<PAGE> 1
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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, 1994 Commission file number 0-4518
DEPOSIT GUARANTY CORP.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MISSISSIPPI 64-0472169
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 EAST CAPITOL STREET, JACKSON, MS 39201
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(Address of principal executive offices) (Zip Code)
</TABLE>
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. [ X ]
Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of February 24, 1995: $477,848,160.
Common stock, no par value, outstanding as of February 24, 1995: 17,677,571
shares
Portions of the Proxy Statement of Registrant for the Annual Meeting of
Shareholders to be held on April 18, 1995, are incorporated in Parts III and IV
of this report.
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1
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CROSS REFERENCE INDEX
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Page
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<S> <C> <C>
PART I Item 1 Business 4-7
Statistical data required by Exchange
Act Guide 3 and Securities Act Guide
3 included in Management's Discussion
and Analysis 10-30
Item 2 Properties 8
Item 3 Legal Proceedings 9
Item 4 There has been no submission of matters
to a vote of shareholders during the
quarter ended December 31, 1994.
PART II Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 26,31
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operation 10-30
Item 8 Financial Statements and
Supplementary Data:
Consolidated Statements of Condition -
December 31, 1994 and 1993 32
Consolidated Statements of Earnings -
Years Ended December 31, 1994,
1993, and 1992 33
Consolidated Statements of Changes in
Stockholders' Equity - Years
Ended December 31, 1994, 1993,
and 1992 34
Consolidated Statements of Cash Flows -
Years Ended December 31, 1994,
1993, and 1992 35
Notes to Consolidated Financial Statements 36-49
Independent Auditors' Report 50
Item 9 There has been no disagreement with
accountants on accounting and financial
matters.
</TABLE>
2
<PAGE> 3
CROSS REFERENCE INDEX
<TABLE>
<S> <C> <C>
PART III Item 10 Directors and Executive Officers of the
Registrant 6,7,*
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
</TABLE>
* Information called for by Part III (Items 10 through 13) is
incorporated by reference to the Registrant's Proxy Statement
for the 1995 Annual Meeting of Shareholders filed with the
Securities and Exchange Commission.
3
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BUSINESS
General
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 1994, the Company
conducted its business through its 98%- owned subsidiary, Deposit Guaranty
National Bank ("Deposit Guaranty"); through its 100%-owned subsidiaries,
Commercial National Corporation and G&W Life Insurance Company; and through
Deposit Guaranty's 100%-owned subsidiaries, Deposit Guaranty Mortgage Company
(the "Mortgage Company"), Deposit Guaranty Investments, Inc., and 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.
During 1994, the Company acquired First Columbus Financial Corporation
and its wholly-owned subsidiary First Columbus National Bank located in
Columbus, Mississippi, with assets of approximately $209 million. First
Columbus Financial Corporation was merged into the Company and First Columbus
National Bank was merged into Deposit Guaranty. At year end 1994, the Company
acquired LBO BanCorp, Inc., with assets of $96 million, and its wholly-owned
subsidiary, Louisiana Bank, located in West Monroe, Louisiana. LBO BanCorp,
Inc. was merged into a subsidiary of the Company and Louisiana Bank was merged
into Commercial.
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.
At December 31, 1994, the banks could lend the Company a maximum of
approximately $22.3 million in aggregate.
4
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BUSINESS (CONTINUED)
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.
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'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.
During 1994, 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.
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.
Deposit Guaranty is located throughout Mississippi with 135 banking
locations and is the second largest bank in Mississippi.
Commercial is located in Louisiana. It is the fifth largest bank in
Louisiana and has nineteen banking locations in the Shreveport/Bossier market
and five branches in the Monroe/West Monroe 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.
5
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BUSINESS (CONTINUED)
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 its subsidiary, G & W Life Insurance Company.
On December 31, 1994, the Company and its subsidiaries had
approximately 2,613 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. 53 Chairman of the Board and January 1, 1984
Chief Executive Officer
of the Company and Deposit
Guaranty
Howard L. McMillan, Jr. 56 President and Chief January 1, 1984
Operating Officer of the
company and Deposit
Guaranty
Steven C. Walker 45 President and Chief October 17, 1989
Executive Officer of
Commercial
</TABLE>
6
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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>
Arlen L. McDonald 46 Executive Vice President March 16, 1976
and Chief Financial
Officer of the Company
and Deposit Guaranty
Robert G. Barnett 61 General Counsel and March 18, 1975
Secretary of the Company
and Deposit Guaranty
William R. Boone 57 Executive Vice President December 17, 1974
of the Company and Deposit
Guaranty
Thomas M. Hontzas 50 Executive Vice President May 18, 1982
of the Company and
Deposit Guaranty
James S. Lenoir 52 Executive Vice President February 15, 1983
and Chief Credit Officer
of the Company and Deposit
Guaranty
W. Parks Johnson 52 Executive Vice President February 16, 1994
of Deposit Guaranty
W. Murray Pate 47 Executive Vice President October 1, 1990
of the Company and Deposit
Guaranty
W. Stanley Pratt 49 Executive Vice President December 20, 1983
of Deposit Guaranty
Stephen E. Barker 38 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.
7
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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 117,000 square feet, and the Company and its other
subsidiaries occupy approximately 32,000 square feet. An additional 170,000
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 72,600 square feet and the Company occupies
approximately 43,400 square feet.
Deposit Guaranty owns eighty-two of its one hundred and eight full-service
branch banking facilities. The remaining twenty-six branch banking facilities
are occupied under leases expiring from 1995 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 eight 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 211,400 net rentable square feet. An
additional 227,300 net rentable square feet is occupied by various tenants and
approximately 53,300 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.
At December 31, 1994, Commercial owns eleven of its twelve banking
locations. The remaining branch banking facility is occupied under a lease
expiring in 1999.
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 nineteen 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.
8
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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 arises out of a Louisiana Housing Finance Agency
Municipal Bond Issue. The litigation against CNB 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 a defendant were some
officers of some corporate defendants. 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), was 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 for the First Judicial District
of Hinds County, Mississippi, on October 25, 1993. The federal court case
has been dismissed without prejudice. The state court case has been
transferred to the Chancery Court of Lowndes County, Mississippi, and is now
styled and numbered in that court as Winters v. DGNB, Cause No. 94-0583. The
plaintiffs are some of the beneficiaries of a trust terminated in 1984 (of
which DGNB was trustee) and a presently existing trust (of which DGNB is
trustee). In an amended complaint, 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.
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.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
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TABLE 1 - SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990
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STATEMENTS OF EARNINGS
Interest income . . . . . . . . . . . . . . . $ 307,272 $ 299,327 $ 322,114 $ 382,432 $ 406,724
Interest expense . . . . . . . . . . . . . . 125,881 124,687 155,459 231,473 257,023
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Net interest income . . . . . . . . . . . . . 181,391 174,640 166,655 150,959 149,701
Provision for possible loan losses . . . . . (4,750) (16,000) 10,378 17,260 46,409
--------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses . . . . . . . . . . . 186,141 190,640 156,277 133,699 103,292
Other operating income . . . . . . . . . . . 93,499 74,781 67,977 61,439 74,955
Other operating expenses . . . . . . . . . . 180,047 171,567 164,470 152,828 145,315
--------------------------------------------------------------------------------
Income before income taxes . . . . . . . . . 99,593 93,854 59,784 42,310 32,932
Income tax expense . . . . . . . . . . . . . 32,463 27,302 14,270 10,090 8,407
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Net income . . . . . . . . . . . . . . . . . $ 67,130 $ 66,552 $ 45,514 $ 32,220 $ 24,525
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NET INCOME PER SHARE
Primary . . . . . . . . . . . . . . . . . . $ 3.80 $ 3.77 $ 2.67 $ 2.04 $ 1.55
Fully diluted . . . . . . . . . . . . . . . 3.80 3.77 2.63 1.93 1.49
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary . . . . . . . . . . . . . . . . . . 17,668,062 17,649,852 17,033,664 15,799,996 15,799,996
Fully diluted . . . . . . . . . . . . . . . 17,668,062 17,649,852 17,465,282 17,442,388 17,442,388
CASH DIVIDENDS PER SHARE . . . . . . . . . . $ 1.06 $ .93 $ .80 $ .78 $ .78
STATEMENT OF CONDITION - AVERAGES
Total assets . . . . . . . . . . . . . . . . $ 4,940,977 $ 4,826,726 $ 4,777,596 $ 4,814,533 $ 4,522,212
Earning assets . . . . . . . . . . . . . . . 4,413,938 4,333,740 4,275,345 4,329,336 4,036,671
Securities available for sale . . . . . . . 712,184 1,308,634 -- -- --
Investment securities . . . . . . . . . . . . 718,891 396,011 1,616,658 1,417,299 1,036,123
Loans, net of unearned income . . . . . . . . 2,581,724 2,293,416 2,261,034 2,411,731 2,633,394
Deposits . . . . . . . . . . . . . . . . . . 3,997,038 3,867,669 3,876,927 3,990,963 3,692,556
Long-term debt . . . . . . . . . . . . . . . -- -- 6,320 24,020 24,236
Total stockholders' equity . . . . . . . . . 429,967 367,592 315,833 275,345 259,644
SELECTED RATIOS
Return on average assets . . . . . . . . . . 1.36% 1.38% .95% .67% .54%
Return on average equity . . . . . . . . . . 15.61 18.10 14.41 11.70 9.45
Net interest margin - tax equivalent . . . . 4.24 4.18 4.12 3.77 4.04
Allowance for possible loan losses to
loans, net of unearned income . . . . . . . 1.95 2.56 3.30 3.74 3.46
Net charge-offs (recoveries) to average
loans, net of unearned income . . . . . . .10 (.14) 1.02 .77 1.14
Dividend payout . . . . . . . . . . . . . . . 27.89 24.67 29.96 38.24 50.32
Average equity to average assets . . . . . . 8.70 7.62 6.61 5.72 5.74
Leverage ratio . . . . . . . . . . . . . . . 8.43 8.13 6.80 5.42 5.19
Tier I risk-based . . . . . . . . . . . . . . 12.49 13.28 12.00 9.95 8.25
Total risk-based . . . . . . . . . . . . . . 13.75 14.54 13.27 12.11 10.31
</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.
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FINANCIAL REVIEW
The following discussion reviews the results of operations and assesses the
financial condition of Deposit Guaranty Corp. (the Company) and should be read
in conjunction with the consolidated financial statements included in this
Annual Report.
The Company's results reflect record earnings for 1994 of $67.1 million
compared to $66.6 million in 1993 and $45.5 million in 1992. Fully diluted net
income per share for 1994 was $3.80 compared to $3.77 and $2.63 in 1993 and
1992, respectively.
The improvement in 1994's net income as compared to 1993 was primarily the
result of an increase in net interest income and an increase in noninterest
income due to gains on sales of securities. Improvement in net interest income
______
10
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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>
1994
Interest income . . . . . . . . . . . . . . . . . . . . . . . . $ 84,068 $ 78,133 $ 73,156 $ 71,915
Net interest income . . . . . . . . . . . . . . . . . . . . . . . 49,798 45,746 42,977 42,870
Provision for possible
loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . (2,000) -- (2,750) --
Gains (losses) on securities
available for sale . . . . . . . . . . . . . . . . . . . . . . 4,076 (275) 1,088 8,732
Income before income taxes . . . . . . . . . . . . . . . . . . . 28,548 20,603 22,771 27,671
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,551 14,203 15,706 18,670
Net income per share . . . . . . . . . . . . . . . . . . . . . . 1.05 .80 .89 1.06
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) --
Gains (losses) on securities
available for sale . . . . . . . . . . . . . . . . . . . . . . (28) (84) 137 (127)
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 . . . . . . . . . . . . . . . . . . . . . . .93 .85 1.20 .79
</TABLE>
================================================================================
resulted largely from increased loan volume in 1994 and an increase in the
primary noninterest-bearing funding source, net demand deposits. Due to the
increasing interest rate environment, substantially all of the fixed-rate
securities available for sale were either sold or converted to floating-rate
instruments during 1994. As a result, gains on securities available for sale of
$13.6 million were recognized in 1994. Net income in 1994 included a negative
provision to the allowance for possible loan losses of $4.75 million as a
result of improved credit quality and compares to a negative provision of $16
million for 1993.
On May 18, 1994, the Company acquired First Columbus Financial Corporation
(FCFC) and its wholly-owned subsidiary First Columbus National Bank (FCNB)
located in Columbus, Mississippi, with assets of approximately $209 million.
The transaction was accounted for as a purchase; therefore, the results of
operations of FCFC are included in the consolidated financial statements from
the acquisition date. This acquisition affects the comparability of the
Company's 1994 consolidated financial statements with prior years.
At year end, the Company acquired LBO BanCorp, Inc., with assets of $96
million, and its wholly-owned banking subsidiary, Louisiana Bank, located in
West Monroe, Louisiana, in a purchase business combination. This acquired
company will be included in the Company's consolidated financial statements
beginning January 1, 1995.
In December of 1994, the Company entered into a definitive agreement to
acquire Citizens National Bancshares, Inc., with assets of $190 million, and
its wholly-owned banking subsidiary Citizens National Bank, located in Hammond,
Louisiana. This acquisition will be accounted for as a pooling of interest and
is expected to be consummated during the second quarter of 1995.
Additionally, the Company will purchase the Coahoma County, Mississippi,
operations of a local Mississippi bank. This transaction is expected to be
consummated by the end of the first quarter of 1995 and will add assets of
approximately $82 million.
At year end 1994, total assets were $5.1 billion, an increase of 4% over
year end 1993. Total average assets increased to $4.9 billion in 1994 from $4.8
billion in 1993. The return on average assets for 1994 was 1.36% compared to
1.38% in 1993 and .95% in 1992. The return on average equity in 1994 was 15.61%
compared to 18.10% and 14.41% in 1993 and 1992, respectively. Effective January
1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Under this Statement securities available for sale are reported at fair value
with unrealized gains and losses reported as a separate component of
stockholders' equity, net of deferred income taxes. The effect of adopting this
Statement increased average assets $16.4 million and
______
11
<PAGE> 12
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 1994, 1993 and
1992.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------------------
INTEREST AVERAGE Interest Average Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
ASSETS BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
income . . . . . . . . . $2,581,724 $206,280 7.99% $2,293,416 $182,047 7.94% $2,261,034 $187,422 8.29%
Investment securities:
Taxable . . . . . . . . . 609,604 41,511 6.81 281,589 25,116 8.92 1,265,334 91,210 7.21
Exempt from Federal
income tax . . . . . . 109,287 11,876 10.87 114,422 12,903 11.28 155,630 18,096 11.63
Securities available
for sale:
Taxable . . . . . . . . . 710,738 36,353 5.11 1,306,209 74,167 5.68 194,224 18,062 9.30
Exempt from Federal
income tax . . . . . . 1,446 118 8.16 2,425 269 11.09 1,470 118 8.03
Trading account
securities . . . . . . . 4,714 322 6.83 4,018 283 7.04 3,811 264 6.93
Federal funds sold
and securities purchased
under agreements to resell 269,432 11,111 4.12 277,127 8,576 3.09 296,032 10,913 3.69
Interest-bearing
bank balances . . . . . . 126,993 5,184 4.08 54,534 1,732 3.18 97,810 4,408 4.51
-----------------------------------------------------------------------------------------------
Total interest-earning
assets . . . . . . . . . 4,413,938 312,755 7.09 4,333,740 305,093 7.04 4,275,345 330,493 7.73
Noninterest-earning assets:
Cash and due from
banks . . . . . . . . . . 298,143 281,448 273,589
Bank premises and
equipment . . . . . . . . 128,862 125,009 120,484
Other assets . . . . . . . 144,857 157,145 194,641
Allowance for possible
loan losses . . . . . . . (61,178) (70,616) (86,463)
Unrealized gain
on securities
available for sale . . . 16,355 -- --
-----------------------------------------------------------------------------------------------
Total assets . . . . . . . $4,940,977 $4,826,726 $4,777,596
===============================================================================================
</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 1994 and 1993 and 34% for 1992.
