<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, 1995
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
-------------------------------------------
(Address Of Principal Executive Offices)
(Zip Code)
(601) 354-8564
-------------------------------
(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, 1995: 19,549,143
<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,
1995 1994
----------------------------------
<S> <C> <C>
Assets
Cash and due from banks $313,890 $326,768
Interest-bearing bank balances -- 135,298
Federal funds sold and securities
purchased under agreements to resell 194,838 224,109
Trading account securities 3,212 4,531
Securities available for sale 114,940 8,631
Investment securities (market value:
1995 - $1,438,754; 1994 - $1,332,142) 1,411,033 1,330,171
Loans 3,562,238 2,877,746
Less: Unearned income (13,977) (18,348)
Allowance for possible loan losses (60,995) (55,873)
------------ -------------
Net loans 3,487,266 2,803,525
Bank premises and equipment 145,493 131,621
Other assets 261,756 166,243
------------ -------------
Total assets $5,932,428 $5,130,897
============ =============
Liabilities
Deposits:
Noninterest-bearing $1,054,216 $947,511
Interest-bearing 3,637,581 3,091,039
------------ -------------
Total deposits 4,691,797 4,038,550
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 620,066 564,789
Other liabilities 101,062 84,009
------------ -------------
Total liabilities 5,412,925 4,687,348
------------ -------------
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:
1995 - 19,549,143 shares; 1994 - 17,648,052
shares 21,443 19,361
Surplus 178,696 154,726
Retained earnings 317,466 269,508
Market valuation for securities available for
sale, net of income taxes 1,898 1,973
Treasury stock (1994 - 70,000 shares) -- (2,019)
------------ -------------
Total stockholders' equity 519,503 443,549
------------ -------------
Total liabilities and stockholders' equity $5,932,428 $5,130,897
============ =============
</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,
--------------------------- ---------------------------
1995 1994 1995 1994
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $74,579 $52,757 $209,304 $146,177
Interest on investment securities:
Taxable 24,738 12,143 71,837 23,891
Exempt from Federal income tax 2,121 2,045 6,483 6,301
Interest on securities available for sale:
Taxable 1,368 7,326 2,273 34,367
Exempt from Federal income tax 61 37 111 74
Interest on trading account securities 99 69 236 182
Interest on Federal funds sold and securities
purchased under agreements to resell 1,029 2,665 3,652 8,556
Interest on bank balances 12 1,091 1,153 3,656
-------------------------- --------------------------
Total interest income 104,007 78,133 295,049 223,204
-------------------------- --------------------------
Interest expense
Interest on deposits 36,633 28,124 104,739 79,995
Interest on Federal funds purchased, securities
sold under agreements to repurchase and
other short-term borrowings 8,921 4,263 22,389 11,616
-------------------------- --------------------------
Total interest expense 45,554 32,387 127,128 91,611
-------------------------- --------------------------
Net interest income 58,453 45,746 167,921 131,593
Provision for possible loan losses 1,040 -- 2,040 (2,750)
-------------------------- --------------------------
Net interest income after provision for
possible loan losses 57,413 45,746 165,881 134,343
-------------------------- --------------------------
Other operating income
Service charges on deposit accounts 8,211 7,208 23,566 20,391
Fees for trust services 3,564 3,410 10,565 10,084
Securities available for sale gains (losses) 69 (275) 88 9,545
Other service charges, commissions
and fees 10,233 8,344 28,188 24,319
Other income 1,887 840 3,772 4,465
-------------------------- --------------------------
Total other operating income 23,964 19,527 66,179 68,804
-------------------------- --------------------------
Other operating expense
Salaries and employee benefits 27,931 24,105 80,490 72,288
Net occupancy expense 3,643 3,257 10,149 9,318
Equipment expense 3,983 3,332 11,873 9,872
Service fees 2,883 2,732 8,366 8,147
Communication 2,066 1,927 6,427 5,625
FDIC assessment (342) 2,282 4,462 6,685
Advertising and public relations 1,856 1,781 6,274 5,953
Other expense 8,596 5,254 21,490 14,214
-------------------------- --------------------------
Total other operating expense 50,616 44,670 149,531 132,102
-------------------------- --------------------------
Income before income taxes 30,761 20,603 82,529 71,045
Income tax expense 10,050 6,400 26,472 22,466
-------------------------- --------------------------
Net income $20,711 $14,203 $56,057 $48,579
========================== ==========================
Net income per share $1.09 $0.80 $2.93 $2.75
Weighted average shares outstanding 19,133,117 17,673,895 19,141,161 17,670,929
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1994
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 56,057 $ 48,579
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,040 (2,750)
Provision for depreciation and amortization 18,023 13,229
Provision for deferred income tax benefit (2,604) (3,588)
