<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
Commission File Number 0-4518
DEPOSIT GUARANTY CORP.
--------------------------------------------------
(Exact Name Of Registrant As Specified In Charter)
Mississippi 64-0472169
------------------------------- ----------------------------
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
210 East Capitol Street, Jackson, MS 39201
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(Address Of Principal Executive Offices)
(Zip Code)
(601) 354-8564
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(Registrant's Telephone Number)
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
----- -----
Shares Of Common Stock, No Par Value, Outstanding
As Of September 30, 1994: 17,685,752
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
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<S> <C> <C>
ASSETS
Cash and due from banks $ 313,942 $ 293,894
Interest-bearing bank balances 100,104 70,000
Federal funds sold and securities
purchased under agreements to resell 414,624 208,140
Trading account securities 2,012 596
Securities available for sale (market value:
1994 - $183,718; 1993 - $1,477,875) 183,718 1,365,728
Investment securities (market value:
1994 - $1,155,090; 1993 - $350,451) 1,145,350 316,858
Loans 2,737,471 2,439,041
Less: Unearned income (19,416) (20,456)
Allowance for possible loan losses (57,741) (62,032)
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Net loans 2,660,314 2,356,553
Bank premises and equipment 129,712 125,506
Other assets 184,237 160,805
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Total assets $ 5,134,013 $ 4,898,080
=========== ============
LIABILITIES
Deposits:
Noninterest-bearing $ 926,176 $ 875,288
Interest-bearing 3,141,208 3,045,853
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Total deposits 4,067,384 3,921,141
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Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 540,036 509,496
Other liabilities 90,279 71,555
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TOTAL LIABILITIES 4,697,699 4,502,192
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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:
1994 - 17,685,752 shares; 1993 - 17,651,314
shares 19,403 19,383
Surplus 155,690 155,399
Retained earnings 255,891 221,106
Market valuation for securities available for
sale, net of income taxes 5,330 --
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TOTAL STOCKHOLDERS' EQUITY 436,314 395,888
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,134,013 $ 4,898,080
=========== ============
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1994 1993 1994 1993
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 52,757 $ 45,518 $ 146,177 $ 133,714
Interest and fees on loans
Interest on investment securities: 12,143 5,570 23,891 20,205
Taxable 2,045 2,238 6,301 6,905
Exempt from Federal income tax
Interest on securities available for sale:
Taxable 7,326 19,613 34,367 55,098
Exempt from Federal income tax 37 58 74 200
Interest on trading account securities 69 60 182 157
Interest on Federal funds sold and securities
purchased under agreements to resell 2,665 1,555 8,556 6,976
INTEREST ON BANK BALANCES 1,091 403 3,656 1,483
----------- ----------- ---------- -----------
TOTAL INTEREST INCOME 78,133 75,105 223,204 224,738
----------- ----------- ---------- -----------
Interest expense
Interest on deposits 28,124 27,319 79,995 83,941
Interest on Federal funds purchased, securities
sold under agreements to repurchase and
other short-term borrowings 4,263 3,663 11,616 11,376
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 32,387 30,982 91,611 95,317
---------- ----------- ----------- -----------
NET INTEREST INCOME 45,746 44,033 131,593 129,421
Provision for possible loan losses 0 0 (2,750) (11,000)
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 45,746 44,033 134,343 140,421
----------- ----------- ----------- -----------
OTHER OPERATING INCOME
Service charges on deposit accounts 7,208 6,415 20,391 19,007
Fees for trust services 3,410 3,171 10,084 9,343
Securities available for sale gains (losses) (275) (84) 9,545 (74)
Other service charges, commissions
and fees 8,344 9,073 24,319 25,270
Other income 840 841 4,465 2,682
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING INCOME 19,527 19,416 68,804 56,319
----------- ----------- ----------- -----------
Other operating expense
Salaries and employee benefits 24,105 24,186 72,288 69,168
