion and $1.4 billion, respectively. The composition of the loan
portfolio follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
----------- -----------
<S> <C> <C>
Commercial, financial
and agricultural . . . . . . . . $ 712,522 $ 757,582
Real estate - construction . . . . 70,506 81,320
Real estate - mortgage . . . . . . 1,051,752 929,966
Consumer . . . . . . . . . . . . . 604,261 523,322
---------- ----------
Total loans . . . . . . . . . . . . $2,439,041 $2,292,190
========== ==========
</TABLE>
In the ordinary course of business, the Company makes loans to its
directors and principal officers of its subsidiaries, as well as other related
parties. In the opinion of management, such loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other parties. A summary of changes in
such loans during 1993 follows (in thousands):
<TABLE>
<S> <C>
Balance at January 1 . . . . . . . . . $ 67,401
Additions . . . . . . . . . . . . . . . 316,782
Reductions (including
participations sold) . . . . . . . . (325,833)
---------
Balance at December 31 . . . . . . . . $ 58,350
=========
</TABLE>
38
<PAGE> 39
Transactions in the allowance for possible loan losses follow (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Balance at January 1 $ 74,856 $ 87,493 $ 88,862
Recoveries on
loans previously
charged-off . . . . . . . . . . 13,318 10,893 12,306
Loans charged-off . . . . . . . . . (10,142) (33,908) (30,935)
-------- -------- --------
Net recoveries
(charge-offs) . . . . . . . . . 3,176 (23,015) (18,629)
Provision for
possible loan losses . . . . . . (16,000) 10,378 17,260
-------- -------- --------
Balance at December 31 . . . . . . $ 62,032 $ 74,856 $ 87,493
======== ======== ========
</TABLE>
Loans on a nonaccrual status amounted to approximately $30.4 million
at December 31, 1993, and $39.5 million at December 31, 1992. The effect of
nonaccrual loans was to reduce net income by approximately $1.8 million in
1993, $3.9 million in 1992, and $6.6 million in 1991. Restructured loans were
not significant in 1993, 1992, or 1991.
Other real estate owned amounted to approximately $13.3 million at
December 31, 1993 and $17.3 million at December 31, 1992. Transactions in the
allowance for possible losses on other real estate follow (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ----- ------
<S> <C> <C> <C>
Balance at January 1 . . . . . . . $ 3,833 $ 5,779 $ 5,107
Provision charged to expense . . . (2,929) 1,183 2,174
Gains (losses) on sale, net . . . . 301 (3,129) (1,502)
-------- -------- --------
Balance at December 31 . . . . . . $ 1,205 $ 3,833 $ 5,779
======== ======== ========
</TABLE>
NOTE 6 - BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
------ ------
<S> <C> <C>
Land . . . . . . . . . . . . . . . $ 20,568 $ 18,807
Buildings and leasehold
improvements . . . . . . . . . . 135,584 130,731
Furniture and equipment . . . . . . 90,476 83,715
--------- ---------
246,628 233,253
Less: Accumulated depreciation
and amortization . . . . . . . . (121,122) (115,550)
--------- ---------
Bank premises and equipment, net . $ 125,506 $ 117,703
========= =========
</TABLE>
NOTE 7 - LEASES
Operating leases (primarily for branch bank space) expire at various dates.
Most of these leases may be renewed beyond their present expiration dates.
Future minimum payments under noncancelable operating leases with initial or
remaining terms of one year or more at December 31, 1993, follow (in
thousands):
<TABLE>
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . $ 952
1995 . . . . . . . . . . . . . . . . . . . . 692
1996 . . . . . . . . . . . . . . . . . . . . 606
1997 . . . . . . . . . . . . . . . . . . . . 412
1998 . . . . . . . . . . . . . . . . . . . . 322
Thereafter . . . . . . . . . . . . . . . . . 1,908
------
Total minimum lease payments . . . . . . . . $4,892
======
</TABLE>
At December 31, 1993, subleases for office space expiring at various
dates through 2003 with an average term of approximately two years require
total minimum rentals of approximately $11.9 million. Most of these subleases
may be renewed beyond their present expiration dates.
Rental expense of $4.2 million in 1993, $3.9 million in 1992, and $4.3
million in 1991 included amounts for short-term cancelable leases and minimum
rentals under operating leases.
NOTE 8 - INCOME TAXES
The Company adopted SFAS No. 109, "Accounting for Income Taxes" as of January
1, 1993. Prior years' financial statements have not been restated to apply the
provisions of SFAS No. 109. The cumulative effect of this change in accounting
for income taxes is a benefit of $657 thousand and is included in income tax
expense in the 1993 consolidated statement of earnings. In addition, an $11
million tax benefit was allocated to goodwill and other noncurrent intangible
assets as a result of adjustments for a prior purchase business combination.