================================================================================
average equity $10.1 million. Assuming SFAS No. 115 had not been adopted, the
returns on average assets and equity would have been 1.37% and 15.99%,
respectively.
The capital ratios for the Company continue to be well above the minimum
regulatory guidelines. The leverage ratio for the Company at December 31, 1994
was 8.43% compared to 8.13% in 1993. The tier I and total risk-based capital
ratios for December 1994 were 12.49% and 13.75% compared to 13.28% and 14.54%
in 1993. The capital ratios of the Company's two major banking subsidiaries
categorize them as "well capitalized" according to the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA).
Identification of the changes in the significant components of earnings
from quarter-to-quarter aids in understanding the results of the Company's
operations. Gains on the sales of securities in the first, second and fourth
quarters of 1994 of $8.7 million, $1.1 million and $4.1 million were the result
of management's strategy to take advantage of rising interest rates by
liquidating substantially all of the available for sale portfolio and
ultimately reinvesting in higher-yielding securities. Substantially all of the
proceeds from the liquidation were temporarily reinvested in lower-yielding
money market investments. During the third quarter of 1994, these funds were
reinvested in higher-yielding one and two year securities, contributing to the
increase in net interest income in the third
______
12
<PAGE> 13
TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES (continued)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------------------------------------
INTEREST AVERAGE Interest Average Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
LIABILITIES BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Savings deposits . . . . . $1,592,776 $37,369 2.35% $1,497,249 $34,296 2.29% $1,428,639 $43,555 3.05%
Time deposits . . . . . . . 1,528,590 71,947 4.71 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 . . . . . . . 452,610 16,565 3.66 525,221 14,492 2.76 514,073 16,633 3.24
Long-term debt . . . . . . -- -- -- -- -- -- 6,320 563 8.91
-----------------------------------------------------------------------------------------------
Total interest-bearing
liabilities . . . . . . . 3,573,976 125,881 3.52 3,595,034 124,687 3.47 3,671,145 155,459 4.23
Noninterest-bearing
liabilities:
Deposits . . . . . . . . . 875,672 797,856 726,175
Other liabilities . . . . . 61,362 66,244 64,443
-----------------------------------------------------------------------------------------------
Total liabilities . . . . . 4,511,010 4,459,134 4,461,763
Stockholders' equity . . . 429,967 367,592 315,833
-----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity . . $4,940,977 $4,826,726 $4,777,596
===============================================================================================
Net interest income/
margin - tax equivalent . 186,874 4.24% 180,406 4.18% 175,034 4.12%
===============================================================================================
Tax equivalent
adjustment:
Loans . . . . . . . . . . 1,846 1,801 2,121
Investment securities . . 3,559 3,841 6,202
Securities available
for sale . . . . . . . 14 58 --
Other . . . . . . . . . . 64 66 56
-----------------------------------------------------------------------------------------------
Total tax equivalent
adjustment . . . . . . . 5,483 5,766 8,379
-----------------------------------------------------------------------------------------------
Net interest income . . . . $181,391 $174,640 $166,655
===============================================================================================
</TABLE>
================================================================================
and fourth quarters. Loan growth throughout 1994 combined with increasing
market rates on all interest-earning asset categories, while deposit costs
remained relatively stable, also contributed to the increase in net interest
income. The Company had a negative provision to the allowance for possible loan
losses in the second quarter of 1994 of $2.75 million and an additional
negative provision in the fourth quarter of 1994 of $2 million. The second
quarter also included a gain of approximately $1.9 million due to the
reimbursement of legal fees expensed in prior years.
The Company had a negative provision in the second and fourth quarters of 1993
of $11 million and $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, "Accounting for Income Taxes,"
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.
______
13
<PAGE> 14
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>
1994 COMPARED TO 1993 1993 Compared To 1992
------------------------------------------------------------------
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 . . . . . . . . . . . . . . . . . . . . . . . . $ 22,885 $ 1,348 $ 24,233 $ 2,684 $ (8,059) $ (5,375)
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . 29,257 (12,862) 16,395 (70,912) 4,818 (66,094)
Exempt from Federal income tax . . . . . . . . . . (579) (448) (1,027) (4,791) (402) (5,193)
Securities available for sale:
Taxable . . . . . . . . . . . . . . . . . . . . . . (33,811) (4,003) (37,814) 103,410 (47,305) 56,105
Exempt from Federal income tax . . . . . . . . . . (109) (42) (151) 77 74 151
Trading account securities . . . . . . . . . . . . . 49 (10) 39 14 5 19
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . . . (238) 2,773 2,535 (697) (1,640) (2,337)
Interest-bearing bank balances . . . . . . . . . . . 2,301 1,151 3,452 (1,950) (726) (2,676)
------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . 19,755 (12,093) 7,662 27,835 (53,235) (25,400)
------------------------------------------------------------------
Interest expense on:
Savings deposits . . . . . . . . . . . . . . . . . . 2,188 885 3,073 2,092 (11,351) (9,259)
Time deposits . . . . . . . . . . . . . . . . . . . . (2,122) (1,830) (3,952) (8,224) (10,585) (18,809)
Federal funds purchased, securities sold
under agreements to repurchase, and other
short-term borrowings . . . . . . . . . . . . . . . (2,003) 4,076 2,073 361 (2,502) (2,141)
Long-term debt . . . . . . . . . . . . . . . . . . . -- -- -- (563) -- (563)
------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . (1,937) 3,131 1,194 (6,334) (24,438) (30,772)
------------------------------------------------------------------
Changes in net interest income-tax equivalent . . . . $ 21,692 $(15,224) $ 6,468 $ 34,169 $(28,797) $ 5,372
==================================================================
</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.
================================================================================
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 exempt from Federal income taxes is
adjusted based on a statutory marginal Federal income tax rate of 35% for 1994
and 1993, and 34% for 1992. The tax equivalent net interest margin (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 by the percentage of interest-earning assets funded by
interest-bearing liabilities (liability funding).
Tax-equivalent net interest income in 1994 was $186.9 million compared to
$180.4 million in 1993 and $175 million in 1992. The 4.24% margin achieved for
1994 is an increase over the 4.18% for 1993 and 4.12% for 1992. The increase in
the 1994 margin is attributable to three principal factors, an increase of 13%
in average loans, stable funding costs and an improved mix of funding sources
due to an increase in average net demand deposits. The liquidation and
repositioning of the securities portfolio in 1994 had a temporary negative
impact on the margin for 1994 due to funds being reinvested in short-term
investments in anticipation of increases in market interest rates. The margin
increased throughout the last three quarters of 1994, with the fourth quarter
increasing to 4.62%.
As the local and national economies improved during 1994, demand for
consumer and business loans increased substantially. Average loans increased
$288 million, or 13%, in 1994 compared to 1993, and resulted in a more
favorable
______
14
<PAGE> 15
TABLE 5 - INTEREST SENSITIVITY
(IN THOUSANDS)
The following table reflects the interest sensitivity of the Company over
various periods as of December 31, 1994, 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 . . . . . . . . . $1,406,516 $ 407,632 $ 745,674 $ 299,576 $2,859,398
Investment securities . . . . . . . . . . . . . 89,115 538,388 534,064 168,604 1,330,171
Securities available for sale . . . . . . . . . 1,870 5,245 1,208 308 8,631
Trading account securities . . . . . . . . . . 4,531 -- -- -- 4,531
Federal funds sold and securities
purchased under agreements to resell . . . . 224,109 -- -- -- 224,109
Interest-bearing bank balances . . . . . . . . 135,298 -- -- -- 135,298
--------------------------------------------------------------
Total interest-earning assets . . . . . . . . 1,861,439 951,265 1,280,946 468,488 4,562,138
Noninterest-earning assets . . . . . . . . . . -- -- -- 568,759 568,759
--------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . $1,861,439 $ 951,265 $1,280,946 $1,037,247 $5,130,897
==============================================================
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings deposits . . . . . . . . . . . . . . . $1,569,094 $ -- $ -- $ -- $1,569,094
Time deposits . . . . . . . . . . . . . . . . . 378,775 502,114 582,557 58,499 1,521,945
Short-term borrowings . . . . . . . . . . . . . 564,789 -- -- -- 564,789
--------------------------------------------------------------
Total interest-bearing liabilities . . . . . 2,512,658 502,114 582,557 58,499 3,655,828
Noninterest-bearing deposits . . . . . . . . . -- 153,092 287,988 506,431 947,511
Other liabilities . . . . . . . . . . . . . . . -- -- -- 84,009 84,009
Stockholders' equity . . . . . . . . . . . . . -- -- -- 443,549 443,549
--------------------------------------------------------------
Total liabilities and stockholders' equity . $2,512,658 $ 655,206 $ 870,545 $1,092,488 $5,130,897
==============================================================
Interest rate swaps . . . . . . . . . . . . . . $ 125,000 $ 60,000 $ (100,000) $ (85,000)
Interest sensitive gap . . . . . . . . . . . . (526,219) 356,059 310,401 (140,241)
Cumulative interest sensitive gap . . . . . . . (526,219) (170,160) 140,241 --
Cumulative interest sensitive gap
as a percent of total assets . . . . . . . . (10.26)% (3.32)% 2.73% --
</TABLE>
================================================================================
mix as loans increased as a percent of interest-earning assets to 59% in 1994
from 53% in 1993. Loan growth was primarily funded by a reduction in
securities, resulting in a more profitable mix of assets due to the higher
yields achieved on loans relative to securities. This change in asset mix
contributed to the increased yield on interest-earning assets and to the
growth in net interest income.
Another significant contributing factor to the increase in net interest
income and the margin was the stable cost of funding sources while market
interest rates rose rapidly. The rates paid on interest-bearing deposits for
1994 were 3.50%, a decrease from 3.59% in 1993 compared to an increase in the
yield on interest-earning assets in 1994 to 7.09% from 7.04% in 1993. The
liability-funding ratio declined from 82.9% in 1993 to 81.0% in 1994 as average
noninterest- bearing deposits increased by $78 million, with approximately $52
million of this increase attributable to the acquisition of FCFC.
The increase in net interest income in 1993 was primarily due to a 1.4%
increase in average interest-earning assets to $4.3 billion, a decrease in the
liability funding ratio from 85.8% in 1992 to 82.9% in 1993, significant
improvement in nonperforming loans, and a slight increase in the interest
spreads. The increase in the interest spread was the result of the Company
reducing interest rates paid on many of its deposit accounts more rapidly than
the decrease in yields on interest-earning assets.
INTEREST RATE SENSITIVITY
The Company manages net interest income, the income stream associated with
balance sheet activities, through a process known as Asset/Liability Management
(ALM). ALM for the Company begins at the board level by establishing policy
guidelines that limit the potential variation in net interest income due to
market interest rate swings. The Company's Asset/Liability Committee, comprised
of executive management, sets the day-to-day operating guidelines and approves
______
15
<PAGE> 16
TABLE 6 - RISK MANAGEMENT DERIVATIVE POSITION
(IN THOUSANDS)
The following table identifies the year end open positions for the company's
risk management interest rate swaps and interest rate caps.
<TABLE>
<CAPTION>
Pay Rate Receive Rate
-------------------------------------
Fair Underlying
Maturity Notional Value Rate Index Rate Index Asset/Liability
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
Pay fixed:
1996 $ 40,000 $ 777 6.19% Fixed 6.19% Libor Commercial loans
2005 60,000 6,849 6.46 Fixed (1) Libor Savings deposits
2007 25,000 1,889 6.64 Fixed (1) Libor Mortgage loans
Receive fixed:
1996 $ 40,000 $(1,600) 6.19% Libor 4.83% Fixed Commercial loans
1999 (2) 100,000 (15) 5.49 Libor 5.75 Fixed Investment securities
INTEREST RATE CAPS
1997 $100,000 $ 3,576 6.88% -- -- -- Time deposits
</TABLE>
(1) Swap contains a deferred start date to 1995.
(2) Callable swap
================================================================================
strategies affecting net interest income and coordinates activities within
board policy limits.
As the primary tool for interest rate risk measurement, the Company
utilizes a computer simulation model to measure its interest rate risk
position. This model allows the Company to simulate the effect of complex
interactions of customer choices, product promotions and potential-market
interest rate scenarios on net interest income. Management reviews several
measures of interest rate risk, as well as additional possible interest rate
scenarios, to better understand the interest rate risk profile of the Company.
The Company utilizes simulation to evaluate interest rate risk at a point
in time. Specific guidelines are followed to evaluate the Company's interest
rate risk position to provide a consistent comparative analysis. A baseline
forecast of net interest income is established assuming a stable interest rate
environment. Net interest income is then recalculated with the assumption that
interest rates will, over the next twelve months, trend up and down 200 basis
points from the baseline forecast.
The Company's board policy, implemented at subsidiary bank levels, limits
the negative variation in net interest income to 10% of the baseline forecast.
The Company manages its interest rate sensitivity position well within policy
limits under normal operating circumstances. At December 31, 1994, the Company
evidenced approximately 3% variability in net interest income given the
assumptions used in the model. At this level of variability, the Company has
significant flexibility given the inherent uncertainty with respect to the
direction of market interest rates.
The Company's static interest sensitivity gap position, while not a
complete measure of interest sensitivity, is reviewed periodically to provide
insights related to the static repricing structure of assets and liabilities.
The Company's interest sensitivity gap position as of December 31, 1994, is
presented in Table 5 and represents the difference between total interest
sensitive assets and total interest sensitive liabilities. At December 31,
1994, the Company had a one-year cumulative negative gap of $170 million,
representing approximately 3.3% of total assets.
DERIVATIVE ACTIVITIES
RISK MANAGEMENT DERIVATIVES
The Company used derivative instruments for the primary purposes of protecting
market value and income in 1994. The specific types of derivatives used were
interest rate swaps, forward contracts, Eurodollar futures and options,
interest rate caps, written and purchased options, and U. S. Treasury note
futures.
Interest rate swaps were the primary instruments used by the Company to
manage interest rate risk. 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 as a basis for determining the actual interest cash flows to
be exchanged related to the interest rate contracts. As of December 31, 1994,
the Company had interest rate swap contracts with a total notional value of
$265 million compared to $465 million at December 31, 1993. This amount is
composed of agreements where the Company receives fixed rates on notional
amounts totaling $140 million with an average rate of 5.49% and agreements
where the Company pays fixed rates on notional amounts totaling
______
16
<PAGE> 17
TABLE 7 - INTEREST RATE SWAP ACTIVITY
(IN THOUSANDS)
The following table shows the interest rate swap activity (notional amounts)
for 1994.