Net occupancy expense 3,257 2,952 9,318 8,500
Equipment expense 3,332 3,258 9,872 9,480
Service fees 2,732 2,523 8,147 7,795
Communication 1,927 1,838 5,625 5,473
FDIC assessment 2,282 2,143 6,685 6,523
Advertising and public relations 1,781 1,570 5,953 5,187
Other expense 2,254 4,127 14,214 14,210
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING EXPENSE 44,670 42,597 132,210 126,336
----------- ----------- ----------- -----------
Income before income taxes 20,603 20,852 71,045 70,404
Income tax expense 6,400 5,824 22,466 20,279
----------- ----------- ----------- -----------
NET INCOME $ 14,203 $ 15,028 48,579 $ 50,125
=========== =========== =========== ===========
NET INCOME PER SHARE $ .80 $ 0.85 $ 2.75 $ 2.84
WEIGHTED AVERAGE SHARES OUTSTANDING 17,673,895 17,652,212 17,670,929 17,644,106
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1994 1993
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 48,579 $ 50,125
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses (2,750) (11,000)
Provision for possible losses on other real estate 21 (1,627)
Provision for depreciation and amortization 13,229 9,283
Accretion of discount on investment securities, net (6,896) (923)
Amortization (accretion) of premium (discount) on securities
available for sale, net (4,476) 1,615
Deferred loan fees and costs (2,356) (2,082)
Increase (decrease) in other liabilities 11,874 (3,225)
Decrease in other assets 21,382 9,149
Net cash received from (paid for) loans held for resale 55,052 (7,670)
(Gain) loss on sales of securities available for sale (9,545) 74
Other, net 946 393
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NET CASH PROVIDED BY OPERATING ACTIVITIES 125,060 44,112
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances (30,104) 165,096
Proceeds from sales of securities available for sale 1,585,482 447,196
Proceeds from maturities of investment securities 252,461 198,537
Proceeds from maturities of securities available for sale 649,231 128,511
Purchases of investment securities (1,035,558) (20,019)
Purchases of securities available for sale (1,008,383) (951,621)
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell (205,969) 233,460
Net increase in loans (258,827) (90,960)
Proceeds from sales of other real estate 6,993 8,397
Purchases of bank premises and equipment (13,825) (6,532)
Proceeds from sales of bank premises and equipment 2,543 28
Payment for purchase of common stock of
First Columbus Financial Corporation (49,343) --
Cash and due from banks of acquired bank 14,072 --
----------- ----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (91,227) 112,093
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (23,852) (99,650)
Net increase (decrease) in Federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings 23,041 (102,035)
Cash dividends paid (13,251) (11,367)
Proceeds from the exercise of common stock options 277 1,110
----------- ----------
NET CASH USED BY FINANCING ACTIVITIES (13,785) (211,942)
----------- ----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 20,048 (55,737)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 293,894 331,905
----------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 313,942 $ 276,168
=========== ==========
</TABLE>
(Continued)
4
<PAGE> 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
INCOME TAXES:
The Company made income tax payments of $20.4 million and $14.7
million during the nine month periods ended September 30, 1994 and 1993,
respectively.
INTEREST:
The Company paid $90.8 million and $96.8 million in interest on
deposits and other borrowings during the nine month periods ended September 30,
1994 and 1993, respectively.
ACQUISITION:
During the second quarter of 1994, the Company purchased
substantially all of the common stock of First Columbus Financial Corporation
for $49.3 million. In conjunction with the acquisition, liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of assets required 228,652
Cash paid for the common stock 49,343
--------
Liabilities assumed $179,309
========
</TABLE>
<PAGE> 6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all information and footnotes necessary for a fair presentation
of financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. All adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and results of operations have been made. These adjustments consist
only of normal, recurring adjustments with the exception of the items discussed
in Note C.