Accretion of discount on investment securities, net (27,255) (6,896)
Accretion of discount on securities available for sale, net (81) (4,476)
Deferred loan fees and costs (2,112) (2,356)
(Increase) decrease in other liabilities (37,967) 11,874
(Increase) decrease in other assets (41,576) 21,382
Net cash received from (paid for) loans held for resale (61,284) 55,052
Securities available for sale gains (88) (9,545)
Other, net 342 4,555
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (96,505) 125,060
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances 135,298 (30,104)
Proceeds from sales of securities available for sale 71,716 1,585,482
Proceeds from maturities of investment securities 640,491 252,461
Proceeds from maturities of securities available for sale 17,519 649,231
Purchases of investment securities (608,075) (1,035,558)
Purchases of securities available for sale (50,332) (1,008,383)
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell 36,767 (205,969)
Net increase in loans (303,973) (258,827)
Proceeds from sales of other real estate 2,835 6,993
Purchases of bank premises and equipment (11,211) (13,825)
Proceeds from sales of bank premises and equipment 289 2,543
Payment for purchase of common stock of
First Columbus Financial Corporation -- (49,343)
Payment for purchase of common stock of First Mortgage
Mortgage Corp. and other acquisition costs (16,225) --
Payment for purchase of common stock of First
Merchants Financial Corporation (3,700) --
Cash and due from banks of acquired banks and branch operations 24,996 14,072
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (63,605) (91,227)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 149,885 (23,852)
Net increase (decrease) in Federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings 52,547 23,041
Proceeds from the exercise of common stock options 787 277
Purchases of Company common stock (40,416) --
Cash dividends paid (15,571) (13,251)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 147,232 (13,785)
----------- -----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (12,878) 20,048
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 326,768 293,894
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 313,890 $ 313,942
=========== ===========
</TABLE>
<PAGE> 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
INCOME TAXES:
The Company made income tax payments of $24.5 million and $20.4 million
during the nine month periods ended September 30, 1995 and 1994, respectively.
INTEREST:
The Company paid $124.3 million and $90.8 million in interest on deposits and
other borrowings during the nine month periods ended September 30, 1995 and
1994, respectively.
SECURITIES:
During 1994, the Company transferred securities available for sale with a
carrying value of $139.5 million to its investment securities portfolio. These
securities had an unrealized holding gain of $2.7 million at the transfer date,
net of deferred income taxes, reported as a separate component of stockholders'
equity.
ACQUISITIONS:
During 1995, the Company exchanged 1.4 million shares of its common stock for
all the outstanding common shares of Citizens National Bancshares, Inc. in a
transaction accounted for as a pooling of interests.
During 1995, the Company acquired, in purchase business conbinations, the
common stock of LBO Bancorp, Inc., First Mortgage Corp., and First Merchants
Financial Corporation. The following table reflects cash paid, shares of
common stock exchanged, assets acquired and liabilities assumed (in thousands):
<TABLE>
<CAPTION>
LBO Bancorp, First Mortgage First Merchants
Inc. Corp. Financial Corporation
----------------- --------------- ---------------------
<S> <C> <C> <C>
Cash paid $ -- $ 16.2 million $ 3.7 million
=============== ============== ===================
Shares of common stock issued 680 thousand -- 994 thousand
=============== ============== ===================
Fair Value of assets acquired $ 109,336 $ 61,280 $ 304,525
Fair value of common stock issued 19,736 16,225 42,219
--------------- -------------- -------------------
Liabilities assumed $ 89,600 $ 45,055 $ 262,306
=============== ============== ===================
</TABLE>
During 1994, the Company purchased substantially all of the common stock of
First Columbus Financial Corporation for $49.3 million. In conjunction with
the acqusition, liabilities were assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $ 228,652
Cash paid for common stock and other acquisition costs 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.
The condensed consolidated financial statements of Deposit Guaranty Corp.
include the financial statements of Deposit Guaranty National Bank, a 98%-owned
subsidiary and Deposit Guaranty Arkansas, Inc., G & W Life Insurance Co., and
Commercial National Corporation all wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
NOTE B - CONTINGENCIES
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. In an amended complaint, 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 trusts. The case seeks actual damages for waste of trust
assets and loss of income and punitive damages, both in an unspecified amount
to be proven at trial, 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.