<TABLE>
<CAPTION>
1994
Interest
December 31, December 31, Income
Maturity 1993 Purchased Terminated 1994 (Expense)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PAY FIXED
1996 $ -- $ 40,000 $ -- $ 40,000 $ (163)
1998 -- 25,000 (25,000) -- (136)
1999 -- 90,000 (90,000) -- (804)
2005 60,000 -- -- 60,000 --
2007 25,000 -- -- 25,000 --
---------------------------------------------------------------------------------------------------------------
Total 85,000 155,000 (115,000) 125,000 (1,103)
---------------------------------------------------------------------------------------------------------------
RECEIVE FIXED
1994 340,000 -- (340,000) -- (688)
1996 40,000 -- -- 40,000 (221)
1999 -- 100,000 -- 100,000 841
---------------------------------------------------------------------------------------------------------------
Total 380,000 100,000 (340,000) 140,000 (68)
---------------------------------------------------------------------------------------------------------------
Total swaps $465,000 $255,000 $(455,000) $265,000 $(1,171)
===============================================================================================================
</TABLE>
================================================================================
$125 million with an average rate of 6.41%. The cost to replace these contracts
if the counterparty defaults, or the positive fair value, is $9.5 million in
1994 compared to $1.8 million in 1993. All interest rate swap counterparties
are AAA rated by Standard and Poors or have collateral arrangements with the
Company. The Company utilizes a stress test to determine the effect of market
movements on the value of the interest rate swaps. The stress test estimates
the value of the instrument assuming a parallel 300 basis point shift in rates.
Interest rate caps were purchased during 1994 to limit the future funding
rates on floating rate deposit accounts resulting from forecasted rising
interest rates. These interest rate caps were based on the three month LIBOR
rate and assigned to certificates of deposits with maturities of three months
or less. As of December 31, 1994, the Company had interest rate cap contracts
with a total notional value of $100 million. The premium paid for the interest
rate caps is included in deposit liabilities and amortized to interest expense
over the life of the caps. The interest rate caps have three year maturities
and a fair value of $3.6 million at December 31, 1994.
The Company uses over the counter options for hedging purposes and as a
means of generating additional noninterest income. 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, 1994, the Company did not have any outstanding option contracts
used for risk management purposes. The Company was a counterparty to several
short-term option contracts during 1994 and recognized $920 thousand in premium
income compared to $1.9 million in 1993. The Company also paid a premium of
$109 thousand to purchase a three month call option in 1994. This call option
was used to guarantee a minimum reinvestment rate on the anticipated purchase
of $100 million three year U. S. Treasury notes. The Company did not have any
option contracts at year-end 1993 compared to contracts totaling $10 million at
year-end 1992.
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. Credit risk may arise from the possibility that
counterparties may not have the ability to fulfill their commitments. Market
risk arises from the movements in interest rates and security values. The
majority of the Company's forward commitments represent agreements to sell
mortgage loans. As of December 31, 1994, the contract amounts for forward
commitments totaled $37 million compared to $130 million in 1993.
Futures contracts are similar in most aspects to forward contracts, except
margin accounts are maintained and daily settlements are required since most
futures contracts are exchange-traded. The Company utilized futures contracts
in 1994 as a means of locking in price and/or interest rates on securities and
Eurodollar placements. Eurodollar futures are used to lock-in the yield on
future Eurodollar placements which are used in managing the Company's
short-term investments. During the first half of 1994, the Company used
Eurodollar futures and U. S. Treasury note futures to
______
17
<PAGE> 18
TABLE 8 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
(IN THOUSANDS)
The carrying amounts of securities available for sale and investment securities
are presented as of the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1993 1992
------------------------------------
<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 . . . . . . . . . . . . . 1,872 200 3,737
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . 6,759 572,485 268,120
------------------------------------
Total securities available for sale . . . . . . . . . . . . . . . . . . . 8,631 1,365,728 1,030,642
------------------------------------
INVESTMENT SECURITIES
U. S. Treasury and other U. S. Government agencies . . . . . . . . . . . . 933,828 60,434 87,943
Obligations of states and political subdivisions . . . . . . . . . . . . . 104,890 109,495 120,391
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . 252,869 137,356 306,492
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,584 9,573 12,803
------------------------------------
Total investment securities . . . . . . . . . . . . . . . . . . . . . . . 1,330,171 316,858 527,629
------------------------------------
Total securities available for sale and investment securities . . . . . $1,338,802 $1,682,586 $1,558,271
====================================
</TABLE>
================================================================================
hedge the market value of U. S. Treasury securities in the available for sale
portfolio. Futures contracts, used for risk management purposes, generated a
net gain of $49 thousand. The Company had no outstanding futures contracts as
of December 31, 1994 and 1993.
TRADING DERIVATIVES
In 1994, the Company initiated a Eurodollar futures and options trading account
in order to maintain an active presence in the Eurodollar futures and options
markets. Position limits have been established for the account which provide
for a tightly controlled trading environment. At December 31, 1994, the trading
account had open contracts with a notional value of $175 million and a net loss
of $41 thousand.
DERIVATIVE CONTROLS
The Company utilizes various controls to manage the risks associated with
derivative instruments. These controls include specific internal policies,
tracking systems, and legal contracts in conjunction with management oversight,
internal and external audits, and regulatory compliance examinations.
Board and management oversight is achieved through strict internal policy
and operating guidelines which delineate specific approvals for each type
transaction. Specific operating limits have been established for common
derivative transactions. Additionally, certain transactions, such as interest
rate swap agreements, require separate approval from the Company's
Asset/Liability Committee. The Company also maintains an on-site compliance
officer reporting directly to the Board of Directors, which provides for timely
review of transactions.
An automated derivatives management system is used by the Company to
generate daily position, pricing, and risk management reports. This system
generates reports enabling the Company to maintain accurate and timely
information on all derivative positions.
The Company's derivatives credit risk is minimal. Each counterparty with
the Company is either AAA rated by Standard and Poors or has executed a
bi-lateral collateral agreement with the Company. Collateral agreements are
designed to protect the Company against possible default by the counterparties.
The Company requires that any counterparty rated below AAA post collateral on
any net positive market value above $100 thousand on an ongoing basis. As of
December 31, 1994, the Company was holding counterparty collateral with a fair
value of $11.4 million.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
The securities portfolio is the second largest component of interest-earning
assets at $1.3 billion at December 31, 1994, compared to $1.7 billion at
year-end 1993 and $1.6 billion at year-end 1992. The securities portfolio
includes securities classified as securities available for sale and investment
securities. 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 are subject to being sold prior to their
contractual maturities allowing the Company the ability to respond to changes
in the interest rate environment. This portfolio can also be a secondary
liquidity source and provide a balance to interest rate and credit risks.
As of January 1, 1994, according to the provisions set forth in SFAS No.
115, securities available for sale are accounted for at fair value with
unrealized gains or losses excluded from
______
18
<PAGE> 19
TABLE 9 - 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, 1994.
<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
---------------------------------------------------------------------------------------------- Carrying
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES
AVAILABLE FOR SALE
Obligations of states
and political
subdivisions . . . . $ 45 6.00% $ 1,397 4.96% $ 221 5.92% $ 209 7.15% $ -- --% $ 1,872
Mortgage-backed
securities . . . . . -- -- -- -- -- -- -- -- 6,759 6.00 6,759
-----------------------------------------------------------------------------------------------------------
Total securities
available for sale 45 6.00 1,397 4.96 221 5.92 209 7.15 6,759 6.00 8,631
-----------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES
U. S. Treasury
and other U. S.
Government agencies . 471,395 6.03 415,509 6.87 28,985 9.28 17,939 8.20 -- -- 933,828
Obligations of states
and political
subdivisions . . . . 10,790 7.48 23,756 7.27 19,285 7.28 51,059 8.57 -- -- 104,890
Mortgage-backed
securities . . . . . -- -- -- -- -- -- -- -- 252,869 7.52 252,869
Other securities . . . 11,467 6.59 10,880 6.35 3,998 6.63 12,239 6.46 -- -- 38,584
-----------------------------------------------------------------------------------------------------------
Total investment
securities . . . . 493,652 6.07 450,145 6.87 52,268 8.34 81,237 8.17 252,869 7.52 1,330,171
-----------------------------------------------------------------------------------------------------------
TOTAL SECURITIES
AVAILABLE FOR SALE
AND INVESTMENT
SECURITIES . . . . . $493,697 6.07% $451,542 6.87% $52,489 8.33% $81,446 8.17% $259,628 7.48% $1,338,802
============================================================================================================
</TABLE>
At December 31, 1994, the Company held investment securities issued by the
State of Mississippi with an aggregate carrying amount of $29.8 million and a
market value of $31.8 million. The yield on obligations of states and political
subdivisions has been calculated on a fully tax equivalent basis.
================================================================================
earnings and reported as a separate component of stockholders' equity, net of
deferred income taxes. Prior to 1994 securities available for sale were
recorded at the lower of cost or fair value.
The investment securities portfolio consists of debt securities which the
Company has the positive intent and ability to hold to maturity and is carried
at amortized cost.
Securities available for sale totaled $8.6 million at December 31, 1994,
compared to $1.4 billion at December 31, 1993. Investment securities at
December 31, 1994 were $1.3 billion compared to $317 million at year-end 1993.
Early in 1994, the Company liquidated $1.2 billion of securities classified as
available for sale and temporarily reinvested the proceeds in short-term money
market investments in anticipation of increases in market interest rates.
Additionally, $139.5 million in securities available for sale were transferred
to the investment securities portfolio. As a result, pre-tax security gains of
$13.6 million were recognized. During the third quarter of 1994, these funds
were redeployed primarily in one- and two-year U. S. Treasury securities that
are carried in the investment securities portfolio. The Company purchased
relatively short-term securities as a result of the long-term interest rates
being lower than the Company's long-term targets, to position the Company to
take advantage of a further rise in interest rates and to limit the volatility
of capital. This repositioning of the securities portfolio had the effect of
closely replacing the yield on the original securities liquidated while
significantly reducing the market-value risk of the portfolio.
______
19
<PAGE> 20
TABLE 10 - 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,
-----------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural . . . . . . $ 927,551 $ 712,522 $ 757,582 $ 886,079 $1,028,560
Real estate - construction . . . . . . . . . . . . 92,411 70,506 81,320 91,718 136,918
Real estate - mortgage . . . . . . . . . . . . . . 1,152,068 1,051,752 929,966 840,303 799,345
Consumer . . . . . . . . . . . . . . . . . . . . . 705,716 604,261 523,322 573,699 669,107
-----------------------------------------------------------
$2,877,746 $2,439,041 $2,292,190 $2,391,799 $2,633,930
===========================================================
</TABLE>
================================================================================
Securities, excluding mortgage-backed securities, maturing within five
years or less at December 31, 1994, represented 71% of total securities
compared to 51% at December 31, 1993. Mortgage-backed securities at year-end
1994 decreased to 19% of total securities compared to 42% at year-end 1993,
primarily as a result of the liquidation of securities available for sale
during 1994. Securities exempt from Federal income taxes represented 8% of
year-end total securities in 1994 compared to 7% in 1993.
Average securities decreased $273 million, or 16%, in 1994 compared to
increases of $88 million, or 5%, in 1993 and $199 million, or 14%, in 1992. As
a percent of average interest-earning assets, average securities decreased to
32% in 1994, down from 39% in 1993 and 38% in 1992. This decrease in the
relative level of securities in 1994 was a result of increased loan demand
throughout 1994.
LOANS
Loans are the Company's largest component of interest-earning assets. Total
loans increased $441 million, or 18%, to $2.9 billion at December 31, 1994,
compared to $2.4 billion at December 31, 1993. This increase in loans was a
result of higher loan demand in the Company's market area. Approximately $94
million of this increase resulted from the acquisition of FCFC. Average total
loans grew 13% from $2.3 billion in 1993 to $2.6 billion in 1994. Average total
loans represented 59% of interest-earning assets in 1994, compared to 53% in
both 1993 and 1992. The portfolio mix at year-end 1994 consisted of 43% real
estate loans, 32% commercial, financial, and agricultural loans, and 25%
consumer loans. Commercial, financial and agricultural loans increased 30%,
exhibiting the largest increase of the loan categories from 1993 to 1994.
Diversification in the loan portfolio is a means of reducing the risks
associated with fluctuations in economic conditions. At December 31, 1994, 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 73% of total loans located in Mississippi and 17% in
Louisiana.
Loans secured by real estate are the largest category of loans at $1.2
billion at year-end 1994. This loan portfolio is composed of $532 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, $492 million of loans to businesses for intermediate and longer
term financing of land and buildings, and $92 million of loans for construction
and land development. Additionally, this category contains various other loans
secured by real estate.
Real estate loans increased $122 million from year-end 1993 to 1994
following a $111 million increase in 1993. Real estate construction loans
increased $22 million or 31% in 1994 following an $8.7 million decrease in
1993. Residential mortgage loans held for investment increased $65.2 million
which was largely offset by mortgage loans held for sale decreasing $57.9
million or 71% as a result of market interest rates rising in 1994. At year-end
1994, 76% 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 patterns. These loans generally
entail additional risk compared to single family mortgage lending.
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.
______
20
<PAGE> 21
TABLE 11 - 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,
1994, 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 . . . . . . $570,698 $295,797 $61,056 $ 927,551
Real estate - construction . . . . . . . . . . . . 73,724 18,687 -- 92,411
----------------------------------------------------------------
$644,422 $314,484 $61,056 $1,019,962
================================================================
</TABLE>
<TABLE>
<CAPTION>
Interest Sensitivity
-------------------------------------
Fixed Rate Variable Rate Total
-------------------------------------
<C> <C> <C>
Due after one, but within five years . . . . . . . . . . . . . . . . . . $180,776 $133,708 $314,484
Due after five years . . . . . . . . . . . . . . . . . . . . . . . . . . 32,342 28,714 61,056
-------------------------------------
$213,118 $162,422 $375,540
=====================================
</TABLE>
================================================================================
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 increased 30% to $928 million
at year-end 1994 from $713 million and $758 million at year-end 1993 and 1992,
respectively. 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.
During the third quarter of 1994, the Company began originating direct
financing leases for over-the-road tractor and trailer equipment. The structure
of these capital leases allows the customer to guarantee the Company's residual
value. These leases are reported as loans in the consolidated financial
statements of the Company. As of December 31, 1994, the Company had an
investment in lease balances of $922 thousand. Activity in this area is
expected to increase in 1995.
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 so it is exposed to the risk of a general downturn in
the economies of these two states.
Consumer loans increased $101 million or 17% from year-end 1993 to year-end
1994 which was consistent with the Company's goal of increasing the consumer
loan portfolio and compares to an increase of $81 million from year-end 1992 to
year-end 1993.
The consumer loan portfolio is composed of installment loans, unsecured
revolving credit products, and other similar types of credit facilities.
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.
______
21
<PAGE> 22
TABLE 12 - REAL ESTATE LOANS
(IN THOUSANDS)
The following table shows the composition of real estate loans outstanding at
December 31, 1994.