Total income tax expense for the year ended December 31, was allocated
as follows:
<TABLE>
<S> <C>
Income before income taxes . . . . . . . . . . . . $ 27,302
Other noncurrent intangible assets, for
recognition of acquired tax benefits
that previously were included in the
valuation allowance . . . . . . . . . . . . . . (550)
Stockholders' equity, for compensation expense
for tax purposes in excess of amount
recognized for financial reporting purposes . . . (415)
--------
$ 26,337
========
</TABLE>
39
<PAGE> 40
The current and deferred components of income tax expense follow (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
----- ------ ------
<S> <C> <C> <C>
Current
Federal . . . . . . . . . . . . $21,913 $11,951 $11,252
State . . . . . . . . . . . . . 1,542 237 749
Deferred
Federal . . . . . . . . . . . . 6,668 1,812 (1,735)
State . . . . . . . . . . . . . (2,821) 270 (176)
------- ------- -------
$27,302 $14,270 $10,090
======= ======= =======
</TABLE>
The differences between the income tax expense shown on the
consolidated statements of earnings and the amounts computed by applying the
Federal income tax rate of 35% in 1993 and 34% in 1992 and 1991, to income
before income taxes follow (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Amount computed at Federal
tax rates . . . . . . . . . . . $32,849 $20,327 $14,385
Increases (decreases):
Cash surrender value of
life insurance . . . . . . . . (1,057) (1,001) (881)
Tax exempt interest
income . . . . . . . . . . . . (4,106) (4,962) (6,502)
Amortization of intan-
gible assets . . . . . . . . . -- 867 864
Alternative minimum tax
provision (benefit) . . . . . -- (2,500) 56
State income taxes, net . . . . 721 335 378
Cumulative effect of
change in accounting
for income taxes . . . . . . . (657) -- --
Adjustment to deferred tax
assets and liabilities
for enacted change in
tax rates . . . . . . . . . . (1,049) -- --
Increase in beginning-of-
year balance of
valuation allowance
for impact of enacted
change in tax rates . . . . . 117 -- --
Other, net . . . . . . . . . . . 484 1,204 1,790
------- ------- -------
$27,302 $14,270 $10,090
======= ======= =======
</TABLE>
The significant components of deferred income tax expense in 1993
follow (in thousands):
<TABLE>
<S> <C>
Deferred tax expense (exclusive of the
effects of other components listed below) . . . . . . . $ 5,436
Adjustment to deferred tax assets and liabilities
for enacted change in tax rates . . . . . . . . . . . (1,049)
Increase in beginning-of-year balance of
valuation allowance for impact of
enacted change in tax rates . . . . . . . . . . . . . 117
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . (657)
-------
$ 3,847
=======
</TABLE>
The sources of timing differences and the resulting deferred tax
expense (benefit) in 1992 and 1991 follow (in thousands):
<TABLE>
<CAPTION>
1992 1991
------ ------
<S> <C> <C>
Provision for possible
loan losses . . . . . . . . . . $2,731 $ (689)
Depreciation expense . . . . . . . (15) 121
Deferred compensation . . . . . . . (477) (618)
Lease income . . . . . . . . . . . (598) (759)
Post retirement
benefits . . . . . . . . . . . (433) --
Other real estate . . . . . . . . 472 275
Other, net . . . . . . . . . . . . 402 (241)
------ -------
$2,082 $(1,911)
====== =======
</TABLE>
Total income taxes resulting from securities transactions included a
benefit of $36 and $19 thousand in 1993 and 1992, and a provision of $419
thousand in 1991.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and the deferred tax liabilities at
December 31, 1993 are as follows (in thousands):
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Allowance for possible loan losses . . . $25,194
Other real estate owned . . . . . . . . . 1,064
Deferred compensation . . . . . . . . . . 7,329
Purchased mortgage servicing rights . . . 3,101
Net operating loss carryforwards . . . . 1,134
Investment tax credit carryforwards . . 2,965
Other . . . . . . . . . . . . . . . . . . 4,690
-------
Total gross deferred tax assets . . . . 45,477
Less valuation allowance . . . . . . . (3,532)
-------
Net deferred tax assets . . . . . . . . 41,945
-------
DEFERRED TAX LIABILITIES:
Bank premises and equipment . . . . . . . 2,310
Pension plan . . . . . . . . . . . . . . 4,220
Leveraged leases . . . . . . . . . . . . 1,477
Core deposit intangibles . . . . . . . . 4,027
State income taxes . . . . . . . . . . . 907
Other . . . . . . . . . . . . . . . . . . 1,585
-------
Total gross deferred tax liabilities . 14,526
-------
Net deferred tax asset . . . . . . . . $27,419
=======
</TABLE>
The valuation allowance for the gross deferred tax assets as of
January 1, 1993 was $3.98 million. The net change in the total valuation
allowance for the year ended December 31, 1993 was a decrease of $450 thousand.
Of this amount, a decrease of $567 thousand is due to the utilization of net
operating loss carryforwards and an increase of $117 thousand is due to the
impact of an enacted change in tax rates. Subsequently recognized tax benefits
relating to the valuation allowance for the gross deferred tax assets as of
December 31, 1993 will be allocated to other noncurrent intangible assets.
40
<PAGE> 41
At December 31, 1993, the Company had net operating loss carryforwards
for federal income tax purposes of $3.2 million which are available to offset
Commercial's future federal taxable income, if any, through 1995. The Company
also has investment tax credit carryforwards for federal income tax purposes of
approximately $3.0 million which are available to reduce Commercial's future
federal income taxes,if any, through 2001.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. In order to fully realize the net
deferred tax asset, the Company will need to generate future taxable income of
approximately $72 million principally through the year ended December 31, 2000.
Taxable income for the years ended December 31, 1993, 1992 and 1991 was $69
million, $36 million and $16 million, respectively. Based upon the level of
historical taxable income and anticipated future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at December 31, 1993.
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company has the following employee benefit plans:
-- A defined benefit pension plan based upon age, length of employment
and hours of service covering substantially all employees;
-- A retirement savings plan covering substantially all employees;
-- Deferred compensation and stock plans covering certain key executives;
and
-- An employee stock purchase plan available to all full-time employees
who have attained legal majority and have two years of continuous
service.