The Company's subsidiary, Deposit Guaranty National Bank is a defendant in a
class action lawsuit and several other lawsuits involving collateral protection
insurance. The lawsuits generally allege that DGNB violated various banking
statutes and breached common law duties owed to the plaintiffs. DGNB is in the
final stages of negotiating a settlement of the class action lawsuit, which
will be subject to preliminary approval by the court and subject to a fairness
hearing conducted by the court in which other interested parties will have the
opportunity to object to the terms of the settlement. The Company believes,
based upon the advice of counsel, that the collateral protection insurance
lawsuits will be resolved without a material adverse effect on the financial
condition of the Company. 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.
<PAGE> 7
NOTE C - ACCOUNTING CHANGES
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." As required by
SFAS No. 114, a loan is impaired when based on current information and events,
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 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 or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends SFAS No. 114 by eliminating the income
recognition provisions outlined in SFAS No. 114 and allowing creditors to use
previously used methods for recognizing interest income on impaired loans. The
adoption of these Statements did not have a material impact on the consolidated
financial statements.
Effective January 1, 1995, the Company adopted the provisions of SFAS No. 116,
"Accounting for Contributions Received and Contributions Made." SFAS No. 116
requires that contributions made by the Company, including unconditional
promises to give, be recognized as expenses at their fair values in the period
made. Conditional promises to give are recognized when the conditions are
substantially met. Adoption of this Statement did not have a material impact
on the consolidated financial statements.
NOTE D - LOANS
The following table summarizes the activity in the allowance for possible loan
losses for the nine-month periods ended September 30, 1995 and 1994 (in
thousands).
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Balance at January 1 $55,873 $62,032
Charge-offs ( 7,503) (11,381)
Recoveries 5,933 8,616
-------- -------
Net charge-offs ( 1,570) ( 2,765)
Provision for possible loan losses 2,040 ( 2,750)
Allowance of acquired banks 4,652 1,224
------- -------
Balance at September 30 $60,995 $57,741
======= ========
</TABLE>
The total recorded investment in impaired loans as of September 30, 1995 was
$25.3 million of which $6.6 million has a related allowance of $1.6 million for
estimated credit losses determined in accordance with the provisions of SFAS
No. 114. The remaining $18.7 million of the impaired loans do not require an
allowance under the provisions of SFAS No. 114 since the estimated future cash
flows or the collateral value was considered sufficient to cover any future
deficiencies in loan payments. However, a general allowance for possible loan
losses is available to absorb losses on these loans. The average recorded
investment in impaired loans for the nine month period was $22.9 million.
<PAGE> 8
The Company continues to use the nonaccrual method for interest income on
impaired loans. Using this method, the accrual of interest is discontinued on
loans when management believes there is reasonable uncertainty as to the
collectability of the contract amount, or when the loan is contractually 90
days or more past due, or not well secured and not in the process of
collection. There was no interest income recognized in the third quarter of
1995 on loans identified as impaired.
NOTE E - ACQUISITIONS
On December 31, 1994, the Company exchanged 680 thousand shares of common stock
for all of the outstanding common shares of LBO Bancorp, Inc., a bank holding
company, in a purchase business combination. The fair value of the assets
acquired was $109 million. The acquisition, which was not material, was
reflected in the financial statements beginning January 1, 1995.
On March 10, 1995, the Company purchased the Coahoma County, Mississippi
operations of a local Mississippi bank. This acquisition added assets of
approximately $82 million.
On May 19, 1995, the Company exchanged 1.4 million shares of common stock for
all of the outstanding shares of Citizens National Bancshares, Inc., a bank
holding company, in a pooling of interests transaction. As a result of this
transaction, the Company has restated its financial statements to include
Citizens National as of January 1, 1995. The Company's restated net income
for the first quarter of 1995 is $18.0 million with restated total assets of
$5.4 billion as of March 31, 1995. Prior to the inclusion of Citizens
National, the Company's first quarter net income was $17.2 million with total
assets of $5.2 billion. Citizens National had first quarter net income and
total assets of $750 thousand and $193 million, respectively. Prior years'
financial statements were not restated as the changes would have been
immaterial.