The condensed consolidated financial statements of Deposit Guaranty Corp.
include the financial statements of Deposit Guaranty National Bank, a 98%-owned
subsidiary, G & W Life Insurance Co., a 79%-owned subsidiary, Commercial
National Corporation, a wholly-owned subsidiary, and First Columbus Financial
Corporation, a 99%-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
NOTE B - CONTINGENCIES
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.
<PAGE> 7
The Company's subsidiary, Deposit Guaranty National Bank (DGNB), is a defendant
in a case in which the plaintiffs are some of the beneficiaries of a 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. The case
seeks $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 lawsuit cannot be predicted with certainty,
management believes that the ultimate resolution of this matter will not have a
material effect on the Company's consolidated financial statements.
NOTE C - ACCOUNTING CHANGES
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, securities
available for sale are reported at fair value with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity, net of related deferred income taxes. Previously, available for sale
securities were stated at the lower of amortized cost or market value. The
effect of this change at January 1, 1994 was to increase stockholders' equity
by $31.6 million.
NOTE D - ACQUISITION
On May 18, 1994, Deposit Guaranty Corp. acquired 99% of the outstanding common
stock of First Columbus Financial Corporation for $49.3 million cash. The
transaction was accounted for as a purchase. The results of operations of this
acquired bank, which are not material, are included in the financial statements
from the acquisition date.
On August 8, 1994, Deposit Guaranty Corp. entered into an agreement of merger
with LBO Bancorp, Inc. Under the terms of this agreement, The Louisiana Bank,
a wholly-owned subsidiary of LBO Bancorp, will be merged with Commercial
National Bank, a wholly-owned subsidiary of Deposit Guaranty Corp. Deposit
Guaranty Corp. will exchange approximately 680 thousand shares of common stock
for all of LBO Bancorp's common shares outstanding.
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Deposit Guaranty Corp.:
We have reviewed the condensed consolidated statement of condition of Deposit
Guaranty Corp. and subsidiaries as of September 30, 1994, the related condensed
consolidated statements of earnings for the three-month and nine-month periods
ended September 30, 1994 and 1993, and the related condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 1994
and 1993. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of Deposit Guaranty Corp.
and consolidated subsidiaries as of December 31, 1993, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 4, 1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated statement of condition as of December 31,
1993, is fairly presented, in all material respects, in relation to the
consolidated statement of condition from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jackson, Mississippi
October 18, 1994
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
The following discussion reviews the financial condition and the results of
operations of Deposit Guaranty Corp. (the Company) for the three-month and
nine-month periods ending September 30, 1994 and 1993. This discussion should
be read in conjunction with the condensed consolidated financial statements
included in Part I, Item I.
BALANCE SHEET
Total assets were $5.134 billion at September 30, 1994, compared to $4.898
billion at December 31, 1993. Securities available for sale decreased $1.182
billion from $1.366 billion at December 31, 1993 to $183.7 million at September
30, 1994. In correlation with the decrease in securities available for sale
were increases in interest-bearing bank balances, Federal funds sold and
securities purchased under agreements to resell, and investment securities of
$30.1 million, $206.5 million and $828.5 million, respectively, as the Company
repositioned the securities portfolio. The increases in these accounts reflect
the Company's strategy to take advantage of rising interest rates and reinvest
in higher-yielding, longer-term securities. Total loans increased from $2.419
billion at December 31, 1993 to $2.718 billion at September 30, 1994, largely
as a result of increases in the volume of installment loans and commercial
loans. Year-to-date 1994 loan growth has been at an annualized rate of 16%.
Total deposits increased from $3.921 billion at December 31, 1993 to $4.067
billion at September 30, 1994 as a result of growth in both interest-bearing
and noninterest-bearing deposits. Total stockholders' equity was $436.3
million at September 30, 1994 compared to $395.9 million at December 31, 1993.
This increase in stockholders' equity is due primarily to the level of net
income retained in 1994 and also reflects unrealized gains, net of deferred
income taxes on available for sale securities of $5.3 million at September 30,
1994 as a result of implementing SFAS No. 115.