Employee benefit expenses (income) related to these plans follow (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Pension plan . . . . . . . . . . . $(2,001) $ (388) $ 60
Retirement savings plan . . . . . . 2,233 1,942 1,872
Deferred compensation plan . . . . 4,662 1,603 1,279
Other plans . . . . . . . . . . . . 265 705 677
------- ------ ------
$ 5,159 $3,862 $3,888
======= ====== ======
</TABLE>
Benefits under the defined benefit pension plan are based on years of
service and the employee's compensation during the last five years of
employment. The Company's funding policy is to contribute an amount which will
satisfy the minimum funding requirements of ERISA and will not exceed the
maximum tax-deductible amount allowed by the IRS. The annual contribution is
determined by an enrolled actuary and incorporates benefits earned to date and
in the future.
The following table sets forth the plan's funded status and amount
recognized in the Company's consolidated statements of condition (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
------ ------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit
obligation, including
vested benefits of
$67,881 in 1993 and
$54,435 in 1992 . . . . . . $ 69,218 $55,797
======== =======
Projected benefit obligation
for service rendered to date $ 79,432 $72,198
Plan assets at fair value, primarily
corporate securities . . . . . . 100,593 97,063
-------- -------
Plan assets in excess of projected
benefit obligation . . . . . . . 21,161 24,865
Unrecognized net gain from
past experience different
from that assumed . . . . . . . (5,928) (11,137)
Prior service cost not yet
recognized in net
periodic pension cost . . . . . 463 515
Unrecognized net asset, net of
amortization over a fifteen-
year period . . . . . . . . . . (3,836) (4,384)
-------- --------
Prepaid pension cost . . . . . . . $ 11,860 $ 9,859
======== ========
</TABLE>
Net pension cost (benefit) included the following components (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits
earned during the
period . . . . . . . . . . . . . $ 2,221 $ 2,729 $ 2,317
Interest cost on projected
benefit obligation . . . . . . 5,560 5,562 5,151
Actual return on plan assets . . . (8,566) (8,084) (16,251)
Net amortization and deferral . . . (1,216) (595) 8,843
------- ------- --------
Net periodic pension cost
(benefit) . . . . . . . . . . . $(2,001) $ (388) $ 60
======= ======= ========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% in 1993 and 8.5% in
1992. The rate of increase in future compensation was 5.0% in 1993 and 6.0% in
1992. The expected long-term rate of return on plan assets was 9.0% in 1993 and
1992.
Under the retirement savings plan, the Company contributes an amount
equal to 2% of each participant's base salary to the plan. A participant, in
addition, may elect to
41
<PAGE> 42
contribute up to 5% of base salary to the plan. The Company contributes an
additional amount to the plan equal to 50% of the participant's contribution.
Participants of the deferred compensation plan can defer a portion of
their compensation for payment after retirement or termination of employment.
Life insurance contracts have been purchased which may be used to fund payments
under the plan.
The incentive stock plan includes the granting of incentive stock
options, nonqualified stock options, stock appreciation rights and restricted
stock awards. Stock options are granted at a price equal to the market value of
the stock at the date of grant and are exercisable for a period not to exceed
ten years from the date of grant. The maximum number of shares subject to the
plan is 955 thousand. In calculating net income per share, the dilutive effect
of the options outstanding was not considered material.
The following table summarizes the Company's option activity (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Options outstanding at
beginning of year . . . . . . . 395 477 393
Options issued . . . . . . . . . . 70 100 84
Options exercised and expired . . . (88) (182) --
--- ---- ----
Options outstanding at
end of year . . . . . . . . . . 377 395 477
=== ==== ===
</TABLE>
All options are nonqualified stock options. The exercise prices of the
options are $27.25, $18.875, and $13.875 per share for options issued in 1993,
1992 and 1991, respectively. As a part of the acquisition of CNC, the Company
agreed to assume the outstanding options of certain key officers and to convert
those options into 22 thousand options of the Company. The exercise prices of
these options are $19.63 and $15.71 per share for 16 thousand and 6 thousand
options, respectively.
Participants in the employee stock purchase plan may contribute up to
5% of their base salary. The Company's contribution to each participant's
account is 25% of the participant's contribution. Common stock of the Company
is purchased for the plan on the open market.
The Company also provides certain health care and life insurance
benefits for retired employees. For those employees who have retired and active
employees eligible to retire, as of January 1, 1993, the Company shares in the
cost of these benefits. Employees eligible to retire are those age 55 with 10
years of service. The Company pays 50% of the cost of these benefits for the
retiree and covered spouse until the retiree becomes Medicare eligible (age
65). After the retiree attains age 65, the retiree pays the full cost of these
benefits. Active employees not eligible to retire before January 1, 1993, pay
the full cost of coverage for these benefits at retirement. The plan is
unfunded.
Effective January 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," which
changes the method of accounting for postemployment health care and life
insurance benefits from the pay-as-you-go (cash) basis to the full accrual
method which recognizes the cost of providing the benefits over the active
service period of the employee. As permitted by the Statement, the Company
immediately recognized the postretirement benefit transition obligation.