On August 8, 1995, the Company purchased First Mortgage Corp, located in Omaha,
Nebraska for $15.8 million in a purchase business combination. First Mortgage
Corp. has a $1.1 billion mortgage servicing portfolio and 6 production offices
in Nebraska and Oklahoma.
On September 1, 1995, the Company purchased First Merchants Financial
Corporation, a bank holding company with approximately $280 million in total
assets. Under the agreement, 994 thousand shares of Deposit Guaranty Corp.
common stock and $3.7 million in cash were exchanged for all of the issued and
outstanding shares of First Merchants Financial Corporation.
<PAGE> 9
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, 1995, and the related
condensed consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 1995 and 1994, and the related condensed
consolidated statements of cash flows for the nine-month periods ended
September 30, 1995 and 1994.
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 subsidiaries as of December 31, 1994, 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 3,
1995, 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, 1994, 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 17, 1995
<PAGE> 10
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. and subsidiaries (the Company) for the
three-month and nine-month periods ending September 30, 1995 and 1994. This
discussion should be read in conjunction with the condensed consolidated
financial statements included in Part I, Item I.
During the second and fourth quarters of 1994, the Company acquired First
Columbus Financial Corporation, a $209 million asset bank holding company, and
LBO Bancorp, Inc. with total assets of $109 million. During the first quarter
of 1995, the Company acquired the Coahoma County operations of a local
Mississippi bank with total assets of approximately $82 million. During the
third quarter of 1995, Deposit Guaranty acquired First Mortgage Corp with a
$1.1 billion servicing portfolio and First Merchants Financial Corporation with
total assets of $280 million. These transactions were accounted for as
purchases and, as such, the results of operations of these entities are
included in the financial statements from the acquisition date and will affect
the comparability of the financial statements for 1994 and 1995.
During the second quarter of 1995, the Company acquired Citizens National
Bancshares, Inc. with total assets of $193 million. This transaction was
accounted for as a pooling of interests and, accordingly, the Company's
financial statements for 1995 have been restated to include the combined
financial results of both companies. Prior period financial statements were
not restated as the changes would have been immaterial.
STATEMENT OF CONDITION
Total assets were $5.932 billion at September 30, 1995, compared to $5.131
billion at December 31, 1994. Loans, net of unearned income, increased $689
million from $2.859 billion at December 31, 1994 to $3.548 billion at September
30, 1995. Approximately, 42% of this increase in loans was the result of
higher loan demand in the Company's market area and approximately 58% of the
increase was due to acquisitions. Securities available for sale and investment
securities increased $106 million and $81 million, respectively from December
31, 1994 to September 30, 1995. In correlation with the increases in loans and
securities, decreases occurred in interest-bearing bank balances and Federal
funds sold and securities purchased under agreements to resell of $135.3
million and $29.2 million, respectively. Other assets increased $96 million
from $166 million at December 31, 1994 to $262 million at September 30, 1995,
primarily as a result of increases in intangibles due to the purchase
acquisitions. Total deposits increased from $4.039 billion at December 31,
1994 to $4.692 billion at September 30, 1995. Approximately 80% of the
increase in deposits was the result of acquisitions. Total stockholders'
equity increased to $519.5 million at September 30, 1995 compared to $443.6
million at December 31, 1994.
<PAGE> 11
As of September 30, 1995, the Company had interest rate swap contracts with a
total notional value of $154 million compared to $265 million at December 31,
1994 and $235 million at June 30, 1995. During 1995, the Company sold interest
swap contracts with notional amounts totaling $65 million for a net gain of
$792 thousand. These swaps were hedging money market deposit accounts;
therefore, the gain is being amortized over the original life of the terminated
swap contracts. Also during 1995, the Company exercised its option not to
extend the maturity on a callable swap.
NET INCOME
Net income for the third quarter of 1995 was $20.7 million compared to $14.2
million for the third quarter of 1994. Net income per share was $1.09 for the
third quarter of 1995 compared to $.80 for the same period in 1994. Net income
for the third quarter of 1995 includes a $1.7 million after-tax refund of
deposit insurance premiums resulting from the Federal Deposit Insurance
Corporation (FDIC) lowering the Company's premium rate on insured deposits from
23 cents per $100 of deposits to 4 cents, effective June 1, 1995. Excluding
this refund, net income for the third quarter of 1995 increased largely as a
result of an increase in net interest income of $12.7 million from $45.7
million to $58.4 million.