NET INCOME
Net income for the third quarter of 1994 was $14.2 million compared to $15.0
million for the third quarter of 1993. Net income per share was $.80 for the
third quarter of 1994 compared to $.85 for the same period in 1993.
<PAGE> 10
Net income for the nine months ended September 30, 1994 was $48.6 million with
net income per share of $2.75 compared to net income of $50.1 million and net
income per share of $2.84 for the same period in 1993. Year-to-date net income
for 1994 includes gains on the sales of securities available for sale and the
negative provision for possible loan losses which increased net income by $5.9
million and $1.8 million, respectively, while 1993 includes an $11.0 million
negative provision which increased net income by $7.2 million. For the first
nine months of 1994, the return on average assets was 1.32% compared to 1.38%
for the same period in 1993. The return on average equity for the first nine
months of 1994 was 15.26% compared to 18.50% for 1993.
NET INTEREST INCOME
Net interest income for the third quarter of 1994 was $45.7 million, an
increase from $44.0 million for the third quarter of 1993. The net interest
margin for the third quarter of 1994 was 4.22%, increasing from 4.19% for the
third quarter of 1993. This increase is primarily due to an increase in
average interest-earning assets of $132 million or 3.1% and this growth being
funded largely by an increase in noninterest-bearing deposits and stockholders'
equity. Liability funding, the percentage of interest-earning assets funded by
interest-bearing liabilities, decreased from 82.89% in the third quarter of
1993 to 81.23% in the third quarter of 1994. The interest spread, the
difference between the yield on interest-earning assets and the rate paid on
interest-bearing liabilities, decreased from 3.62% in 1993 to 3.49% in 1994,
resulting from an increase in the rates paid on interest-bearing deposits due
to the increase in market interest rates and the decrease in yields earned on
securities as the Company temporarily maintained a higher balance of
shorter-term, lower-yielding assets as a part of its securities portfolio
repositioning strategy during a portion of the third quarter. As a result of
increased interest rates, approximately 75% of the securities portfolio funds
were redeployed in higher-yielding, longer-term securities late in the third
quarter. These funds were redeployed at an average yield of 5.95% reflecting
approximately 60% of redeployed funds in two year or under maturities. The
effect of this redeployment will become more prominent in the fourth quarter,
increasing both interest income and the yield on interest-earning assets.
Increased loan volumes also contributed to increased earnings for the third
quarter. Average loan volumes increased 15.97% to $2.6 billion in 1994 as
compared to $2.3 billion in 1993. Average total loans as a percentage of
interest-earning assets increased from 52.88% during the third quarter of 1993
to 59.50% during the same period in 1994.
<PAGE> 11
Net interest income for the nine months ended September 30, 1994 was $131.6
million compared to $129.4 million for the same period in 1993. The tax
equivalent net interest margin decreased from 4.13% in 1993 to 4.11% in 1994.
This decrease in the margin is primarily the result of a decrease in the
interest spread as yields earned on interest-earning assets declined more
rapidly than rates paid on interest-bearing liabilities from 1993 to 1994. The
reduction in yields earned on interest-earning assets of 28 basis points was
largely a result of the securities portfolio repositioning in 1994. This
repositioning resulted in the Company earning lower yields on securities during
the first and second quarters as the Company temporarily maintained higher
balances of lower yielding, shorter-term investments. During the third
quarter, the Company redeployed approximately 75% of the securities portfolio
in longer-term, higher yielding securities. The rates paid on interest-bearing
deposits decreased 10 basis points from 1993 to 1994 as a result of declines in
deposit rates offered and maturing deposits being reinvested at these lower
rates. Positively affecting the margin in the first nine months of 1994 were
an increase in average loans of 12% and a decrease in the liability funding
ratio from 83.83% in 1993 to 81.22% in 1994.