The following table sets forth the amount recognized in the Company's
consolidated statements of condition (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants . . . . . . . . . . . . $ 984 $1,421
Fully eligible active plan participants . . . . 934 479
Other active plan participants . . . . . . . . 211 --
------ -------
2,129 1,900
====== ======
Unrecognized net loss from past
experience different from that
assumed and from changes in
actuarial assumptions . . . . . . . . . . . . (74) --
------ -------
Accrued postretirement benefit cost . . . . . . . $2,055 $1,900
====== ======
</TABLE>
Net periodic postretirement benefit cost included the following
components (in thousands):
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Service cost - benefits earned
during the period . . . . . . . . . . . $ 16 $ --
Interest costs on projected benefit
obligation . . . . . . . . . . . . . . . 153 156
Implementation obligation . . . . . . . . . -- 1,963
------- ------
Net periodic postretirement benefit cost . $ 169 $2,119
====== ======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% in 1993 and 8.5%in 1992. The assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 13.2% in 1993 and 14.0% in 1992, graded down to 12.4% in 1994 and
graded down each year to an ultimate rate of 6% in 2007. If the health care cost
trend rate assumptions were increased by 1%, the accumulated postretirement
benefit obligation as of December 31, 1993, would be increased by 2.4%. The
effect of this change on the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1993 would be an
increase of 2.3%.
42
<PAGE> 43
NOTE 10 - OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby and commercial letters
of credit, securities lent, futures and forward contracts, interest rate swap
agreements and options written. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the consolidated financial statements. The contract or notional amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
and standby and commercial letters of credit is represented by the contractual
notional amount of those instruments. The Company uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. For securities lent, futures and forward contracts, interest
rate swap agreements and options written, the contract or notional amounts do
not represent exposure to credit loss. Credit risk for those instruments is
controlled by limits and monitoring procedures.
At December 31, 1993, the financial instruments whose contract amounts
represent credit risk and those whose notional or contract amounts exceed the
amount of on-balance sheet credit risk are as follows (in thousands):
<TABLE>
<CAPTION>
Contract or
Notional Amount
---------------
<S> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit . . . . . . . . $890,657
Standby letters of credit . . . . . . . . . . 68,562
Commercial letters of credit . . . . . . . . . 9,806
Financial instruments whose notional or
contract amounts exceed the amount
of credit risk:
Interest rate swap agreements . . . . . . . . 465,000
Securities lent . . . . . . . . . . . . . . . 500,000
Forward contracts . . . . . . . . . . . . . . 130,250
Commitments to purchase securities . . . . . . 17,405
Commitments to sell securities . . . . . . . . 16,320
</TABLE>
Commitments to extend credit are agreements to lend money with fixed
expiration dates or other termination clauses. The Company periodically
reassesses the customers' creditworthiness through ongoing credit reviews.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Collateral is obtained based on the Company's assessment of the
customer's creditworthiness.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk and collateralization policy involved in issuing standby letters of credit
is essentially the same as that involved in extending loans to customers.
The Company issues commercial letters of credit which are short-term
commitments used to finance commercial contracts for the shipment of goods.
Under these instruments, the Company substitutes its own creditworthiness for
that of the customer by committing to pay a third party under
certain contractual conditions. These instruments are collateralized by the
goods being shipped.
Securities lending involves transactions in which two parties
simultaneously lend securities of varying grades to each other, agreeing to
return these same securities at a future date. Collateral guidelines require
the lender of the relative lesser grade securities to deliver, through a
tri-party custodian, securities exceeding 102% of the market value of the
securities received by such lender. In order to reduce market risk, the
securities, both loaned and received, are marked-to-market daily by the
custodian. The process can be terminated daily, so there is no term exposure.
Furthermore, since this is a securities loan, the Company retains ownership of
its loaned securities under this program.
Commitments to purchase and sell securities, futures and forward
contracts are contracts for delayed delivery of securities, foreign currencies
or money market instruments in which the seller agrees to make delivery of a
specified instrument at a specified future date, at a specified price or yield.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts and from movements in interest rate and securities values.
Since the company intends to offset or close out open positions prior to
settlement, the total contract amounts of futures and forward contracts
represent the extent of the Company's involvement and the Company is subject
only to the change in value of the instruments. Future contracts settle in cash
daily, therefore there is minimal risk to the Company.
Interest rate swap agreements are entered into by the Company
primarily to manage interest rate exposure. These are contractual agreements
between counterparties to exchange interest streams based on notional principal
amounts over a set period of time. Interest rate swap agreements normally
involve the exchange of fixed and floating rate interest payment obligations
without the exchange of the underlying principal amounts. The notional or
principal amount does not represent an amount at risk, but is used only as a
basis for determining the actual cash flows related to the interest rate
contracts. Market risk, due to potential fluctuations in interest rates, is
inherent in swap agreements. The aggregate
43
<PAGE> 44
estimated cost of replacement (the cost of replacing an existing contract if
the counterparty defaults) of all interest rate swap contracts was $1.8 million
as of December 31, 1993.
The Company's subsidiary, Commercial National Bank (CNB), is a
defendant in litigation arising out of a Louisiana Housing Finance Agency
Municipal Bond Issue. CNB was trustee for the issue and, in general, it is
claimed that fraud was practiced on the bondholders in that the proceeds of the
issue were not used for the purpose stated in the official statement.
Additionally, the claim alleges conspiracy and improper conduct concerning
CNB's role as trustee. In addition, some of the codefendants of CNB have
asserted claims against CNB for contribution in the event those defendants are
found to be liable to plaintiff. Likewise, CNB has asserted contribution claims
against its codefendants. Although the litigation currently involves only one
bondholder, certification as a class action suit has been requested. The claims
do not specify damages, but involve a $150 million bond issue. While the
ultimate outcome of the lawsuit at this time cannot be predicted with certainty,
management believes that CNB has good and meritorious defenses and should
prevail.