Net income for the nine months ended September 30, 1995 was $56.1 million with
net income per share of $2.93 compared to net income of $48.6 million and net
income per share of $2.75 for the same period in 1994. Year-to-date net income
for 1995 included a provision for possible loan losses of $1.3, after income
taxes, compared to a negative provision of $1.8 million, after income taxes, in
1994. Net income for 1994 also includes gains on the sales of securities
available for sale of $6.0 million, after income taxes. Excluding these items,
net income for the first nine months of 1995 increased $16.6 million, or 41%,
compared to the same period in 1994 primarily as a result of an increase in net
interest income. For the first nine months of 1995, the return on average
assets was 1.37% compared to 1.32% for the same period in 1994. The return on
average equity for the first nine months of 1995 was 15.35% compared to 15.26%
for 1994.
NET INTEREST INCOME
Net interest income for the third quarter of 1995 was $58.5 million, an
increase of 27.8%, from $45.8 million for the third quarter of 1994 due to a
13.7% increase in interest-earning assets and a 50 basis point increase in the
net interest margin. The increase in interest-earning assets continues to be
primarily concentrated in loan volume. Average loan volumes increased 26.9% to
$3.4 billion in 1995 compared to $2.6 billion in 1994. The net interest margin
for the third quarter of 1995 was 4.72%, increasing from 4.22% during the third
quarter of 1994. This increase in the margin is primarily due to a 37 basis
point increase in the interest spread, the difference between the yield on
interest-earning assets and the rate paid on interest-bearing liabilities.
This increase in the interest spread is the result of interest rates paid on
deposits increasing less than yields on loans. An improvement in the mix of
earning assets also contributed to the increase in the spread as average total
loans as a percentage of interest-earning assets increased from 59.50% during
the third quarter of 1994 to 66.39% during the same period in 1995, and as
lower yielding short-term money market assets decreased as a percentage of
interest-earning assets from 7.59% during the third quarter of 1994 to 1.38%
during the same period in 1995.
<PAGE> 12
Net interest income for the nine months ended September 30, 1995 was $167.9
million compared to $131.6 million for the same period in 1994. The tax
equivalent net interest margin increased from 4.11% in 1994 to 4.73% in 1995.
This increase in the margin is primarily the result of an increase in the
interest spread from 1995 to 1994 and an increase in loan volume. The
interest spread increased to 3.83% in the first nine months of 1995 compared to
3.38% during the same period in 1994. Average loan volumes increased 26% to
$3.2 billion in 1995 compared to $2.5 billion in 1994.
OTHER OPERATING INCOME
Other operating income for the third quarter of 1995 was $24.0 million compared
to $19.5 million for the third quarter of 1994. The increase in other
operating income is primarily the result of a $4.0 million increase in core
revenue sources during the third quarter of 1995 compared to the same period
for 1994. Approximately $1.6 million of this increase represents the impact of
acquisitions while the remainder represents new business and increased
activity.
Other operating income for the nine months ended September 30, 1995 was $66.2
million compared to $68.8 million for the same period in 1994. The decrease in
other operating income for 1995 was primarily due to a decrease in gains on the
sale of available for sale securities of $9.5 million and a decrease of $1.7
million in other income primarily resulting from the reimbursement of legal
fees in 1994 related to bond trustee activity. These decreases were partially
offset by an increase of approximately $7.5 million in core fee revenue
sources. Approximately $3.0 million of this increase was due to acquisitions
while the remainder was a result of new business and increased activity.
OTHER OPERATING EXPENSE
Other operating expense for the third quarter of 1995 was $50.6 million, an
increase of $5.9 million or 13.3% over the third quarter of 1994.
Approximately $5.6 million of the increase is related to acquisitions.
Excluding acquisitions, the underlying expenses increased 2.8% primarily as a
result of increased personnel costs being partially offset by a $2.6 million
decrease in the FDIC assessment in the third quarter of 1995 compared to 1994.
Salaries and employee benefits, excluding the effects of acquisitions, for the
third quarter of 1995 increased approximately 5.2% or $1.3 million compared to
the third quarter of 1994 as a result of normal salary increases and higher
benefit costs.