<TABLE>
<CAPTION>
Percent of Percent of
Balance Real Estate Loans Gross Loans
--------------------------------------------
<S> <C> <C> <C>
COMMERCIAL REAL ESTATE
Construction and land development . . . . . . . . . . . . . . . . $ 92,411 7.4% 3.2%
Multifamily . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,277 4.9 2.1
Nonfarm nonresidential . . . . . . . . . . . . . . . . . . . . . 491,528 39.5 17.1
--------------------------------------------
645,216 51.8 22.4
--------------------------------------------
RESIDENTIAL AND FARMLAND
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . 532,168 42.8 18.5
Farmland . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,095 5.4 2.3
--------------------------------------------
599,263 48.2 20.8
--------------------------------------------
$1,244,479 100.0% 43.2%
============================================
</TABLE>
================================================================================
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.
Additionally, the Company continues to be sensitive to the needs of low to
moderate income borrowers and continues 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 to
improve the Company's 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.
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." This Statement
requires a creditor to measure impairment of loans based on the present value
of expected future cash flows, discounted at the loan's effective interest rate
or, as a practical expedient, at the loans observable market price or the fair
value of the collateral, if the loan is collateral dependent. 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. In October 1994, the FASB 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.
114 and SFAS No. 118 are both effective for fiscal years beginning after
December 15, 1994 and adoption will not 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
by the Company 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 increased $129 million in 1994 to $4.0 billion, following
a $9 million decrease from 1992 to 1993. The acquisition of FCFC increased
average deposits by approximately $100 million. The Company continued to see
the impact of disintermediation of consumer deposits to other non-bank
financial-services companies, resulting in 1994 preacquisition deposit levels
largely remaining, on average, at 1993 levels.
Average time deposits, primarily long-term certificates of deposits,
decreased $51 million in 1994 compared to 1993. Average savings deposits and
average noninterest-bearing deposits increased $96 million and $78 million,
respectively, in 1994 compared to 1993. As a result of the lower interest rate
environment in 1993 and early 1994, customers moved the mix from long-term
certificates of deposits to shorter-term deposits while waiting to take
advantage of increasing interest rates. With current interest rate levels, the
Company expects the deposit mix to exhibit an increase in longer-term
certificates of deposits.
______
22
<PAGE> 23
TABLE 13 - 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,
-----------------------------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 840,515 $ 755,099 $ 694,772
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,592,777 1,497,249 1,428,639
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563,746 1,615,321 1,753,516
-----------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,997,038 $3,867,669 $3,876,927
===================================
</TABLE>
================================================================================
TABLE 14 - TIME DEPOSITS OF $100 THOUSAND OR MORE, MATURITY DISTRIBUTION
(IN THOUSANDS)
Maturities of time certificates of deposit of $100 thousand or more outstanding
at December 31, 1994, are summarized in the following table.
<TABLE>
<S> <C>
TIME REMAINING UNTIL MATURITY
3 months or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,284
Over 3 through 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,570
Over 6 through 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . 32,296
Over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,503
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $288,653
========
</TABLE>
================================================================================
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
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.
Short-term investments totaling $364 million provided the major source of
liquidity at December 31, 1994. Cash flows from repayments and maturities from
the securities and loan portfolios provide an additional source of liquidity.
Excluding prepayments from mortgage-backed securities, $494 million, or 37%, of
the securities portfolio and $1.4 billion, or 49% of total loans, have
contractual maturities of one year or less.
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 $3.7 billion which compares to $3.6 billion at the end of 1993.
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 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 increased $33 million during 1994 to $327 million at
December 31, 1994. Net cash provided by operating activities of $87 million for
1994 and $20 million for 1993 included net income, adjusted for various noncash
charges to income, as well as changes in the balance of loans held for sale.
The increase in net cash provided by operating activities from 1993 to 1994 was
primarily due to a decrease in mortgage loans held for sale in 1994 which
contrasts with the increase in mortgage loans held for sale in 1993.
Investing activities, primarily in loans and securities, had the effect of
reducing cash flows by $29 million in 1994 as a result of an increase in loan
volume and short-term investments and the use of funds to acquire FCFC, all of
which were largely offset by funds provided by a decrease in total securities.
In 1993, investing activities were a net provider of cash as investing
activities required less funds due to a decline in short-term investments.
Financing activities are the primary funding source of investing activities
and primarily include the taking of deposits and use of purchased funds.
Financing activities had the effect
______
23
<PAGE> 24
TABLE 15 - 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>
1994
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . . $559,779 $424,091 3.6% $559,779
Other short-term borrowings . . . . . . . . . . . . . . . . . . 5,010 28,519 4.3 54,123
-----------------------------------
Total short-term borrowings . . . . . . . . . . . . . . . . . . $564,789 $452,610 3.7%
===================================
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%
===================================
</TABLE>
================================================================================
of reducing cash flows by $25 million in 1994 as the decrease in cash flows
from deposits and the payment of dividends required more funds than were
provided by an increase in purchased funds. In 1993 financing activities had
the effect of reducing cash flows by $166.4 million as total deposits and
purchased funds decreased.
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
1995, without prior regulatory approval, $90.5 million plus their net profits
for 1995. 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, 1994,
the parent company had no active lines of credit and had no long-term debt
outstanding.
CREDIT RISK MANAGEMENT
The Company manages 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 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 to expense 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
______
24
<PAGE> 25
TABLE 16 - 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,
------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses - beginning balance. $ 62,032 $ 74,856 $ 87,493 $ 88,862 $ 31,328
Charge-offs:
Commercial, financial and agricultural . . . . . . 7,851 2,881 22,348 7,577 9,046
Real estate - construction . . . . . . . . . . . . 132 40 80 1,073 7,510
Real estate - mortgage . . . . . . . . . . . . . . 1,691 1,846 3,772 8,706 4,605
Consumer . . . . . . . . . . . . . . . . . . . . . 5,234 5,375 7,708 13,579 19,061
------------------------------------------------------------------
Total charge-offs . . . . . . . . . . . . . . . . 14,908 10,142 33,908 30,935 40,222
------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural . . . . . . 5,163 5,164 2,037 2,476 1,271
Real estate - construction . . . . . . . . . . . . 621 1,398 803 302 565
Real estate - mortgage . . . . . . . . . . . . . . 2,393 2,077 2,723 3,403 2,182
Consumer . . . . . . . . . . . . . . . . . . . . . 4,098 4,679 5,330 6,125 6,087
------------------------------------------------------------------
Total recoveries . . . . . . . . . . . . . . . . . 12,275 13,318 10,893 12,306 10,105
------------------------------------------------------------------
Net charge-offs (recoveries) . . . . . . . . . . . . 2,633 (3,176) 23,015 18,629 30,117
Provision for possible loan losses . . . . . . . . . (4,750) (16,000) 10,378 17,260 46,409
Additions due to acquisitions . . . . . . . . . . . . 1,224 -- -- -- 41,242
------------------------------------------------------------------
Allowance for possible loan losses - ending balance . . $ 55,873 $ 62,032 $ 74,856 $ 87,493 $ 88,862
==================================================================
Total loans outstanding:
End of year . . . . . . . . . . . . . . . . . . . . . $2,859,398 $2,418,585 $2,265,483 $2,339,281 $2,565,452
==================================================================
Average . . . . . . . . . . . . . . . . . . . . . . . $2,581,724 $2,293,416 $2,261,034 $2,411,731 $2,633,394
==================================================================
Ratios:
Allowance for possible loan losses to end of
year total loans . . . . . . . . . . . . . . . . . . 1.95% 2.56% 3.30% 3.74% 3.46%
Allowance for possible loan losses to net charge-offs . 2,122 NM 325 470 295
Allowance for possible loan losses to nonperforming
loans . . . . . . . . . . . . . . . . . . . . . . . . 219 204 189 106 107
Net charge-offs (recoveries) to average total loans . . .10 (.14) 1.02 .77 1.14
Recoveries to prior year charge-offs . . . . . . . . . 121.03 39.28 35.21 30.60 46.77
</TABLE>
NM - Not meaningful
================================================================================
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.
As a result of management's assessment of the adequacy of the allowance in
1994, the Company recorded a $4.75 million negative provision. This negative
provision was comprised of a negative provision of $8 million at Commercial
National Bank, a provision of $2 million at Deposit Guaranty National Bank and
a provision of $1.25 million at First Columbus National Bank (FCNB). The
provision at FCNB was necessary to account for the difference in allowance
methodologies utilized by the Company and those previously utilized by FCNB.
During 1993, the Company recorded a negative provision of $16 million compared
to a provision of $10.4 million in 1992.
Net charge-offs for the Company were .10% of average loans in 1994,
significantly lower than typical historical levels for the Company and the
banking industry, compared to net recoveries of .14% of average loans in 1993,
and net charge-offs of 1.02% of average loans in 1992. Net charge-offs were
$2.6 million in 1994 compared to net recoveries of $3.2 million in 1993 and net
charge-offs of $23 million in 1992. In 1994, approximately $7 million of
charge-offs was attributable to one loan.
The allowance at December 31, 1994 was $55.9 million or 1.95% of total
loans and 219% 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
______
25
<PAGE> 26
TABLE 17 - 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,
-------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------
PERCENT LOAN Percent Loan Percent Loan Percent Loan Percent Loan
OF GROSS LOSS Of Gross Loss Of Gross Loss Of Gross Loss Of Gross Loss
LOANS ALLOWANCE Loans Allowance Loans Allowance Loans Allowance Loans Allowance
OUT- ALLOCA- Out- Alloca- Out- Alloca- Out- Alloca- Out- Alloca-
STANDING TION standing tion standing tion standing tion standing tion
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural . . . . 32.2% $18,310 29.2% $22,337 33.1% $29,852 37.2% $43,368 39.2% $34,161
Real estate -
construction . . . . . . . 3.2 2,057 2.9 3,993 3.5 5,022 3.5 6,695 4.8 10,840
Real estate - mortgage . . 40.0 13,633 43.1 13,596 40.4 20,987 35.1 19,080 30.3 16,950
Consumer . . . . . . . . . 24.6 15,150 24.8 16,344 23.0 13,658 24.2 12,758 25.7 21,390
Unallocated . . . . . . . . -- 6,723 -- 5,762 -- 5,337 -- 5,592 -- 5,521
-------------------------------------------------------------------------------------------------------
100.0% $55,873 100.0% $62,032 100.0% $74,856 100.0% $87,493 100.0% $88,862
=======================================================================================================
</TABLE>
================================================================================
level of nonperforming assets. The allowance at December 31, 1993 was $62
million or 2.56% of total loans and at December 31, 1992 was $74.9 million or
3.30%.
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, not well secured and not in process
of collection.
Nonperforming assets continued to improve by decreasing 26% to $32.2
million at year-end 1994 compared to $43.7 million at year-end 1993 and $57.1
million at year-end 1992. The decreases are attributable to cash collections,
property sales and restoration of loans to performing status, while a portion
was also due to charge-offs. The year-end 1994 total is comprised of $25.5
million of nonaccrual loans and $6.7 million of other real estate. The Company
had no restructured loans at year-end 1994 compared to $54 thousand at year-end
1993.
The Company had an additional $224 thousand of outstanding loans which were
not considered nonperforming at December 31, 1994, 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 by dividends from the
banking subsidiaries. The approval of the Comptroller of the Currency (OCC) 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, 1994, the
banking subsidiaries had available for payment of dividends to the Company,
without approval of the OCC, 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 1994, 1993 and 1992 added $67.1 million,
$66.6 million and $45.5 million, respectively, to capital. Capital was further
increased by $402 thousand in 1994 with the issuance of 18.2 thousand shares of
common stock as a result of the exercise of executive stock options. Capital
was decreased by dividends of $18.7 million, $16.4 million and $13.7 million
declared in 1994, 1993, and 1992, respectively. Capital was also decreased by
$3.1 million from purchases of the Company's common stock during 1994. As a
result of the implementation of a repurchase program in December 1994, the
Company purchased 108 thousand shares of its common stock. The Company has the
authorization to purchase up to 680 thousand shares under the repurchase
______
26
<PAGE> 27
TABLE 18- 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,
----------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . $25,556 $30,425 $39,456 $ 82,213 $ 82,916
Restructured loans . . . . . . . . . . . . . . . . . . . . . . -- 54 249 240 289
----------------------------------------------
Nonperforming loans . . . . . . . . . . . . . . . . . . . . . . 25,556 30,479 39,705 82,453 83,205
Other real estate . . . . . . . . . . . . . . . . . . . . . . . 6,689 13,256 17,349 18,251 13,739
----------------------------------------------
Nonperforming assets . . . . . . . . . . . . . . . . . . . . . $32,245 $43,735 $57,054 $100,704 $ 96,944
==============================================
Accruing loans past due 90 days or more . . . . . . . . . . . . $ 3,055 $ 2,935 $ 3,670 $ 11,548 $ 16,538
==============================================
Ratios:
Nonperforming assets to loans plus other real estate . . . . . 1.12% 1.80% 2.50% 4.27% 3.76%
Nonperforming assets to total assets . . . . . . . . . . . . . .63 .89 1.14 1.99 1.97
</TABLE>
Interest income of approximately $2.0 million on nonaccrual and restructured
loans at December 31, 1994, would have been recorded in 1994 if such loans had
been in compliance with their original terms. Interest income actually recorded
on such loans in 1994 was $1.5 million.
================================================================================
plan and expects to complete such purchases by the end of the first quarter of
1995. These shares are for the purpose of offsetting the shares issued in the
acquisition of LBO Bancorp, Inc. Average stockholders' equity to average assets
for 1994 was 8.70% compared to 7.62% in 1993 and 6.61% in 1992. The Company's
implementation of SFAS No. 115 in 1994 increased capital at December 31, 1994,
$2 million due to the inclusion in capital of the unrealized gain on securities
available for sale, net of deferred income taxes.
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 ratios were
12.49% and 13.75%, respectively, at December 31, 1994 compared to 13.28% and
14.54%, at year-end 1993 and 12.00% and 13.27%, at year-end 1992.
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. 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, 1994, the tier I and total capital
ratios, respectively, for Deposit Guaranty National Bank were 11.25% and
12.50%, and for Commercial National Bank were 14.01% and 15.28%. 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 OCC 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, 1994, 1993 and 1992 were 8.43%,
8.13% and 6.80%, respectively. Leverage ratios for Deposit Guaranty National
Bank and Commercial National Bank at December 31, 1994 were 8.15% and 8.30%,
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.
______
27
<PAGE> 28
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 1994, other operating income was $93.5 million compared to $74.8
million in 1993, an increase of 25%. Other operating income for 1994 included
gains on the sales of securities of $13.6 million, resulting from the
liquidation of the available for sale portfolio, compared to gains of $102
thousand for 1993. Excluding the gains on the sales of securities, other
operating income increased $5 million, or 6.7% from 1993 to 1994, largely due
to increases in service charges on deposit accounts, trust fees and other
income. The operations of FCFC from the date of acquisition added approximately
$1 million to other operating income.
Service charges on deposit accounts has historically represented one of the
primary sources of other operating income. Revenues in this area increased
approximately $2 million to $27.6 million in 1994 compared to $25.6 million in
1993. This increase was primarily the result of a continuing increase in
business volumes.
Fees for trust services increased $1.2 million, or 9%, in 1994 from $12.9
million in 1993. This increase was primarily the result of new trust business.