The Company's subsidiary, Deposit Guaranty National Bank (DGNB), is a
defendant in two cases, in which the allegations are substantially the same.
The plaintiffs in both cases are some of the beneficiaries of the same trust
and DGNB is the trustee of the trust. The plaintiffs claim that DGNB was
negligent in its dealings with the trust property, breached its trust duties by
allegedly abusing its discretion and negligently handling trust assets, engaged
in self dealing, and was grossly negligent in its handling of the trust. Both
cases seek $180 million as actual damages for waste of trust assets and loss of
profits, $180 million as punitive damages, and attorney fees and court costs.
While the ultimate outcome of the lawsuits cannot be predicted with certainty,
management believes that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial statements.
In addition, the Company is subject to numerous other pending and
threatened legal actions arising in the normal course of business and
management believes that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial statements.
NOTE 11 - EQUITY RESTRICTIONS
The banking subsidiaries of the Company are subject to certain regulations
controlling national banks that restrict the amount of dividends that may be
distributed and the amount of loans that may be made by the banks to the parent.
Dividends paid by the Company are substantially provided from dividends
received from the banking subsidiaries. The approval of the Comptroller of the
Currency is required if the total of all dividends declared by a national bank
in any calendar year exceeds the total of its net profits, as defined, for
that year combined with its retained net profits of the preceding two years.
The subsidiary banks have available for payment of dividends in 1994, without
prior regulatory approval, $90.5 million plus their net profits for 1994.
The banking subsidiaries of the Company are limited in the amount they
may lend to the Company to 10% of the banks' capital stock and surplus. At
December 31, 1993, the banks could lend the Company a maximum of approximately
$22.2 million in aggregate. Such loans are required to be on a fully secured
basis.
NOTE 12 - STOCK SPLIT
The Company declared a two-for-one stock split payable on December 14, 1992.
All shares outstanding and per share results are calculated assuming the split
occurred at the beginning of the earliest period presented.
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Because no market exists for a significant portion of the financial
instruments, fair value estimates are based on judgment regarding future
expected loss experience, current economic conditions, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions significantly affect the estimates and as such,the
derived fair value may not be indicative of the value negotiated in an actual
sale and may not be comparable for the Company versus other financial
institutions.
In addition, the fair value estimates are based on existing
on-and-off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. For example, the
Company has significant fee generation businesses that are not considered
financial instruments and their value has not been incorporated into the fair
value estimates. Significant assets that are not considered financial assets
include trust services, the mortgage banking operation, brokerage network,
deferred tax assets, bank premises and equipment, core deposit intangibles and
goodwill. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates. Fair value estimates,
methods, and assumptions are set forth below.
44
<PAGE> 45
CASH AND SHORT-TERM INVESTMENTS: The carrying amount is a reasonable
estimate of fair value for cash, interest-bearing bank balances, federal funds
sold and securities purchased under agreements to resell due to the maturity of
those instruments being less than six months.
TRADING ACCOUNT SECURITIES: The carrying amount of trading account
securities is fair value which is based on quoted market prices, where
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES: Fair values
for securities available for sale and investment 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.
LOANS: The fair values are estimated for portfolios of loans with
similar characteristics. Loans are segregated by type such as commercial taxable
and nontaxable, residential mortgage and consumer. Each loan category is
further segmented into fixed and adjustable rate interest terms and by
performing and nonperforming categories.
The fair value of performing adjustable-rate loans is the carrying
value adjusted for the discounted value of the expected future loan losses. The
fair value of performing fixed-rate loans is calculated by discounting cash
flows based on estimated scheduled maturities reduced by expected future loan
losses. The discount rate is estimated using the rate currently offered for
similar loans with similar maturities. The fair value of residential mortgage
loans is based on quoted market prices.
The fair value of nonperforming loans is calculated by discounting
expected cash flows as projected based on historical cash flows of such
nonperforming loans adjusted for expected loan losses. The discount rate is
estimated using the rates currently offered for acceptable credit quality loans
with similar maturities.
DEPOSITS: The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits and savings accounts, is equal to the
amount payable on demand at December 31, 1993 which is also their carrying
amount. The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar maturities.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds
purchased, securities sold under agreements to repurchase and other short-term
borrowings approximate their fair values due to the short maturity of those
instruments.