Other operating expense for the nine months ended September 30, 1995 increased
$17.4 million to $149.5 million in 1995 compared to $132.1 million for the same
period in 1994. Approximately $9.2 million of the increase is related to the
impact of acquisitions. Excluding acquisitions, the underlying costs increased
6.2% primarily due to increases in other real estate expenses and personnel
related expenses. Other real estate expenses increased $1.5 million during the
first nine months of 1995 compared to 1994 as a result of decreasing gains on
sales of properties in 1995 compared to 1994. Personnel related expenses for
1995 increased $3.1 million as a result of normal salary increases and higher
benefit costs. These increases were offset by a decrease of $2.6 million in
FDIC assessments.
<PAGE> 13
CREDIT QUALITY
Credit quality remains strong as nonperforming assets were $36.8 million, or
1.04% of total loans plus other real estate at September 30, 1995 compared to
$32.3 million, or 1.13% of total loans plus other real estate at December 31,
1994. The allowance for possible loan losses at September 30, 1995, was $61.0
million or 1.72% of total loans and 202% of nonperforming loans outstanding
compared to $55.9 million or 1.95% of total loans and 219% of nonperforming
loans at December 31, 1994. Net charge-offs for the third quarter of 1995 were
$756 thousand compared to third quarter 1994 net recoveries of $84 thousand.
Year-to-date net charge-offs were $1.6 million, or .07% to average loans, for
1995 compared to net charge-offs of $2.8 million for 1994. An addition of $1
million was made to the allowance for the third quarter of 1995 compared to no
provision during the same period in 1994.
CAPITAL
The Company maintains risk-based capital levels well in excess of the minimum
guidelines adopted by the Federal Reserve Board for bank holding companies.
The Company's tier 1 capital and total risk-based capital ratios at September
30, 1995 were 10.91% and 12.17%, respectively. This compares to a tier 1
capital ratio of 12.49% and total risk-based capital ratio of 13.75% at
December 31, 1994. The Company's leverage ratio was 7.95% at September 30,
1995 compared to 8.43% at December 31, 1994.
The Company's banking subsidiaries have maintained leverage, tier 1 and total
risk-based capital ratios well above the 5%, 6% and 10% levels 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.
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. 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.
The Company has maintained a high level of liquidity as the loan to deposit
ratio of 76.5% at September 30, 1995, has been lower than desired. Loan demand
has continued to increase for the first nine months of 1995 which was funded by
a reduction in short-term investments.
ACCOUNTING CHANGES
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121, requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
<PAGE> 14
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use is based on the fair value
of the asset. This statement requires that the majority of long-lived assets
and certain identifiable intangibles to be disposed of be reported at the lower
of carrying amount or fair value less cost to sell. SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. The adoption of this
statement is not expected to have a material impact on the consolidated
financial statements.
On May 12, 1995, The FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122
provides guidance for recognition of mortgage servicing rights as an asset when
a mortgage loan is sold or securitized and servicing rights retained. This
statement also requires that impairment of mortgage servicing rights be
measured as the difference between the carrying amount of the servicing rights
and their current fair values. SFAS No. 122 is to be applied prospectively in
fiscal years beginning after December 15, 1995. The Company intends to adopt
the provisions of this Statement on January 1, 1996 and is currently analyzing
the impact that adoption of this statement will have on its financial
statements.
On October 23, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement provides accounting and reporting standards for
stock-based employee compensation plans and also applies to transactions in
which the Company acquires goods and services from nonemployees in exchange for
the Company's equity instruments. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all employee
stock compensation plans. Entities electing to remain with the accounting
treatment outlined in APB Opinion No. 25, "Accounting for Stock Issued to
Employees" are required to make pro forma disclosures of net income and
earnings per share, as if the fair value based method had been adopted. The
accounting and disclosure requirements of this Statement are effective for
transactions entered into in fiscal years beginning after December 15, 1995.
The 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 annual report on Form 10-K (file number 0-4518)
filed with the Commission for the fiscal year ended December 31, 1994, the
quarters ended June 30, 1995 and March 31, 1995, and the current report on Form
8K, dated August 18, 1995, except as follows:
1. In Marion Bentley v. Deposit Guaranty National Bank and Prudential Property
& Casualty Insurance Co.: On October 3, 1995, this action was temporarily
certified for an initial period of four (4) months as a class action for
the purpose of discussing settlement. The temporary certification order
enjoins new actions against the Bank by the class members and also states
that no other action arising from the subject matter of this action may be
maintained as a class action against the Bank pending resolution of the
settlement discussions. The Bank is in the final stages of settlement
discussions with counsel for the plaintiff class. Assuming such a
settlement agreement is reached, the settlement will be subject preliminary
approval by the court and subject to a fairness hearing conducted the
court in which other interested parties will have the opportunity to object
to the terms of the settlements. The terms of the proposed settlement
include a settlement fund of approximately $4 million which will include
both cash payments by the Bank and credits to Bank customer who are
indebted to the Bank. The punitive damages component of the proposed
settlement will be mandatory and the class members may not opt out of the
class settlement and pursue punitive damages in a separate action. The
proposed settlement will not be mandatory with respect to compensatory
damages, and any of the class members may opt out of the class settlement
with respect to compensatory damages, and any of the class members may opt
out of the class settlement and file a separate claim for such damages.