OTHER OPERATING INCOME
Other operating income for the third quarter of 1994 was $19.5 million compared
to $19.4 million for the third quarter of 1993. Service charges on deposits
and fees for trust services for the third quarter of 1994 increased $793
thousand and $239 thousand, respectively, from the third quarter of 1993, as a
result of new business. These increases were partially offset by a decrease of
$758 thousand in income recognized on futures and expired option contracts in
1994 compared to the same period in 1993, and a loss of $275 thousand on the
sales of available for sale securities in 1994.
Other operating income for the nine months ended September 30, 1994 was $68.8
million compared to $56.3 million for the same period in 1993. Service charges
on deposits and fees for trust services for the first nine months increased
$1.4 million and $650 thousand, respectively, as a result of new business.
Other operating income in the first nine months of 1994 included gains of $9.5
million on the sales of securities available for sale and related derivative
contracts resulting from the repositioning of the available for sale portfolio.
Other income also increased $1.8 million in the first nine months of 1994
compared to the same period in 1993 due to the reimbursement of legal fees.
These increases were partially offset by a $1.4 million decrease in income
recognized on futures and expired option contracts.
<PAGE> 12
OTHER OPERATING EXPENSE
Other operating expense for the third quarter of 1994 was $44.7 million, an
increase of $2.1 million or 4.9% over the third quarter of 1993. Other expense
for the third quarter of 1994 increased to $5.3 million from $4.1 million in
the third quarter of 1993 as a result of a decrease in the gains on the sale of
other real estate in 1994. This increase was partially offset by a decrease in
amortized purchased mortgage servicing of $661 thousand which resulted from
increased amortizations due to the level of paydowns of mortgage loans serviced
by the Company in 1993. Other occupancy expense increased $305 thousand to $3.3
million, due to normal increases in the cost of maintenance, depreciation, and
rental costs.
Other operating expense for the nine months ended September 30, 1994 was $132.1
million compared to $126.3 million for the same period in 1993. This increase
is primarily due to a $3.1 million increase in salaries and employee benefits
due to normal salary increases. Advertising and public relations expense
increased from $5.2 million during the first nine months of 1993 to $6.0
million for the first nine months of 1994 primarily as a result of an increase
in target marketing strategies. Net occupancy expense increased $818 thousand
to $9.3 million in the third quarter of 1994 compared to the third quarter of
1993 as a result of increases in the cost of maintenance, depreciation, and
rental costs.
INCOME TAXES
Income tax expense was $22.5 million for the first nine months of 1994 compared
to $20.3 million for the same period in 1993. This increase results primarily
from increased pretax income, the effect of the increase in the federal income
tax rate from 34% to 35% during the third quarter of 1993, and the first
quarter 1993 recognition of a $657 thousand tax benefit resulting from the
adoption of SFAS No. 109, "Accounting for Income Taxes". As a result of an
increase in the tax rate in 1993, the Company recognized an income tax benefit
of $980 thousand due to the Company's level of net deferred tax assets.
CREDIT QUALITY
In the third quarter of 1994, as a result of continued positive trends in
credit quality and management's assessment of the adequacy of the allowance,
the Company determined that a provision to the allowance for possible loan
losses was not necessary.
The allowance for possible loan losses at September 30, 1994 was $57.7 million
or 2.12% of total loans and 259% of nonperforming loans outstanding compared to
$62.0 million or 2.56% of total loans and 204% of nonperforming loans at
December 31, 1993. Nonperforming loans decreased to $22.3 million at September
30, 1994 compared to $30.5 million at December 31, 1993.
<PAGE> 13
Net recoveries for the third quarter of 1994 were $84 thousand compared to
third quarter 1993 net recoveries of $1.2 million. Year-to-date net
charge-offs were $2.8 million for 1994 compared to net recoveries of $1.9
million for 1993. Year-to-date net charge-offs for 1994 reflect a $6 million
charge-off on a single credit.