OFF-BALANCE SHEET ACTIVITIES: The fair value of commercial commitments
to extend credit and letters of credit is the remaining unamortized amount of
the prepaid fee charged to enter into the agreement or the discounted cash
flows of estimated fees that will be charged over the life of the agreement
taking into account the remaining terms of the agreements and counterparties
credit standing. The fair value of residential mortgage lending commitments is
based on quoted market prices considering expected funding, the contractual
interest rates and current market rates. The fair value of forward contracts,
interest rate swap agreements and commitments to purchase and sell securities
are obtained from dealer quotes. These values represent the estimated amount
the Company would receive or pay to terminate the contracts or agreements,
taking into account current interest rates and, when appropriate, the current
creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
1993
Financial assets:
Cash and short-term
investments . . . . . . . . . $ 572,034 $ 572,034
Trading account securities . . . 596 596
Securities available for sale . 1,365,728 1,416,120
Investment securities . . . . . 316,858 350,451
Loans . . . . . . . . . . . . . 2,356,553 2,370,921
Financial liabilities:
Deposits . . . . . . . . . . . . 3,921,141 3,982,398
Short-term borrowings . . . . . 509,496 509,496
Other financial instruments:
Commitments to extend credit . . (1,272) (3,954)
Letters of credit . . . . . . . -- (877)
Interest rate swap agreements . (66) 1,223
Forward contracts . . . . . . . -- 183
Commitments to purchase
securities . . . . . . . . . . -- (7)
Commitments to sell securities . -- 26
1992
Financial assets:
Cash and short-term
investments . . . . . . . . . $ 961,511 $ 961,511
Trading account securities . . . 2,426 2,426
Securities available for sale . 1,030,642 1,059,713
Investment securities . . . . . 527,629 563,308
Loans . . . . . . . . . . . . . 2,167,458 2,201,838
Financial liabilities:
Deposits . . . . . . . . . . . . 4,001,969 4,057,964
Short-term borrowings . . . . . 580,412 580,412
Other financial instruments:
Commitments to extend credit . . (772) (3,425)
Letters of credit . . . . . . . -- (865)
Futures and forward contracts . (1,331) (1,331)
Options written . . . . . . . . (38) (38)
</TABLE>
45
<PAGE> 46
NOTE 14 - DEPOSIT GUARANTY CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF CONDITION (in Thousands)
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
------ ------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary bank . $ 4,083 $ 9,390
Securities purchased from subsidiary
bank under agreements to resell . . 16,086 --
Investment in subsidiaries:
Bank subsidiaries . . . . . . . . . 370,369 318,331
Nonbank subsidiaries . . . . . . . . 4,866 10,622
Notes receivable from nonbank
subsidiaries 930 --
Cash dividends receivable from
subsidiary bank . . . . . . . . . . 4,583 3,883
Other assets . . . . . . . . . . . . . 19,469 23,405
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . $ 420,386 $ 365,631
========== ==========
LIABILITIES
Cash dividends payable . . . . . . . . $ 4,417 $ 3,782
Other liabilities . . . . . . . . . . . 20,081 17,525
---------- ----------
TOTAL LIABILITIES . . . . . . . . . 24,498 21,307
---------- ----------
STOCKHOLDERS' EQUITY . . . . . . . . . 395,888 344,324
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . $ 420,386 $ 365,631
========= =========
</TABLE>
STATEMENTS OF EARNINGS
(in THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
INCOME
Cash dividends from
bank subsidiaries . . . . . . . . . $16,521 $13,543 $26,880
Consultant and management
fees from subsidiaries . . . . . . . 25,939 24,572 24,454
Interest income from
subsidiaries . . . . . . . . . . . . 132 11 32
Other . . . . . . . . . . . . . . . . . 2,299 1,193 111
------- ------- --------
TOTAL INCOME . . . . . . . . . . . . 44,891 39,319 51,477
------- ------- --------
EXPENSES
Interest expense . . . . . . . . . . . -- 563 2,430
Salaries and employee benefits . . . . 19,659 15,052 12,776
Other expenses . . . . . . . . . . . . 13,003 12,279 14,928
------- ------- --------
Total expenses . . . . . . . . . . . 32,662 27,894 30,134
------- ------- --------
INCOME BEFORE INCOME TAXES AND
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES . . . . . . . . . . 12,229 11,425 21,343
Income tax benefit . . . . . . . . . . 3,040 785 2,058
------- ------- --------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME
OF SUBSIDIARIES . . . . . . . . . . 15,269 12,210 23,401
Equity in undistributed
income (loss) of subsidiaries:
Bank subsidiaries . . . . . . . . . 52,039 32,504 19,597
Nonbank subsidiaries . . . . . . . . (756) 800 (10,778)
------- ------- --------
NET INCOME . . . . . . . . . . . . . . $66,552 $45,514 $32,220
======= ======= ========
</TABLE>
STATEMENTS OF CASH FLOWS
(in THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . $66,552 $45,514 $32,220
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation
and amortization . . . . . . . . 2,861 2,804 2,934
Increase (decrease) in
other liabilities . . . . . . . 2,971 14,217 (653)
Decrease (increase) in
other assets . . . . . . . . . . 8,501 (15,545) (1,124)
Equity in undistributed
income of
subsidiaries . . . . . . . . . . (51,283) (33,304) (8,819)
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES . . . . . . 29,602 13,686 24,558
-------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net increase in securities
purchased from
subsidiary bank under
agreements to resell . . . . . . . . (16,086) -- --
Net (increase) decrease in notes
receivable from nonbank
subsidiaries . . . . . . . . . . . . (930) 380 --
Sale or repayment of investments
in and advances to
subsidiaries . . . . . . . . . . . . 5,000 -- --
Purchases of premises and
equipment . . . . . . . . . . . . . (8,055) (1,519) (771)
Proceeds from sales of bank
premises and equipment . . . . . . . 12 13 5
Other, net . . . . . . . . . . . . . . (81) 544 --
-------- -------- --------
NET CASH USED BY INVESTING
ACTIVITIES . . . . . . . . . . . (20,140) (582) (766)
-------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Decrease in notes payable
to subsidiary banks . . . . . . . . -- -- (5,774)
Decrease in other short-
term borrowings . . . . . . . . . . -- -- (1,700)
Proceeds from exercise of
stock options . . . . . . . . . . . 1,014 2,477 --
Cash dividends paid . . . . . . . . . . (15,783) (12,974) (12,323)
-------- -------- --------
NET CASH USED BY FINANCING
ACTIVITIES . . . . . . . . . . . (14,769) (10,497) (19,797)
-------- -------- --------
NET INCREASE (DECREASE)
IN CASH . . . . . . . . . . . . (5,307) 2,607 3,995
CASH AT BEGINNING OF YEAR . . . . . . . 9,390 6,783 2,788
-------- -------- --------
CASH AT END OF YEAR . . . . . . . . . . $ 4,083 $ 9,390 $ 6,783
======== ======== ========
</TABLE>
46
<PAGE> 47
The Board of Directors and Stockholders
Deposit Guaranty Corp.:
We have audited the accompanying consolidated statements of condition of
Deposit Guaranty Corp. and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Deposit Guaranty
Corp. and subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK
Jackson, Mississippi
February 4, 1994
47
<PAGE> 48
DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
Table
Exhibit Number Sequential Page Number
------- ------ ----------------------
<S> <C> <C>
Articles of Incorporation 3(a) This document was previously
filed as Exhibit 1 to
Company's Annual Report on
Form 10-K (file number
0-4518) for the fiscal year
ended December 31, 1987, and
hereby specifically
incorporated by reference
herein.