Two additional class action lawsuits relating to collateral protection
insurance have been filed. These lawsuits should be subject to the
prohibitions in Bentley against the maintenance of any other class actions.
2. The item described in the Registrant's annual report of Form 10-K as
in Re: Taxable Municipal Bonds Securities Litigation, MDL 863, was the
subject of stipulations and agreements of settlement which have now been
approved by the Court before which the litigation was pending. Commercial
National Bank in Shreveport did not pay any sums in settlement, but did
obtain a dismissal, with prejudice, of the claims against it and a release
by the class of claimants. The Court entered the final judgment of
dismissal, with prejudice, on October 11, 1995. The appeal delays have now
expired with no appeal having been taken and the judgment of dismissal and
the release of the claims of the members of the class is now final.
<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) The Company filed a report on Form 8-K, dated August 18, 1995, disclosing
legal proceedings against the Company's subsidiary, Deposit Guaranty
National Bank.
<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 14, 1995 /s/ Stephen E. Barker
----------------------- ----------------------------
Stephen E. Barker
Controller and Principal
Accounting Officer
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
11 Statement re: Computation of Per Share Earnings
15 Letters re: Unaudited Interim Financial Information
27 Financial Data Schedule
<PAGE> 1
Deposit Guaranty Corp.
Computation of Net Income Per Share
September 30, 1995
<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 18,851,417 17,578,052
Common stock issued due
to mergers 324,140 2,172,499
Common stock issued due to
exercise of options 3,667 21,508
Shares purchased by
the Company (46,107) (630,898)
----------- -----------
Weighted average shares
outstanding 19,133,117 19,141,161
=========== ===========
Computation of net income:
Net income $20,711,000 $56,057,000
=========== ===========
Computation of net income per
share:
Net income divided by weighted
average shares outstanding $ 1.09 $ 2.93
=========== ===========
</TABLE>
Note: For the nine-months ended September 30, 1995, additional weighted
average shares outstanding for options under the Company's incentive stock plan
were 179,179 and 224,799 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, 1995 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 17, 1995 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 14, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 313,890
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 194,838
<TRADING-ASSETS> 3,212
<INVESTMENTS-HELD-FOR-SALE> 114,940
<INVESTMENTS-CARRYING> 1,411,033
<INVESTMENTS-MARKET> 1,521,459
<LOANS> 3,562,238
<ALLOWANCE> (60,995)
<TOTAL-ASSETS> 5,932,428
<DEPOSITS> 4,691,797
<SHORT-TERM> 620,066
<LIABILITIES-OTHER> 101,062
<LONG-TERM> 0
<COMMON> 21,443
0
0
<OTHER-SE> 498,060
<TOTAL-LIABILITIES-AND-EQUITY> 5,932,428
<INTEREST-LOAN> 209,304
<INTEREST-INVEST> 80,940
<INTEREST-OTHER> 4,805
<INTEREST-TOTAL> 295,049
<INTEREST-DEPOSIT> 104,739
<INTEREST-EXPENSE> 127,128
<INTEREST-INCOME-NET> 167,921
<LOAN-LOSSES> 2,040
<SECURITIES-GAINS> 88
<EXPENSE-OTHER> 149,531
<INCOME-PRETAX> 82,529
<INCOME-PRE-EXTRAORDINARY> 56,057
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,057
<EPS-PRIMARY> 2.93
<EPS-DILUTED> 2.93
<YIELD-ACTUAL> 4.73
<LOANS-NON> 30,214
<LOANS-PAST> 8,264
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 354
<ALLOWANCE-OPEN> 55,873
<CHARGE-OFFS> 7,503
<RECOVERIES> 5,933
<ALLOWANCE-CLOSE> 60,995
<ALLOWANCE-DOMESTIC> 60,995
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,947
</TABLE>