Other service charges, commissions and fees decreased slightly from 1993 to
1994. This decrease is largely due to a decrease in broker/dealer income of
$1.9 million in 1994 compared to 1993 due to an uncertain market environment in
1994. This decrease was partially offset by increased income from expanded ATM
services and mortgage loan servicing income due to the mortgage loan servicing
portfolio growing to $2 billion at year-end 1994 from $1.7 billion at year-end
1993.
Other income increased approximately $2.1 million, or 62%, from $3.4
million in 1993 to $5.5 million in 1994. This increase was primarily due to a
$1.9 million reimbursement for prior years' legal fees.
During 1993, other operating income was $74.8 million compared to $68
million in 1992, an increase of 10%. 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. Fees for trust services
increased $1.8 million in 1993 as compared to 1992 primarily as a result of new
trust business. Other service charges, commissions and fees were $33 million in
1993 compared to $29.4 million in 1992. This increase was primarily a result of
income of $1.4 million on expired call option contracts, an increase in
broker/dealer income of $2.1 million and increased mortgage brokerage
activities. 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. Sales from the
investment securities portfolio in the first nine months of 1992 resulted in
net losses of $403 thousand. Other income decreased approximately $1.1 million
in 1993 as compared to 1992. This decrease was primarily due to 1992 including
nonrecurring gains totaling $1.9 million resulting from the sale of other
assets.
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
tax-equivalent net interest income plus noninterest income. Improvement in the
efficiency ratio is measured by a reduction in the percentage reported. The
efficiency ratios for 1994, 1993, and 1992 were 64.22%, 67.23% and 67.68%,
respectively. The Company is committed to improve efficiency to a long-term
goal of 60%, and 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.
The Company's other operating expense increased $8.5 million, or 5% in 1994
compared to 1993. Approximately $3.4 million of the increase in 1994 can be
attributed to the acquisition of FCFC which results in an underlying increase
in other operating expense of $5.1 million, or 3%. Salaries and employee
benefits, which account for 55% of other operating expense, increased $5.6
million, or 6% in 1994 compared to 1993. Salary increases include $3.4 million
in normal merit increases, $1 million related to FCFC, $400 thousand in
incentives and bonuses as a result of improved
______
28
<PAGE> 29
earnings which were reduced by a decrease in incentives and commissions related
to a decrease in revenues in broker/dealer services. Employee benefits
increased $621 thousand as a result of the cost of the pension plan increasing
by $1.2 million, $440 thousand related to FCFC and $728 thousand in other
employee benefits, largely the cost of health benefits and employer taxes.
These increases were partially offset by a decrease of $1.8 million in interest
expense for the deferred compensation plan due to additional accruals
recognized in 1993.
Combined net occupancy and equipment expense increased $1.4 million, or 6%,
over 1993 primarily due to an increase in depreciation, rentals and maintenance
for branch banking facilities and due to the cost of increased automation to
more effectively and efficiently deliver products and services to our
customers.
Advertising and public relations decreased $1.1 million in 1994 as compared
to 1993. This decrease was due to 1993 including a $2 million special
contribution at year-end and 1994 including an increase in targeted market
advertising and Company sponsored promotional events.
Other expense for 1994 was $20.3 million compared to $18.6 million in 1993.
This increase in other expense was primarily the result of increases of $2.1
million in other real estate expenses, $847 thousand in amortization of
intangibles related to the acquisition of FCFC and $717 thousand in increased
use and franchise taxes. Reductions to other expense in 1994 as compared to
1993 include a decrease of $2.1 million in amortization of purchased mortgage
servicing rights and $2.1 million in interest collected on loans which had
previously been charged-off.
During 1993, the Company's other operating expense increased $7.1 million
to a total of $171.6 million. Salaries and employee benefits increased $5.5
million from 1992 to 1993. The increase in salary expense included $3.3 million
in normal merit increases and $1.4 million in incentives, bonuses, and
commissions. 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 under accruals in prior years.
Partially offsetting this increase was a decrease in the pension plan and a
decrease of $1.7 million in postretirement benefits due to the adoption of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1992. Service fees decreased approximately $900 thousand from
1992 to 1993 and was primarily due to a decrease in loan servicing costs.
Advertising and public relations expense increased $2 million as a result of a
$2 million 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 which were partially offset by a $3.7
million decrease in other real estate expenses and $626 thousand in the
amortization of intangibles.
INCOME TAXES
Income tax expense was $32.5 million in 1994, compared to $27.3 million in 1993
and $14.3 million in 1992. The increase in tax expense over the past two years
results primarily from increased pre-tax earnings. The Company's effective tax
rate was 33% for 1994, 29% for 1993, and 24% for 1992. These effective rates
are lower than the statutory income tax rate, primarily due to tax exempt
interest income received on certain loans and debt securities. The increase in
the effective tax rate for 1994 and 1993 is primarily the result of three
factors. First, the proportion of tax exempt income to total pretax income
declined as taxable income increased significantly for 1994 and 1993 and tax
exempt income continued to decline. Second, 1993 income tax expense is net of
the tax benefit recorded from the cumulative effect of adopting SFAS No. 109
and the deferred tax benefit of the 1% increase in the federal statutory rate
beginning in 1993. Finally, the 1992 rate reflects an alternative minimum tax
credit that was not applicable in 1994 and 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 changed 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 was included in income tax from operations in 1993. 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 1994 and 1993. In 1992 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 (AMT) credit. Under SFAS No. 109,
there is no longer a separate computation of AMT for financial reporting
purposes. In 1992, AMT was incurred only if it exceeded regular tax in the
year, and a credit for the AMT could be carried forward to subsequent years to
reduce regular tax liability.
______
29
<PAGE> 30
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 economy in these markets continued to
experience growth and improvement in 1994 at a pace greater than the national
average. Particularly, business and consumer confidence increased resulting in
higher loan demand. These trends are expected to continue in 1995 but the
growth rates should moderate in the coming quarters as the impact of higher
interest rates works through the economy.
Loan volumes grew rapidly in 1994 and are expected to continue growing at a
slightly slower pace in 1995. Loans to consumers and small to middle market
business are expected to continue to provide most of the increase, while
outstandings to large commercial borrowers will likely decline. Deposits,
primarily interest-bearing categories, are expected to grow more slowly than
loans, resulting in a lower level of securities relative to interest-earning
assets.
The net interest margin improved dramatically during the second half of
1994 due to increasing loan volumes and wider deposit spreads. While continued
loan growth is expected, deposit spreads are expected to narrow with increased
competitive pressure. The result is an expected decrease in the margin on a
quarter-to-quarter basis throughout 1995, with an average for the year
significantly above the average for 1994.
Following three years of substantial improvements in loan quality resulting
in loan quality indicators being within management's acceptable ranges, no
significant further improvements are expected. It is expected that loan quality
will remain within acceptable ranges. Fee income will continue to be emphasized
in 1995 with nontraditional sources continuing to be explored to augment
traditional banking services. A continued company-wide focus on sales is
expected to grow existing business volumes. 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 108 branches. Commercial National Bank is located
in Shreveport, Louisiana and has 12 branches in the Shreveport/Bossier market.
With the acquisition of LBO Bancorp, Inc., CNB will also be serving the West
Monroe/Monroe, Louisiana market with five branches.
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 $2 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 100%-owned subsidiary.
______
30
<PAGE> 31
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>
1994
First Quarter . . . . . . . . . . . . . . . $.25 $29.00 $25.75
Second Quarter . . . . . . . . . . . . . . .25 32.00 25.50
Third Quarter . . . . . . . . . . . . . . . .28 34.50 29.25
Fourth Quarter . . . . . . . . . . . . . . .28 32.25 26.00
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
</TABLE>
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
21, 1995 there were 5,956 stockholders of record of the Company's common stock.
______
31
<PAGE> 32
CONSOLIDATED STATEMENTS OF CONDITION
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
=======================================
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
----------------------------
<S> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . $ 326,768 $ 293,894
Interest-bearing bank balances . . . . . . . . . . . . . . . . . . . . . . 135,298 70,000
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . . . . . . . . . . . 224,109 208,140
Trading account securities . . . . . . . . . . . . . . . . . . . . . . . . 4,531 596
Securities available for sale
(market value: 1994 - $8,631; 1993 - $1,416,120) . . . . . . . . . . . . 8,631 1,365,728
Investment securities
(market value: 1994 - $1,332,142; 1993 - $350,451) . . . . . . . . . . . 1,330,171 316,858
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,877,746 2,439,041
Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . (18,348) (20,456)
Allowance for possible loan losses . . . . . . . . . . . . . . . . (55,873) (62,032)
----------------------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,803,525 2,356,553
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . 131,621 125,506
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,243 160,805
----------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,130,897 $4,898,080
============================
LIABILITIES
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 947,511 $ 875,288
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,091,039 3,045,853
----------------------------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,038,550 3,921,141
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings . . . . . . . . . . . . . . . . . . . . . 564,789 509,496
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,009 71,555
----------------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,687,348 4,502,192
----------------------------
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 - 17,648,052 shares; 1993 - 17,667,852 shares . . . . . . . . . . . 19,361 19,383
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,726 155,399
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,508 221,106
Unrealized gain on securities available for sale,
net of deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 1,973 --
Treasury stock - 70,000 shares . . . . . . . . . . . . . . . . . . . . . . (2,019) --
----------------------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . 443,549 395,888
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . $5,130,897 $4,898,080
============================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
______
32
<PAGE> 33
CONSOLIDATED STATEMENTS OF EARNINGS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
=======================================
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
----------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . $ 204,434 $ 180,246 $ 185,301
Interest on investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,511 25,116 91,210
Exempt from Federal income tax . . . . . . . . . . . . . . . . . 8,317 9,062 11,894
Interest on securities available for sale:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,353 74,167 18,062
Exempt from Federal income tax . . . . . . . . . . . . . . . . . 104 211 118
Interest on trading account securities . . . . . . . . . . . . . . 258 217 208
Interest on Federal funds sold and securities
purchased under agreements to resell . . . . . . . . . . . . . . 11,111 8,576 10,913
Interest on bank balances . . . . . . . . . . . . . . . . . . . . . 5,184 1,732 4,408
----------------------------------------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . 307,272 299,327 322,114
----------------------------------------
INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . 109,316 110,195 138,264
Interest on Federal funds purchased, securities
sold under agreements to repurchase and other
short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 16,565 14,492 16,632
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . -- -- 563
----------------------------------------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . 125,881 124,687 155,459
----------------------------------------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . 181,391 174,640 166,655
Provision for possible loan losses . . . . . . . . . . . . . . . . (4,750) (16,000) 10,378
----------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES . . . 186,141 190,640 156,277
----------------------------------------
OTHER OPERATING INCOME
Service charges on deposit accounts . . . . . . . . . . . . . . . . 27,572 25,611 23,082
Fees for trust services . . . . . . . . . . . . . . . . . . . . . . 14,111 12,902 11,078
Losses on investment securities . . . . . . . . . . . . . . . . . . -- -- (403)
Gains (losses) on securities available for sale . . . . . . . . . . 13,621 (102) 346
Other service charges, commissions and fees . . . . . . . . . . . . 32,701 32,986 29,424
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,494 3,384 4,450
----------------------------------------
TOTAL OTHER OPERATING INCOME . . . . . . . . . . . . . . . . . . 93,499 74,781 67,977
----------------------------------------
OTHER OPERATING EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . . . . . 98,366 92,785 87,301
Net occupancy expense . . . . . . . . . . . . . . . . . . . . . . . 12,269 11,587 11,389
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . 13,419 12,676 12,844
Service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,217 10,817 11,708
Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,736 7,332 7,297
FDIC assessment . . . . . . . . . . . . . . . . . . . . . . . . . . 8,776 8,667 8,846
Advertising and public relations . . . . . . . . . . . . . . . . . 7,985 9,097 7,136
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,279 18,606 17,949
----------------------------------------
TOTAL OTHER OPERATING EXPENSE . . . . . . . . . . . . . . . . . . 180,047 171,567 164,470
----------------------------------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . 99,593 93,854 59,784
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 32,463 27,302 14,270
----------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,130 $ 66,552 $ 45,514
========================================
NET INCOME PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.80 $ 3.77 $ 2.67
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 3.80 3.77 2.63
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,668,062 17,649,852 17,033,664
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 17,668,062 17,649,852 17,465,282
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
______
33
<PAGE> 34
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
==========================================================
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
Gain on
Securities
Common Retained Available Treasury
Stock Surplus Earnings For Sale Stock
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 -- --
Net income for 1994 . . . . . . . . . . . . . . . . . . . -- -- 67,130 -- --
Cash dividends declared ($1.06 per share) . . . . . . . . -- -- (18,728) -- --
Purchase and retirement of 38,000 shares
of common stock . . . . . . . . . . . . . . . . . . . . (42) (1,055) -- -- --
Purchase of 70,000 shares of common stock
by subsidiary . . . . . . . . . . . . . . . . . . . . . -- -- -- -- (2,019)
Issuance of 18,200 shares of common stock
under executive stock option plan . . . . . . . . . . . 20 262 -- -- --
Tax benefit from exercise of stock options . . . . . . . -- 120 -- -- --
Cumulative effect of a change in accounting principle,
net of deferred income taxes of $18,807 . . . . . . . . -- -- -- 31,583 --
Net change in unrealized gain on securities available for
sale, net of deferred income taxes of $17,628 . . . . . -- -- -- (29,610) --
-----------------------------------------------------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . . . . $ 19,361 $154,726 $ 269,508 $ 1,973 $(2,019)
=====================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
______
34
<PAGE> 35
CONSOLIDATED STATEMENTS OF CASH FLOWS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
---------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993 1992
-----------------------------------------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,130 $ 66,552 $ 45,514
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible loan losses . . . . . . . . . . . . . . . . . . . (4,750) (16,000) 10,378
Provision for possible losses on other real estate . . . . . . . . . . . 1,078 (1,941) 1,896
Provision for depreciation and amortization . . . . . . . . . . . . . . . 18,405 19,352 20,014
Provision for deferred income tax expense . . . . . . . . . . . . . . . . 898 3,847 2,082
Accretion of discount on investment securities, net . . . . . . . . . . . (13,390) (1,278) (3,598)
Amortization (accretion) of premium (discount) on securities available
for sale, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,776) 1,440 --
Deferred loan fees and costs . . . . . . . . . . . . . . . . . . . . . . (3,238) (2,943) (2,126)
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . (7,152) (224) 2,728
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . 25,252 (8,478) 6,985
Net cash received from (paid for) loans held for resale . . . . . . . . . 26,652 (42,196) (18,609)
Losses on investment securities . . . . . . . . . . . . . . . . . . . . . -- -- 403
(Gains) losses on securities available for sale . . . . . . . . . . . . . (13,621) 102 (346)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,625) 1,391 (810)
-----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 86,863 19,624 64,511
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances . . . . . . . . . (65,298) 115,096 (85,372)
Proceeds from sales of investment securities . . . . . . . . . . . . . . . -- -- 81,834
Proceeds from sales of securities available for sale . . . . . . . . . . . 1,656,020 454,696 37,242
Proceeds from maturities and principal repayments of investment
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,324 231,452 492,913
Proceeds from maturities and principal repayments of securities available
for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 724,466 319,016 --
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . (1,130,578) (21,279) (499,754)
Purchases of securities available for sale . . . . . . . . . . . . . . . . (1,063,787) (1,108,470) --
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell . . . . . . . . . . . . . . . . . . (15,454) 236,370 (45,846)
Net (increase) decrease in loans . . . . . . . . . . . . . . . . . . . . . (369,938) (108,466) 62,279
Proceeds from sales of other real estate . . . . . . . . . . . . . . . . . 8,952 11,648 9,023
Purchases of bank premises and equipment . . . . . . . . . . . . . . . . . (17,337) (21,331) (9,618)
Proceeds from sales of bank premises and equipment . . . . . . . . . . . . 2,758 36 177
Payment for purchase of common stock of
First Columbus Financial Corporation and other acquisition costs . . . . (50,465) -- --
Cash and due from banks of acquired bank . . . . . . . . . . . . . . . . . 14,073 -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 550
-----------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES . . . . . . . . . . . (29,264) 108,768 43,428
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits . . . . . . . . . . . . . . . . . . . . . . . . . (48,713) (80,718) (73,512)
Net increase (decrease) in Federal funds purchased, securities
sold under agreements to repurchase, and other short-term borrowings . . 45,023 (70,916) (16,960)
Proceeds from the exercise of common stock options . . . . . . . . . . . . 282 1,014 2,477
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . (3,116) -- --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,201) (15,783) (12,974)
-----------------------------------------
NET CASH USED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . (24,725) (166,403) (100,969)
-----------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS . . . . . . . . . . . . 32,874 (38,011) 6,970
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR . . . . . . . . . . . . . 293,894 331,905 324,935
-----------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR . . . . . . . . . . . . . . . . $ 326,768 $ 293,894 $ 331,905
=========================================
</TABLE>
INCOME TAXES:
The Company made income tax payments of $28.6 million, $23.6 million and $13.6
million during the years ended December 31, 1994, 1993, and 1992, respectively.