CAPITAL
The Company's tier 1 capital and total risk-based capital ratios at September
30, 1994 were 12.24% and 13.49%, respectively. This compares to a tier 1 capital
ratio of 13.28% and total risk-based capital ratio of 14.54% at December 31,
1993. The decrease in capital ratios from December 31, 1993 to September 30,
1994 is primarily due to an increase in intangibles and total risk-based assets
as a result of the acquisition of First Columbus Financial Corporation. The
Company's leverage ratio was 8.12% at September 30, 1994 compared to 8.13% at
December 31, 1993.
The Company's banking subsidiaries have maintained leverage, tier 1 and total
risk-based capital ratios well above the 5%, 6% and 10% minimum guidelines
necessary to be categorized as "well capitalized" insured depository
institutions under the guidelines set forth by the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). At September 30, 1994, Deposit
Guaranty National Bank's leverage ratio was 8.63%, tier 1 capital ratio was
12.47% and its total risk-based capital ratio was 13.72%. At September 30,
1994, Commercial National Bank's leverage, tier 1 and total capital ratios were
9.73%, 16.96% and 18.24%, respectively. First Columbus National Bank's
leverage, tier 1 and total capital ratios were 12.23%, 23.25%, and 24.51%,
respectively.
LIQUIDITY
Liquidity is the Company's ability to ensure that funds are available to meet
the cash flow demands of the Company's business. 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 Company relies largely on core deposits to fund
loan demand and long-term investments. During recent years, the Company has
maintained a high level of liquidity as loans have been at a lower than desired
level. Loan demand has increased steadily for the first nine months of 1994
and was funded by a reduction in short-term investments. The percentage of
loans to deposits remains at a relatively low level of 63% up from 58% in 1993.
<PAGE> 14
ACCOUNTING CHANGES
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". 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. In October 1994, the Financial
Accounting Standards Board issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". This Statement
amends SFAS No. 114 by eliminating the income recognition provisions outlined
in SFAS No. 114 and allowing creditors to use existing methods for recognizing
interest income on impaired loans. SFAS No. 118 is effective concurrent with
the effective date of SFAS No. 114. The adoption of these Statements is not
expected to have a material impact on the consolidated financial statements.
In June 1993, the Financial Accounting Standards Board issued SFAS No. 116,
"Accounting for Contributions Received and Contributions Made". SFAS No. 116
establishes standards of financial accounting and reporting for contributions
received and contributions made. SFAS No. 116 is effective for fiscal years
beginning after December 15, 1994 and for interim periods within those fiscal
years. Adoption of this Statement is not expected to have a material impact on
the consolidated financial statements.
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes to the legal proceedings described
in Item 3 of the Registrant's quarterly report on Form 10-Q (file number
0-4518) filed with the Commission for the period ended June 30, 1994.
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
<TABLE>
<CAPTION>
TABLE SEQUENTIAL
EXHIBIT NUMBER PAGE NUMBER
------- ------ -----------
<S> <C> <C>
Plan of acquisition, reorganization,
arrangement, liquidation or succession (2) N/A
Instruments defining the rights of
security holders, including indentures (4) N/A
Material Contracts (10) N/A
Statements re: computation of per share
earnings (11) 18
Letters re: unaudited interim financial
information (15) 19
Letter re: change in certifying (16) N/A
accountant
Letter re: change in accounting
principles (18) N/A
Previously unfiled documents (19) N/A
Report furnished to security holders (20) N/A
Published report regarding matters
submitted to vote of security holders (23) N/A
Consent of experts and counsel (24) N/A
Power of attorney (25) N/A
Financial data schedule (27) 20
Additional exhibits (28) N/A
</TABLE>
________________________________________
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1994.
<PAGE> 17
SIGNATURES
Pursuant to the requirements 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.
DEPOSIT GUARANTY CORP.