Bylaws 3(b) This document was previously
filed as Exhibit 1 to Company's
Annual Report on Form 10-K (file
number 0-4518) for the fiscal
year ended December 31, 1989 and
hereby specifically incorporated
by reference herein.
Form of Stock Certificate 4 This document was previously filed
as Exhibit 3 to Company's Annual
Report on Form 10-K (file number
0-4518) for the fiscal year ended
December 31, 1980 and hereby
specifically incorporated by
reference herein.
Material Contracts 10
(1) Executive Variable Pay The written description of the
Executive Variable Pay Plan
included under the caption
"Executive Compensation" in the
definitive Proxy Statement of
the Company to be filed with
the Commission pursuant to
Rule 14a-6 is hereby
specifically incorporated by
reference herein.
(2) Deferred Income Plan The original plan was previously
filed as Exhibit 3 to Company's
Annual Report on Form 10-K (file
number 0-4518) for the fiscal year
ended December 31, 1985. An
amendment to the plan was filed as
Exhibit 3 to Company's Annual Report
on Form 10-K (file number 0-4518)
for the fiscal year ended December
31, 1988. Both documents are hereby
specifically incorporated by
reference herein.
</TABLE>
48
<PAGE> 49
DESCRIPTION OF EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
Table
Exhibit Number Sequential Page Number
------- ------ ----------------------
<S> <C> <C>
(3) Stock-Based, Long-Term This document was previously
Incentive Plan filed as Exhibit "E" to the
definitive Proxy Statement of
the Company dated March 12,
1986, filed with the
Commission pursuant to Rule
14a-6 and hereby specifically
incorporated by reference
herein.
(4) Stock-Based, Long-Term This document was previously
Incentive Plan II previously filed as Exhibit
"A" to the definitive Proxy
Statement of the Company
dated March 29, 1993, filed
with the Commission pursuant
to Rule 14a-6 and hereby
specifically incorporated by
references herein.
Statement Re: Computation of 11 Filed herewith
Per Share Earnings --------------
Subsidiaries of the Company 22 Filed herewith
--------------
Independent Auditors' Consent 24 Filed herewith
--------------
</TABLE>
49
<PAGE> 50
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, in the City of
Jackson, Mississippi, on March 28, 1994.
DEPOSIT GUARANTY CORP.
BY:/s/E.B. Robinson, Jr.
------------------------
E. B. Robinson, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/E.B. Robinson, Jr. Chairman of the Board March 28, 1994
- ---------------------- and Director
E. B. Robinson, Jr.
Principal Executive Officer
/s/Arlen L. McDonald Executive Vice President March 28, 1994
- ----------------------
Arlen L. McDonald
Principal Financial Officer
/s/Stephen E. Barker Controller March 28, 1994
- ----------------------
Stephen E. Barker
Principal Accounting Officer
/s/Howard L. McMillan, Jr. Director March 31, 1994
- --------------------------
Howard L. McMillan, Jr.
/s/Charles L. Irby Director March 29, 1994
- --------------------------
Charles L. Irby
/s/W. R. Newman, III Director March 29, 1994
- --------------------------
W. R. Newman, III
/s/J. Kelley Williams Director March 29, 1994
- -----------------------------
J. Kelley Williams
/s/Richard D. McRae, Jr. Director March 29, 1994
- --------------------------
Richard D. McRae, Jr.
/s/John N. Palmer Director March 29, 1994
- --------------------------
John N. Palmer
</TABLE>
50
<PAGE> 51
EXHIBIT
The following exhibits are included herein.
Page
Number Description
- ------ -----------
52-54 Computation of Per Share Earnings
55-57 Subsidiaries of the Registrant
58 Independent Auditors' Consent
51
<PAGE> 52
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1993
<TABLE>
<CAPTION>
Year Ended December 31, 1993
----------------------------------------
Fully
Primary Diluted
----------- -----------
<S> <C> <C>
Computation of weighted average
- -------------------------------
shares outstanding:
-------------------
Common stock outstanding
January 1, 1993 17,602,706 17,602,706
Common stock issued due to
exercise of options 47,146 47,146
------------ ------------
Weighted average shares
outstanding 17,649,852 17,649,852
============ ============
Computation of net income:
- --------------------------
Net income $ 66,552,000 $ 66,552,000
============ ============
Computation of per share
- ------------------------
earnings:
---------
Net income divided by
weighted average shares
outstanding $3.77 $3.77
============ ============
</TABLE>
Note - Additional weighted average shares outstanding for options under the
Company's incentive stock plan were 132,976 and 119,418 for calculating primary
and fully diluted net income per share, respectively. The dilutive effect of
such options was, therefore, not material.