INTEREST:
The Company paid $126.2 million, $127.6 million and $162.0 million in interest
on deposits and other borrowings during the years ended December 31, 1994, 1993
and 1992, 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.
SECURITIES:
During 1994, the Company transferred securities available for sale with a
carrying value of $139.5 million to investment securities. These securities had
an unrealized holding gain of $2.7 million, net of deferred income taxes,
reported as a separate component of shareholders' equity.
ACQUISITION:
During 1994, the Company purchased the common stock of First Columbus Financial
Corporation for $50 million. The following reflects the assets acquired and
liabilities assumed (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . $230,775
Cash paid for the common stock and other acquisition costs . . . . . . . . 50,465
--------
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,310
========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
______
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
================================================================================
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT 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 allowance 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. and Commercial
National Corporation (CNC) (wholly-owned subsidiaries). All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH FLOWS
The Company considers only cash and amounts due from banks to be cash
equivalents.
TRADING ACCOUNT SECURITIES
Trading account securities are reported at fair value. Realized and unrealized
gains or losses on trading account securities are reflected in other operating
income.
SECURITIES AVAILABLE FOR SALE
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 this statement, securities
available for sale prior to maturity 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. In prior years,
available for sale securities were stated at the lower of amortized cost or
fair value. The effect of this change at January 1, 1994 was to increase
stockholders' equity by $31.6 million net of deferred income taxes. Gains or
losses on the sale of these securities, computed based on the carrying value of
the specific securities sold, are classified as gains (losses) on securities
available for sale in other operating income.
INVESTMENT SECURITIES
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 the sale of investment
securities are computed based on the adjusted cost of the specific securities
sold.
DERIVATIVE FINANCIAL INSTRUMENTS
TRADING INSTRUMENTS: Derivative financial instruments held for trading are
recorded at fair value. These instruments are used by the Company to generate
additional noninterest income. Realized and unrealized gains and losses on
trading positions are recognized in noninterest income during the period in
which the gain or loss occurs. Interest revenue and expense arising from
trading instruments are included in other operating income.
RISK MANAGEMENT INSTRUMENTS: As part of its asset/liability management
activities, the Company may enter into interest rate futures, forwards, swaps
and options contracts. These derivative financial instruments are categorized
as risk management instruments and are carried at fair value unless the
instrument qualifies for hedge accounting treatment. Fair value adjustments on
risk management instruments carried at fair value are reflected in other
operating income. Gains and losses realized on futures and forward contracts
qualifying as hedges are deferred and amortized over the terms of the related
assets or liabilities and are included as adjustments to interest income or
interest expense. Settlements on interest rate swaps and options contracts are
______
36
<PAGE> 37
recognized over the lives of the agreements as adjustments to interest income
or interest expense.
Interest rate contracts used in connection with the securities
portfolio that is designated as available for sale are carried at fair value
with gains and losses, net of applicable deferred income taxes, reported in a
separate component of stockholders' equity, consistent with the reporting of
unrealized gains and losses on such securities.
INTEREST AND FEES ON LOANS
Interest on loans is recognized based on the interest method. The recognition
of interest is suspended 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 and direct loan origination costs are deferred and amortized 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.
Other real estate owned is reported in other assets and is recorded at
the lower of cost or estimated fair value, less estimated selling costs. 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 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.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company accounts for postemployment health care and life insurance benefits
using the full accrual method which recognizes the cost of providing the
benefits over the active service period of the employee. As permitted by SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," the Company immediately recognized the postretirement benefit
transition obligation in 1992. 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.
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers Accounting for Postemployment Benefits." SFAS No. 112 established
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 requires an employer to recognize an obligation for
such benefits if certain conditions are met. This Statement did not have a
material impact on the consolidated financial statements.
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.
______
37
<PAGE> 38
Financial statements for years prior to 1993 have not been restated to
apply the provisions of SFAS No. 109. The cumulative effect of this change in
accounting for income taxes was a benefit of $657 thousand and an increase to
both primary and fully diluted net income per share of $.04 and was 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 in 1992 is based on the assumed
conversion of the convertible subordinated debentures that were outstanding in
1992 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 1994
presentation.
RECENT PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board (FASB) 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
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. 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 FASB 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 will not have a material impact on the
consolidated financial statements.
In June 1993, the FASB issued 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. 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 will not
have a material impact on the consolidated financial statements.
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, 1994, was approximately $61 million.
================================================================================
NOTE 3 - ACQUISITIONS
On May 18, 1994, the Company acquired the outstanding common stock of First
Columbus Financial Corporation, a $209 million asset bank holding company, for
$50 million cash. The transaction was accounted for as a purchase. The results
of operations of this acquired company, which are not material, are included in
the financial statements from the acquisition date.
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
$96 million asset bank holding company in a purchase business combination. This
acquisition, which was not material, will be reflected in the Company's
financial statements beginning January 1, 1995.
Beginning December 1994, the Company initiated a plan to repurchase up
to 680 thousand shares of its outstanding common stock for the purpose of
offsetting the shares issued in the acquisition of LBO BanCorp., Inc. This
repurchase is expected to be completed by the end of the first quarter of 1995.
On December 2, 1994, the Company and Citizens National Bancshares,
Inc., in Hammond, La., signed a definitive agreement for the Company to acquire
Citizens National Bancshares, Inc. At December 31, 1994, Citizens National
Bancshares Inc. had total assets of $190 million. The agreement requires the
Company to issue at least 1,393,442 shares and no more than 1,491,228 shares of
Deposit Guaranty common stock in exchange for all of the common shares of
Citizens National Bancshares, Inc. The acquisition will be accounted for as a
pooling.
During the first quarter of 1995, the Company is expected to
consummate the purchase of the Coahoma County, Mississippi, operations of a
local Mississippi bank. This transaction will add assets of approximately $82
million.
______
38
<PAGE> 39
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
The amortized cost and estimated market value of securities available for sale,
and investment securities 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>
1994
Obligations of states and political sub-
divisions . . . . . . . . . . . . . . . . . $ 1,888 $ 22 $ (38) $ 1,872
Mortgage-backed securities . . . . . . . . . 7,077 -- (318) 6,759
-------------------------------------------------------
$ 8,965 $ 22 $ (356) $ 8,631
=======================================================
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
=======================================================
INVESTMENT
SECURITIES
1994
U.S. Treasury and other U.S. Government
agencies . . . . . . . . . . . . . . . . . . $ 933,828 $ 2,424 $(10,575) $ 925,677
Obligations of states and political
sub-divisions . . . . . . . . . . . . . . . 104,890 7,040 (50) 111,880
Mortgage-backed securities . . . . . . . . . 252,869 6,573 (3,314) 256,128
Other securities . . . . . . . . . . . . . . 38,584 115 (242) 38,457
-------------------------------------------------------
$1,330,171 $16,152 $(14,181) $1,332,142
=======================================================
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
=======================================================
</TABLE>
The amortized cost and estimated market value of securities available for sale
and investment securities at December 31, 1994, 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, 1994
-------------------------
Estimated
SECURITIES AVAILABLE Amortized Market
FOR SALE Cost Value
-------------------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . $ 45 $ 45
Due after one year through five years . . . . . . . . . . . . . . . . . . 1,424 1,397
Due after five years through ten years . . . . . . . . . . . . . . . . . 219 221
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 209
-------------------------
1,888 1,872
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . 7,077 6,759
-------------------------
$ 8,965 $ 8,631
=========================
INVESTMENT SECURITIES
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . $ 493,652 $ 491,544
Due after one year through five years . . . . . . . . . . . . . . . . . . 450,145 444,123
Due after five years through ten years . . . . . . . . . . . . . . . . . 52,268 54,800
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,237 85,547
-------------------------
1,077,302 1,076,014
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . 252,869 256,128
-------------------------
$1,330,171 $1,332,142
=========================
</TABLE>
Gross gains of $30.8 million and $1.1 million and gross losses of $17.2
million and $1.2 million were realized on sales of securities available for
sale in 1994 and 1993, respectively. Included in gross gains and gross losses
for 1994 was $10.5 million and $6.2 million, respectively, related to the
termination of interest rate swap agreements and sales of securities associated
with such agreements.
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.
Securities available for sale and investment securities with a carrying
amount of $736.4 million (market value $737.8 million) at December 31, 1994,
and $846.4 million (market value $889.9 million) at December 31, 1993, were
pledged to secure public and trust deposits, for repurchase agreements, and for
other purposes.
______
39
<PAGE> 40
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. Loans held for sale at December 31, 1994 and 1993
were $155.4 million and $182.3 million, respectively. The Company services
mortgage loans and, at December 31, 1994, 1993 and 1992, the loan servicing
portfolio was approximately $2.0 billion, $1.7 billion and $1.6 billion,
respectively. The composition of the loan portfolio follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
-------------------------
<S> <C> <C>
Commercial, financial
and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 927,551 $ 712,522
Real estate - construction . . . . . . . . . . . . . . . . . . . . . . . 92,411 70,506
Real estate - mortgage . . . . . . . . . . . . . . . . . . . . . . . . . 1,152,068 1,051,752
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705,716 604,261
-------------------------
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,877,746 $2,439,041
=========================
</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 1994 follows (in thousands):
<TABLE>
<S> <C>
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,924
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,094
Reductions (including participations sold) . . . . . . . . . . . . . . . (271,661)
---------
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,357
=========
</TABLE>
Transactions in the allowance for possible loan losses follow (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------
<S> <C> <C> <C>
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ 62,032 $ 74,856 $ 87,493
Addition due to acquisition . . . . . . . . . . . . . . . . . . . . . 1,224 -- --
Recoveries on loans previously charged-off . . . . . . . . . . . . . 12,275 13,318 10,893
Loans charged-off . . . . . . . . . . . . . . . . . . . . . . . . . . (14,908) (10,142) (33,908)
--------------------------------------
Net (charge-offs) recoveries . . . . . . . . . . . . . . . . . . . . (2,633) 3,176 (23,015)
Provision for possible losses . . . . . . . . . . . . . . . . . . . . (4,750) (16,000) 10,378
--------------------------------------
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . $ 55,873 $ 62,032 $ 74,856
======================================
</TABLE>
Loans on a nonaccrual status amounted to approximately $25.5 million at
December 31, 1994, and $30.4 million at December 31, 1993. The effect of
nonaccrual loans was not material in 1994 and 1993 and reduced net income by
approximately $2.6 million in 1992. Restructured loans were not significant in
1994, 1993, or 1992.
Other real estate owned amounted to approximately $6.7 million at December
31, 1994 and $13.3 million at December 31, 1993. Transactions in the allowance
for possible losses on other real estate follow (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------
<S> <C> <C> <C>
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ 1,205 $ 3,833 $ 5,779
Provision charged to expense . . . . . . . . . . . . . . . . . . . . 1,078 (1,941) 1,896
Losses on sale, net . . . . . . . . . . . . . . . . . . . . . . . . . (259) (687) (3,842)
--------------------------------------
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . $ 2,024 $ 1,205 $ 3,833
======================================
</TABLE>
================================================================================
NOTE 6 - BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,156 $ 20,568
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . 146,567 135,584
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 94,790 90,476
------------------------
262,513 246,628
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . (130,892) (121,122)
------------------------
Bank premises and equipment, net . . . . . . . . . . . . . . . . . . . . $ 131,621 $ 125,506
========================
</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, 1994, follow (in
thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,076
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,190
------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . $4,197
======
</TABLE>
At December 31, 1994, the Company leases office space to others with
expirations at various dates through 2003. These leases have an average term
of approximately three years and require total minimum rentals of approximately
$16.9 million. Most of these leases may be renewed beyond their present
expiration dates.
Rental expense of $4.5 million in 1994, $4.2 million in 1993, and $3.9
million in 1992 included amounts for short-term cancelable leases and minimum
rentals under operating leases.
______
40
<PAGE> 41
NOTE 8 - INCOME TAXES
The Company adopted SFAS No. 109 as of January 1, 1993. Financial statements
for years prior to 1993 have not been restated to apply the provisions of SFAS
No. 109. The cumulative effect of this change in accounting for income taxes
was a benefit of $657 thousand and was 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 prior purchase business combination.