(Registrant)
DATE: November 11, 1994 /s/ Stephen E. Barker
Stephen E. Barker
Controller and Principal
Accounting Officer
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
TABLE SEQUENTIAL
EXHIBIT NUMBER PAGE NUMBER
------- ------ -----------
<S> <C> <C>
Plan of acquisition, reorganization,
arrangement, liquidation or succession (2) N/A
Instruments defining the rights of
security holders, including indentures (4) N/A
Material Contracts (10) N/A
Statements re: computation of per share
earnings (11) 18
Letters re: unaudited interim financial
information (15) 19
Letter re: change in certifying (16) N/A
accountant
Letter re: change in accounting
principles (18) N/A
Previously unfiled documents (19) N/A
Report furnished to security holders (20) N/A
Published report regarding matters
submitted to vote of security holders (23) N/A
Consent of experts and counsel (24) N/A
Power of attorney (25) N/A
Financial data schedule (27) 20
Additional exhibits (28) N/A
</TABLE>
<PAGE> 1
DEPOSIT GUARANTY CORP.
COMPUTATION OF NET INCOME PER SHARE
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
PRIMARY AND PRIMARY AND
FULLY DILUTED FULLY DILUTED
------------------ -----------------
<S> <C> <C>
Computation of weighted average
shared outstanding:
Common stock outstanding,
beginning balance 17,668,852 17,667,852
Common stock issued due to
exercise of options 5,043 3,077
----------- -----------
Weighted average shares
outstanding 17,673,895 17,670,929
=========== ===========
Computation of net income:
Net income $14,203,000 $48,579,000
=========== ===========
Computation of net income per
share:
Net income divided by weighted
average shares outstanding $ .80 $ 2.75
=========== ===========
</TABLE>
Note: For the nine-months ended September 30, 1994, additional weighted
average shares outstanding for options under the Company's incentive stock plan
were 130,619 and 127,898 for calculating primary and fully diluted net income
per share, respectively. The dilutive effect of such options was, therefore,
not material.
<PAGE> 1
Deposit Guaranty Corp.
Jackson, Mississippi
Gentlemen:
RE: September 30, 1994 Quarterly Report on Form 10-Q
With respect to the subject Quarterly Report, we acknowledge our awareness of
the use therein of our report dated October 18, 1994 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act, such report is not considered
a part of a Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of Sections 7
and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jackson, Mississippi
November 11, 1994
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 313,942
<INT-BEARING-DEPOSITS> 100,104
<FED-FUNDS-SOLD> 414,624
<TRADING-ASSETS> 2,012
<INVESTMENTS-HELD-FOR-SALE> 183,718
<INVESTMENTS-CARRYING> 1,145,350
<INVESTMENTS-MARKET> 1,155,090
<LOANS> 2,737,471
<ALLOWANCE> 57,741
<TOTAL-ASSETS> 5,134,013
<DEPOSITS> 4,087,384
<SHORT-TERM> 540,036
<LIABILITIES-OTHER> 90,279
<LONG-TERM> 0
<COMMON> 19,403
0
0
<OTHER-SE> 416,911
<TOTAL-LIABILITIES-AND-EQUITY> 5,134,013
<INTEREST-LOAN> 146,177
<INTEREST-INVEST> 64,633
<INTEREST-OTHER> 12,212
<INTEREST-TOTAL> 223,204
<INTEREST-DEPOSIT> 79,995
<INTEREST-EXPENSE> 91,611
<INTEREST-INCOME-NET> 131,593
<LOAN-LOSSES> (2,750)
<SECURITIES-GAINS> 9,545
<EXPENSE-OTHER> 132,102
<INCOME-PRETAX> 71,045
<INCOME-PRE-EXTRAORDINARY> 48,579
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,579
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 2.75
<YIELD-ACTUAL> 4.11
<LOANS-NON> 22,276
<LOANS-PAST> 3,394
<LOANS-TROUBLED> 44
<LOANS-PROBLEM> 374
<ALLOWANCE-OPEN> 62,032
<CHARGE-OFFS> 11,381
<RECOVERIES> 8,616
<ALLOWANCE-CLOSE> 57,741
<ALLOWANCE-DOMESTIC> 57,741
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,329
</TABLE>