52
<PAGE> 53
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1992
<TABLE>
<CAPTION>
Year Ended December 31, 1992
------------------------------------------
Fully
Primary Diluted
----------- -----------
<S> <C> <C>
Computation of weighted average
- -------------------------------
shares outstanding:
-------------------
Common stock outstanding
January 1, 1992 15,799,996 15,799,996
Conversion of convertible
subordinated debentures
issued June 18, 1985 1,210,624 1,210,624
Assume conversion of con-
vertible subordinated
debentures issued June 18,
1985 into shares of common stock -- 431,618
Common stock issued due to
exercise of options 23,044 23,044
----------- -----------
Weighted average shares
outstanding 17,033,664 17,465,282
=========== ===========
Computation of net income:
- --------------------------
Net income $45,514,000 $45,514,000
Add: Interest expense on
convertible subordinated
debentures, less tax
effect of 34% -- 372,000
----------- -----------
$45,514,000 $45,886,000
=========== ===========
Computation of per share
- ------------------------
earnings:
---------
Net income divided by
weighted average shares
outstanding $2.67 $2.63
=========== ===========
</TABLE>
Note - Additional weighted average shares outstanding for options under the
Company's incentive stock plan were 60,726 and 138,238 for calculating primary
and fully diluted net income per share, respectively. The dilutive effect of
such options was, therefore, not material.
53
<PAGE> 54
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1991
<TABLE>
<CAPTION>
Year Ended December 31, 1991
-----------------------------------------
Fully
Primary Diluted
----------- -----------
<S> <C> <C>
Computation of weighted average
- -------------------------------
shares outstanding:
-------------------
Common stock outstanding
January 1, 1991 15,799,996 15,799,996
Assume conversion of con-
vertible subordinated
debentures issued June 18,
1985 into shares of common stock -- 1,642,392
----------- -----------
Weighted average shares
outstanding 15,799,996 17,442,388
=========== ===========
Computation of net income:
- --------------------------
Net income $32,220,000 $32,220,000
Add: Interest expense on
convertible subordinated
debentures, less tax
effect of 34% -- 1,387,155
----------- -----------
$32,220,000 $33,607,155
=========== ===========
Computation of per share
- ------------------------
earnings:
---------
Net income divided by
weighted average shares
outstanding $2.04 $1.93
=========== ===========
</TABLE>
Note - Additional weighted average shares outstanding for options under the
Company's incentive stock plan were 14,750 and 39,817 for calculating primary
and fully diluted net income per share, respectively. The dilutive effect of
such options was, therefore, not material.
54
<PAGE> 55
DEPOSIT GUARANTY CORP.
ORGANIZATION CHART
The following describes the Registrant's direct and indirect ownership and
control of its banking and nonbanking subsidiaries as of December 31, 1993.
SUBSIDIARIES OF DEPOSIT GUARANTY CORP.
Deposit Guaranty National Bank *
Acquired May 19, 1969
Corp. Ownership 97.9%
DGC Services Company
Incorporated November 29, 1972
Corp. Ownership 100%
Deposit Guaranty Mortgage Company of Florida, Inc.
Incorporated July 20, 1984
Inactive
Corp. Ownership 100%
Gulfnet, Inc.
Acquired February 24, 1987
Corp. Ownership 6.25%
G & W Life Insurance Company
Incorporated February 12, 1988
Corp. Ownership 79%
Commercial National Corporation **
Acquired February 8, 1990
Corp. Ownership 100%
55
<PAGE> 56
DEPOSIT GUARANTY CORP.
ORGANIZATION CHART(Cont.)
* SUBSIDIARIES OF DEPOSIT GUARANTY NATIONAL BANK
Deposit Guaranty Mortgage Company
Acquired October 1, 1981
Bank Ownership 100%
Maxiprop, Inc.
Incorporated January 4, 1988
Bank Ownership 100%
Deposit Guaranty Investments, Inc.
Incorporated September 10, 1990
Bank Ownership 100%
Deposit Guaranty Student Loans, Inc.
Incorporated June 5, 1992
Bank Ownership 100%
56
<PAGE> 57
DEPOSIT GUARANTY CORP.
ORGANIZATION CHART(Cont.)
** SUBSIDIARIES OF COMMERCIAL NATIONAL BANK
Commercial National Bank in Shreveport ***
Acquired February 8, 1990
Corp. Ownership 100%
*** SUBSIDIARIES OF COMMERCIAL NATIONAL BANK
Commercial National Brokerage Services, Inc.
Acquired February 8, 1990
Bank Ownership 100%
Commercial National Investment Services, Inc.
Incorporated May 3, 1991
Bank Ownership 100%
57
<PAGE> 58
Independent Auditors' Consent
The Board of Directors
Deposit Guaranty Corp.:
We consent to incorporation by reference in the registration statements (Nos.
33-38655, 33-7937 and 33-4912) on Form S-8 of Deposit Guaranty Corp. of our
report dated February 4, 1994 relating to the consolidated statements of
condition of Deposit Guaranty Corp. and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1993, which report appears in the December 31, 1993
annual report on Form 10-K of Deposit Guaranty Corp.
KPMG PEAT MARWICK
Jackson, Mississippi
March 28, 1994
58