Total income tax expense was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------
<S> <C> <C>
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . $32,463 $27,302
Other noncurrent intangible assets, for recognition of acquired
tax benefits that previously were included in the valuation allowance . (550) (550)
Stockholders' equity, for compensation expense for tax purposes in
excess of amount recognized for financial reporting purposes . . . . . . (120) (415)
Stockholders' equity, for unrealized gains on securities available
for sale for financial reporting purposes, including impact of
adopting SFAS No. 115 . . . . . . . . . . . . . . . . . . . . . . . . . 1,179 --
----------------------
$32,972 $26,337
======================
</TABLE>
The current and deferred components of income tax expense follow (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,368 $21,913 $11,951
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,197 1,542 237
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,079 6,668 1,812
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (181) (2,821) 270
-------------------------------------
$32,463 $27,302 $14,270
=====================================
</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 1994 and 1993 and 34% in 1992, to income before income taxes
follow (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Amount computed at Federal tax rates . . . . . . . . . . . . . . . . $34,858 $32,849 $20,327
Increases (decreases):
Cash surrender value of life insurance . . . . . . . . . . . . . . . (1,061) (1,057) (1,001)
Tax exempt interest income . . . . . . . . . . . . . . . . . . . . . (4,001) (4,106) (4,962)
Amortization of intangible assets . . . . . . . . . . . . . . . . . 283 75 867
Alternative minimum tax provision (benefit) . . . . . . . . . . . . -- -- (2,500)
State income taxes, net . . . . . . . . . . . . . . . . . . . . . . 1,311 721 335
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 the valuation allowance
for impact of enacted change in tax rates . . . . . . . . . . . . . -- 117 --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,073 410 1,204
-------------------------------------
$32,463 $27,302 $14,270
=====================================
</TABLE>
The significant components of deferred income tax expense follow (in
thousands):
<TABLE>
<CAPTION>
1994 1993
-------------------
<S> <C> <C>
Deferred tax expense (exclusive of the effects of other components
listed below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $898 $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)
-------------------
$898 $3,847
===================
</TABLE>
______
41
<PAGE> 42
The sources of timing differences and the resulting deferred tax expense
(benefit) in 1992 follow (in thousands):
<TABLE>
<CAPTION>
1992
------
<S> <C>
Provision for possible loan losses . . . . . . . . . . . . . . . . . . . $2,731
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . (477)
Lease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (598)
Post retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . (433)
Other real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
------
$2,082
======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
DEFERRED TAX ASSETS: 1994 1993
----------------------
<S> <C> <C>
Allowance for possible loan losses . . . . . . . . . . . . . . . . . . . $22,288 $25,194
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . 1,209 1,064
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 9,090 7,329
Purchased mortgage servicing rights . . . . . . . . . . . . . . . . . . . 3,270 3,101
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . 567 1,134
Investment tax credit carryforwards . . . . . . . . . . . . . . . . . . . 2,965 2,965
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,288 4,690
----------------------
Total gross deferred tax asset . . . . . . . . . . . . . . . . . . . . $44,677 $ 45,477
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . (2,965) (3,532)
----------------------
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . $41,712 $ 41,945
----------------------
DEFERRED TAX LIABILITIES:
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . 3,705 2,310
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,656 4,220
Leveraged leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300 1,477
Core deposit intangibles . . . . . . . . . . . . . . . . . . . . . . . . 5,444 4,027
Unrealized gains on securities available for sale . . . . . . . . . . . . 1,179 --
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 814 907
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,935 1,585
----------------------
Total gross deferred tax liability . . . . . . . . . . . . . . . . . . $20,033 $ 14,526
----------------------
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . $21,679 $ 27,419
======================
</TABLE>
The valuation allowance for the gross deferred tax asset as of December 31,
1994 and 1993 was $3 million and $3.5 million, respectively. The net change in
the total valuation allowance for the year ended December 31, 1994 was a
decrease of $567 thousand. This decrease is due to the utilization of net
operating loss carryforwards. When SFAS No. 109 was adopted on January 1,
1993, the valuation allowance for the gross deferred tax assets was $4 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 asset as of December 31, 1994 will be allocated to
other noncurrent intangible assets.
At December 31, 1994, the Company had net operating loss carryforwards for
federal income tax purposes of $1.6 million which are available to offset CNC's
future federal taxable income, if any, through 1995. The Company also has
investment tax credit carryforwards for federal income tax purposes of
approximately $2.9 million which are available to reduce CNC'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 $64 million, principally through the year ended December 31,
2002. Taxable income for the years ended December 31, 1994, 1993 and 1992 was
$83 million, $69 million and $36 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, 1994.
Total income taxes resulting from securities transactions included a
provision of $4.8 million in 1994, and a benefit of $36 thousand and $19
thousand in 1993 and 1992.
================================================================================
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.
______
42
<PAGE> 43
Employee benefit expenses (income) related to these plans follow (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (750) $(2,001) $ (388)
Retirement savings plan . . . . . . . . . . . . . . . . . . . . . . . 2,395 2,233 1,942
Deferred compensation plan . . . . . . . . . . . . . . . . . . . . . 2,848 4,662 1,603
Other plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595 265 705
------------------------------------
$5,088 $ 5,159 $3,862
====================================
</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,
----------------------
1994 1993
----------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$68,979 in 1994 and $67,881 in 1993 . . . . . . . . . . . . . . . . . $70,287 $ 69,218
======================
Projected benefit obligation for service rendered to date . . . . . . . $80,303 $ 79,432
Plan assets at fair value, primarily corporate securities . . . . . . . . 97,300 100,593
----------------------
Plan assets in excess of projected benefit obligation . . . . . . . . . . 16,997 21,161
Unrecognized net gain from past experience different from that assumed . (1,130) (5,928)
Prior service cost not yet recognized in net periodic pension cost . . . 31 463
Unrecognized net asset, net of amortization over a fifteen-year period . (3,288) (3,836)
----------------------
Prepaid pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . $12,610 $ 11,860
======================
</TABLE>
Net pension cost (benefit) included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year . . . . . . . . . . . $ 2,791 $ 2,221 $ 2,729
Interest cost on projected benefit obligation . . . . . . . . . . . . 5,841 5,560 5,562
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . (8,878) (8,566) (8,084)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . (504) (1,216) (595)
-------------------------------------
Net periodic pension benefit . . . . . . . . . . . . . . . . . . . . $ (750) $(2,001) $ (388)
=====================================
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 8.0% in 1994 and 7.5% in
1993. The rate of increase in future compensation was 5.0% in 1994 and 1993.
The expected long-term rate of return on plan assets was 9.0% in 1994 and 1993.
Under the retirement savings plan, the Company automatically contributes an
amount equal to 2% of each participant's base salary to the plan. A
participant, in addition, may elect to 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 material.
The following table summarizes the Company's option activity (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of year . . . . . . . . . . . . . . 377 395 477
Options issued and assumed . . . . . . . . . . . . . . . . . . . . . 65 70 100
Options exercised and expired . . . . . . . . . . . . . . . . . . . . (18) (88) (182)
----------------------------------
Options outstanding at end of year . . . . . . . . . . . . . . . . . 424 377 395
==================================
</TABLE>
All options are nonqualified stock options. The exercise prices of the
options are $27.75, $27.25, and $18.875 per share for options issued in 1994,
1993 and 1992, respectively. As a part of the acquisition of CNC, the Company
agreed to assume the outstanding options of certain key officers and
______
43
<PAGE> 44
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 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,
---------------------
1994 1993
---------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants . . . . . . . . . . . . . . . . . . . . . . . . . . $1,052 $ 984
Fully eligible active plan participants . . . . . . . . . . . . . . . . 864 934
Other active plan participants . . . . . . . . . . . . . . . . . . . . . 203 211
---------------------
2,119 2,129
Unrecognized net gain (loss) from past experience different from that
assumed and from changes in actuarial assumptions . . . . . . . . . . . 49 (74)
---------------------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . $2,168 $2,055
=====================
</TABLE>
Net periodic postretirement benefit cost included the following
components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year . . . . . . . . . . . $ 22 $ 16 $ --
Interest costs on projected benefit obligation . . . . . . . . . . . 150 153 156
Implementation obligation . . . . . . . . . . . . . . . . . . . . . . -- -- 1,963
----------------------------------
Net periodic postretirement benefit cost . . . . . . . . . . . . . . $172 $169 $2,119
==================================
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.0% in 1994 and 7.5% in 1993. The assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 12.2% in 1994 and 13.2% in 1993, graded down to 11.4% in 1995
and graded down each year to an ultimate rate of 5% in 2008. If the health care
cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1994, would be increased
by 2.2%. The effect of this change on the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1994 would be
an increase of 4.9%.
================================================================================
NOTE 10 - 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 1995, without prior
regulatory approval, $90.5 million plus their net profits for 1995.
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, 1994, the banks could lend the Company a maximum of approximately $22.3
million in aggregate. Such loans are required to be on a fully secured basis.
================================================================================
NOTE 11 - 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.
______
44
<PAGE> 45
NOTE 12 - 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 contracts and options. Those instruments involve, to varying degrees,
elements of credit and/or 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 futures, forward contracts, interest rate contracts and
options, the contract or notional amounts do not represent exposure to credit
loss. Credit risk for those instruments is controlled by limits and monitoring
procedures.
COMMITMENTS
At December 31, 1994, the financial instruments whose contract amounts
represent credit risk and those whose contract amounts exceed the amount of
on-balance sheet credit risk are listed in the following table (in thousands):
<TABLE>
<CAPTION>
Contract
Amount
--------
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . $896,051
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . 76,948
Commercial letters of credit . . . . . . . . . . . . . . . . . . . . . 9,829
Financial instruments whose contract amounts exceed the amount of
credit risk:
Securities lent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,218
Commitments to purchase securities . . . . . . . . . . . . . . . . . . 8,852
Commitments to sell securities . . . . . . . . . . . . . . . . . . . . 8,852
</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 third
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 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.
DERIVATIVES
The Company maintains an active trading account in Eurodollar futures and
options in order to maintain an active presence in those markets. Trading
activities are confined to relatively small dollar limits on exchange-traded
instruments. Trading activities are summarized for those categories of
financial instruments in the following table (in thousands).
<TABLE>
<CAPTION>
December 31, 1994
Contract or 1994 Net
Notional Amount Gains / (Losses)
----------------- ----------------
<S> <C> <C>
Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 10
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 (13)
</TABLE>
Trading instruments are recorded at fair value, with realized and
unrealized gains and losses recognized in noninterest income. Exposure to
market risk is managed in accordance with risk limits set by senior management.
All positions are netted for risk-management purposes. Credit risk is minimized
by using only exchange-traded futures and options, utilizing a position netting
strategy, and requiring that all positions be fully collateralized.
______
45
<PAGE> 46
Risk management derivative instruments are used to manage the Company's
exposure to interest rate and market risk. The notional or contract amounts on
these instruments normally exceed the amount of credit risk to the Company. The
1994 year-end positions of the Company's activity in these instruments is
summarized in the following table (in thousands):
<TABLE>
<CAPTION>
Contract or
Notional Amount
---------------
<S> <C>
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . $265,000
Interest rate caps . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . 36,905
</TABLE>
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 interest cash flows to be exchanged related to the
interest rate contracts. Market risk, due to potential fluctuations in interest
rates, is inherent in swap agreements. The aggregate estimated cost of
replacement (the cost of replacing an existing contract if the counterparty
defaults) of all interest rate swap contracts was $9.5 million as of December
31, 1994. All interest rate swap counterparties are AAA rated by Standard and
Poors or have collateral arrangements with the Company.
Interest-rate caps with three year maturities were purchased during 1994 in
anticipation of further increases in interest rates, and were assigned to
certificates of deposits with maturities of three months or less. The interest
rate caps allow the Company to limit its exposure to unfavorable interest
fluctuations over and above a "capped" rate. A premium is paid for this
protection. The risk assumed by the Company is limited to the amount of the
premium and not the notional amount of the interest rate cap. The premium paid
for the interest rate cap is recorded in liabilities and amortized over the
life of the cap. At December 31, 1994, the unamortized portion of the interest
rate cap premium was $2.3 million.
Futures and forward contracts are contracts for the delayed delivery of
securities 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. The
Company intends to offset or close out open positions prior to settlement;
therefore, the total contract amounts of futures and forward contracts
represent the extent of the Company's involvement. 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.
The Company was a party to a small number of foreign-exchange spot and
forward transactions during 1994. These contracts generally involve the
exchange of United States currency for a foreign currency. Spot
foreign-exchange transactions normally settle within two business days, and
forward transactions can settle up to a year in the future. At December 31,
1994, there were no foreign exchange contracts outstanding.
Option contracts allow the holder of the option to purchase or sell a
financial instrument from the seller or writer of the option at a specified
price within a specified period of time. The Company has sold options on
securities held in the available for sale securities portfolio during the year.
The premium received on these options totaled $920 thousand. Options which have
been sold do not expose the Company to credit risk. The Company also purchased
an option during the year. A purchased option exposes the Company to credit
risk up to the amount of the premium paid to obtain the option. There were no
option contracts outstanding at year-end 1994.
LITIGATION
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 claim does not specify damages,
but involves 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 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, in an amended
complaint, 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 actual damages for waste of trust
assets and loss of income and punitive damages, both in an
______
46
<PAGE> 47
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.
In addition, the Company is subject to numerous other pending and
threatened legal actions arising in the normal course of business. In the
opinion of management, and based on advice of legal counsel, the ultimate
resolution of these matters will not have a material effect on the Company's
financial condition.
================================================================================
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.
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, 1994 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.
COMMITMENTS: 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.
______
47
<PAGE> 48
DERIVATIVES: Interest rate swaps, interest rate caps, futures, forwards,
and option contracts are the primary derivative financial instruments used by
the Company. The fair value of interest rate swap agreements, interest rate
caps, futures, forwards, and option contracts are obtained from market 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
1994 Amount Value
-------------------------
<S> <C> <C>
Financial assets:
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . $ 686,175 $ 686,175
Trading account securities . . . . . . . . . . . . . . . . . . . . . . . 4,531 4,531
Securities available for sale . . . . . . . . . . . . . . . . . . . . . 8,631 8,631
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 1,330,171 1,332,142
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,803,525 2,694,726
Financial liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,038,550 4,042,846
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 564,789 564,789
Commitments:
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . (1,434) (4,444)
Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (657)
Commitments to sell securities . . . . . . . . . . . . . . . . . . . . . -- 11
Risk management derivatives:
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . (15) 7,900
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 40
Interest rate caps . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,320 3,576
</TABLE>
<TABLE>
<CAPTION> Average
Fair Value
----------
<S> <C> <C> <C>
Trading derivatives:
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . -- -- $ (2)
Option contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 39 (2) 99
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------
Carrying Fair
1993 Amount Value
-------------------------
<S> <C> <C>
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
Commitments:
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . . (1,272) (3,954)
Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (877)
Commitments to purchase securities . . . . . . . . . . . . . . . . . . . -- (7)
Commitments to sell securities . . . . . . . . . . . . . . . . . . . . . -- 26
Risk management derivatives:
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . (66) 1,223
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 183
</TABLE>
______
48
<PAGE> 49
NOTE 14 - DEPOSIT GUARANTY CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
ASSETS 1994 1993
-----------------------
<S> <C> <C>
Cash on deposit with bank subsidiary . . . . . . . . . . . . . . . . . . $ 517 $ 4,083
Securities purchased from bank subsidiary under agreements to resell . . 13,466 16,086
Investment in subsidiaries:
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,624 370,369
Nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 6,675 4,866
Notes receivable from nonbank subsidiaries . . . . . . . . . . . . . . . 3,740 930
Cash dividends receivable from bank subsidiaries . . . . . . . . . . . . 5,065 4,583
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,872 19,469
-----------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $472,959 $420,386
=======================
LIABILITIES
Cash dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,944 $ 4,417
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,466 20,081
-----------------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,410 24,498
-----------------------
STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . 443,549 395,888
-----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . $472,959 $420,386
=======================
</TABLE>
STATEMENTS OF EARNINGS
(in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
INCOME 1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Cash dividends from bank subsidiaries . . . . . . . . . . . . . . . . $19,296 $17,921 $13,543
Consultant and management fees from subsidiaries . . . . . . . . . . 27,295 25,939 24,572
Interest income from subsidiaries . . . . . . . . . . . . . . . . . . 663 132 11
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606 899 1,193
-------------------------------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,860 44,891 39,319
-------------------------------------
EXPENSES
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 1,220 -- 563
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 20,058 19,659 15,052
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,523 13,003 12,279
-------------------------------------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,801 32,662 27,894
-------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . 12,059 12,229 11,425
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . 3,738 3,040 785
-------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES . . . . 15,797 15,269 12,210
Equity in undistributed income (loss) of subsidiaries:
Bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 50,835 52,039 32,504
Nonbank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 498 (756) 800
-------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67,130 $66,552 $45,514
=====================================
</TABLE>
STATEMENTS OF CASH FLOWS
(in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
--------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67,130 $66,552 $45,514
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for depreciation and amortization . . . . . . . . . . . . 2,811 2,861 2,804
Increase in other liabilities . . . . . . . . . . . . . . . . . . . 4,505 2,971 14,217
Decrease (increase) in other assets . . . . . . . . . . . . . . . . (3,996) 8,501 (15,545)
Equity in undistributed income of subsidiaries . . . . . . . . . . (51,333) (51,283) (33,304)
--------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . 19,117 29,602 13,686
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in securities purchased from bank subsidiary
under agreements to resell . . . . . . . . . . . . . . . . . . . . . 2,620 (16,086) --
Net (increase) decrease in notes receivable from nonbank subsidiaries (2,810) (930) 380
Payments for investments in and advances to subsidiaries . . . . . . (1,311) -- --
Sale or repayment of investments in and advances to subsidiaries . . -- 5,000 --
Purchases of premises and equipment . . . . . . . . . . . . . . . . . (1,699) (8,055) (1,519)
Proceeds from sales of bank premises and equipment . . . . . . . . . -- 12 13
Capital contributed to bank subsidiary . . . . . . . . . . . . . . . (467) -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (81) 544
--------------------------------------
NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . (3,667) (20,140) (582)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options . . . . . . . . . . . 282 1,014 2,477
Purchases of common stock . . . . . . . . . . . . . . . . . . . . . . (1,097) -- --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (18,201) (15,783) (12,974)
--------------------------------------
NET CASH USED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . (19,016) (14,769) (10,497)
--------------------------------------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . . (3,566) (5,307) 2,607
--------------------------------------
CASH AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . 4,083 9,390 6,783
--------------------------------------
CASH AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . $ 517 $ 4,083 $ 9,390
======================================
</TABLE>
______
49
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
============================
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the
Company changed its method of accounting for debt securities in 1994 to adopt
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
KPMG PEAT MARWICK LLP
Jackson, Mississippi
February 3, 1995
______
50
<PAGE> 51
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 is 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 is 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 filed with the Commission pursuant to Rule 14a-6 is hereby
specifically incorporated by reference herein.
(2) Deferred Income Plan Filed herewith
and Amendment I --------------
(3) Stock-Based, Long-Term This document was previously filed as Exhibit "E" to the definitive Proxy
Incentive Plan Statement of the Company dated March 12, 1986, filed with the Commission
pursuant to Rule 14a-6 and is hereby specifically incorporated by reference
herein.
(4) Stock-Based, Long-Term This document was previously filed as Exhibit "A" to the definitive Proxy
Incentive Plan II Statement of the Company dated March 29, 1993, filed with the Commission
pursuant to Rule 14a-6 and is hereby specifically incorporated by references
herein.
</TABLE>
51
<PAGE> 52
DESCRIPTION OF EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
Table
Exhibit Number Sequential Page Number
------- ------ ----------------------
<S> <C> <C>
Statement Re: Computation of 11 Filed herewith
Per Share Earnings
Subsidiaries of the Company 22 Filed herewith
Independent Auditors' Consent 24 Filed herewith
Financial Data Schedule 27 Filed herewith
</TABLE>
52
<PAGE> 53
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 21, 1995.
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 21, 1995
---------------------- and Director
E. B. Robinson, Jr.
Principal Executive Officer
/s/Arlen L. McDonald Executive Vice President March 21, 1995
--------------------------
Arlen L. McDonald
Principal Financial Officer
/s/Stephen E. Barker Controller March 21, 1995
--------------------------
Stephen E. Barker
Principal Accounting Officer
/s/Howard L. McMillan, Jr. Director March 21, 1995
--------------------------
Howard L. McMillan, Jr.
/s/Warren A. Hood, Jr. Director March 21, 1995
-------------------------
Warren A. Hood, Jr.
/s/Michael B. Bemis Director March 21, 1995
--------------------------
Michael B. Bemis
/s/Charles Irby Director March 21, 1995
--------------------------
Charles Irby
/s/W. R. Newman, III Director March 21, 1995
--------------------------
W. R. Newman, III
/s/J. Kelly Williams Director March 21, 1995
--------------------------
J. Kelly Williams
</TABLE>
53
<PAGE> 54
EXHIBIT INDEX
The following exhibits are included herein.
<TABLE>
<CAPTION>
Page Exhibit
Number Number Description
------ ------ -----------
<S> <C>
55-78 10(2) Deferred Income Plan and Amendment I
79-81 11 Computation of Per Share Earnings
82-84 22 Subsidiaries of the Registrant
85 24 Independent Auditors' Consent
86 27 Financial Data Schedule
</TABLE>
54
<PAGE> 1
PREAMBLE
This plan, to be known as the Executive and Directors Deferred Income Plan of
Deposit Guaranty Corp., is established as of the Effective Date to provide its
Directors and eligible Executive Employees of Deposit Guaranty Corp., its
participating subsidiaries and affiliates, with a means of deferring income for
retirement and other stated purposes.
55
<PAGE> 2
ARTICLE I
DEFINITIONS
The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context:
1.1 "Administrator" means the persons, appointed by the Board of Directors
of the Company, with authority and responsibility to manage and direct
the operation and administration of the Plan. Unless otherwise
specified by the Board of Directors the Committee shall be the
Administrator.
1.2 "Beneficiary Designation Form" means the form promulgated by the
Administrator by which an eligible Employee designates a Beneficiary
or Beneficiaries in the event of the Employee's death.
1.3 "Benefits" means those benefits elected by an eligible Employee under
Article 4.
1.4 "Board of Directors" means the Board of Directors of the Company, as
constituted from time to time.
1.5 "Code" means the Internal Revenue Code of 1954, as amended (and
including regulations issued thereunder).
1.6 "Committee" means the Administrative Committee referred to in
Article 5.
56
<PAGE> 3
1.7 "Company" means Deposit Guaranty Corp., a corporation duly organized
and existing under the laws of the State of Mississippi.
1.8 "Compensation" means the base salary and bonuses of Employees,
retainer fees and meeting fees for directors and fees for consultants
regularly retained by an Employer.
1.9 "Effective Date" means January 1, 1986.
1.10 "Employee" means an officer of an Employer whose compensation exceeds
$35,000 per annum, a director of an Employer, a member of the Advisory
Board of Company or Deposit Guaranty National Bank, or a consultant
paid an annual fee by an Employer.
1.11 "Employer" means the Company and any subsidiary or affiliated
corporation which, with the approval of the Board of Directors and
subject to such conditions as the Board of Directors may impose,
adopts this Plan, and any successor or successors of any of them.
1.12 "Participant" means an eligible Employee who becomes a Participant
pursuant to Article 2.
1.13 "Plan" means the Executive Deferred Income Plan of Deposit Guaranty
Corp. as herein set forth and as it may hereafter be amended from time
to time.
1.14 "Plan Year" means a calendar year.
57
<PAGE> 4
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility
Employees eligible to participate in the Plan ("Eligible Employees")
shall be limited to the Chief Executive Officer of the Company and
those Employees designated annually in writing by the Chief Executive
Officer.
2.2 Participation
Each Eligible Employee shall become a Participant on the later of:
A. the Effective Date
B. the first day of the year next following the day on which the
Employee has completed and filed a Participation Agreement in
accordance with Article 3.
2.3 Termination of Participation
Participation shall terminate on the date all benefits have been paid
pursuant to Article IV.
58
<PAGE> 5
ARTICLE 3
ELECTION TO DEFER INCOME
3.1 Eligible Employees may elect prior to December 31 to defer an amount
not to exceed fifty percent (50%) of total compensation, other than
bonuses and fees, to be earned during the following year. The
percentage applicable to bonuses and fees shall not exceed one hundred
percent (100%). Annual deferrals may not be less than One Thousand and
No/100 Dollars ($1,000.00). If Total Deferrals by all Eligible
Employees exceeds ten percent (10%) of compensation, the
Administrator may reduce any contribution in excess of ten percent
(10%) of total compensation by giving written notice to the Eligible
Employees so affected.
3.2 Eligible Employees may participate by executing a Deferral Agreement
which must be accepted by the Employer's representative. Such
Agreements shall be effective for one year and shall be executed and
delivered not later than December 31 of the year preceding the year of
deferral.
3.3 Deferrals are made by the Employer withholding 1/24th of the annual
deferral from each semimonthly pay period, provided, however, that
deferrals from bonuses and fees shall be withheld pro rata from the
number of payments made by Employer during the year. The aggregate
amount of such withholdings shall be referred to as Total Deferrals.
59
<PAGE> 6
ARTICLE 4
BENEFITS PAYABLE
4.1 Pre-retirement Benefits
Pre-retirement Benefits are payable as set forth in the Deferral
Agreement. Participants who have attained age fifty (50) at the time
of Deferral are not eligible for any Pre-retirement Benefits.
Pre-retirement benefits for Participants who are common law employees
are further conditioned upon such Employee remaining in the continuous
employ of the Employer. If a Participant's employment as a common law
employee with the Employer is terminated prior to payment of all
preretirement benefits, such benefits shall be recomputed as provided
in Section 4.2 and the balance, if any, paid as a termination benefit.
4.2 Termination Benefits
If Participant's employment as a common law employee with Employer
terminates prior to Participant's sixty-second (62nd) birthday for any
reason other than Participant's death or for cause, as hereinafter
defined, the Employer will pay to the Participant within thirty (30)
business days after Employee's termination in a lump sum the amount of
Total Deferrals with interest thereon at the effective rate of ten
year U. S. Treasury Obligations on January 1 of the Year of Deferral
compounded annually from January 1 of the Year of Deferral to date of
payment, less the value of any Pre-Retirement payments made to
Participant. No interest will be paid on any amounts deferred in the
60
<PAGE> 7
year of termination. For purposes of this Plan the term "Cause" shall
mean termination upon (a) the willful or continued failure by
Participant to substantially perform Participant's duty with the
Employer (other than any such failure resulting from Participant's
incapacity due to physical or mental illness) after a written demand
for substantial performances delivered to Participant by the Chief
Executive Officer of the Employer, which demand specifically
identifies the manner in which the Chief Executive Officer believes
that Participant has not substantially performed Participant's duties,
(b) the willful engaging by Participant in conduct which is
demonstrably and materially injurious to the Employer, or (c) the
willful rendering of any services of an advisory nature or otherwise
to or becoming employed by or participating or engaging in any
business competitive with any of the businesses of the Employer, or
becoming the beneficial or record owner of more than one percent (1%)
of the stock of any such business without the prior written consent of
the Employer. In the event the Employer has determined that the
Participant is in breach of this provision, the Employer may terminate
his or her Participation in this Plan after written notice has been
given to the Participant and the Participant has been given ten (10)
business days to cure the breach of this Section. Notwithstanding the
foregoing provisions, if Participant's Employment with the Employer is
terminated after receiving written notice of termination indicating
that the Participant has been terminated for cause, then the Employer
may terminate his or her Participation and the sole amount payable to
Participant pursuant to the terms of this Plan shall be the amount of
Total Deferrals, with interest thereon at the effective rate of five
61
<PAGE> 8
percent (5%) per annum, compounded annually, from January 1 of the
Year of Deferral to the date of payment, less the value of any
Pre-Retirement payments made to Participant as of such date. Payments
shall be made no later than five (5) business days following
termination for Cause.
4.3 Disability Benefits
If the Participant's employment with Employer is terminated prior to
the Participant's sixty-second (62nd) birthday by reason of the
Participant being permanently and totally disabled, as determined in
accordance with the Employer's Long Term Disability Plan in force on
the date of disability, the Participant's employment with Employer,
for purposes of this Plan, shall be deemed to continue during the
period of the Participant's permanent and total disability and the
provisions of this Plan shall be applicable to the Participant to the
same extent as if the Participant were, in fact, employed by the
Employer during that period. Participants who are not common law
employees of an Employer who become permanently and totally disabled
prior to attaining age 70 shall, for purposes of the Plan, be deemed
to maintain continuous service with the Employer until his or her 70th
birthday.
4.4 Post-Retirement Payments
Subject to the provisions hereinafter set forth, the Employer will pay
to the Participant as Post-Retirement Payments fifteen (15) equal
annual payments beginning January 1 following Employee's sixty-second
(62nd) birthday or his retirement date if later. Benefits for
Participants who
62
<PAGE> 9
are not common law employees. of an Employer shall be paid in ten (10)
annual installments beginning January 1 following the Participant's
70th birthday. A Participant who is within four (4) years of normal
retirement at the time of initial participation may elect on his
Deferral Agreement to have benefits begin five (5) years from the Year
of Deferral. The amount of the benefit is set forth in the Deferral
Agreement. Participant shall not be entitled to any Post-Retirement
Payments unless Participant has (a) attained age sixty-two (62), or
(b) attained a full early retirement pension entitlement under the
Employer's qualified Retirement Plan after ten (10) years of service,
provided that in either event any common law Employee has been
continuously employed by the Employer from the Year of Deferral.
4.5 Death Benefits
In the event that the Participant dies while employed as a common law
Employee by the Employer prior to Participant's sixty-second (62nd)
birthday, the Employer shall pay the Participant's designated
Beneficiary, either in lump sum or in five (5) annual installments, at
the election of the Committee, payable on the first day of the next
month following his or her death, the Total Deferrals by the Employee
pursuant to Article 3 hereof with interest thereon at the effective
rate of twenty percent (20%) per annum compounded annually, from
January 1 of the Year of Deferral to date of payment, less the value
of any Pre-Retirement Payments made to Participant. For Participants
who are not common law Employees such payments shall be made if death
occurs prior to the Participant's seventieth (70th) birthday.
63
<PAGE> 10
4.6 Beneficiary Designation
The Participant may, from time to time, designate any person or
persons, (who may be designated contingently or successively) to whom
payments are to be made if the Participant dies before receiving
payment of all amounts due hereunder, by signing a form approved by
the Administrator. A Beneficiary Designation Form will be effective
only after the signed Form is filed with the Plan Administrator while
the Participant is alive and will cancel all Beneficiary Designation
Forms signed and filed earlier with the Administrator. If the
Participant fails to designate a Beneficiary as provided above, or if
all Designated Beneficiaries of the Participant die before the
Participant or before complete payment of all amounts due hereunder,
the Employer will pay, in a lump sum, the unpaid amount to the legal
representative or representatives of the estate of the last to die of
the Participant and the Beneficiary.
64
<PAGE> 11
ARTICLE 5
ADMINISTRATION
5.1 Except as to those functions reserved within the Plan to the Board of
Directors, the Administrative Committee ("Committee") shall control
and manage the operation and Administration of the Plan. It shall
consist of not less than three (3) nor more than seven (7) persons,
who may or may not be Participants in the Plan and/or Members of the
Board of Directors, to be appointed by the Board of Directors. Any
member of the Committee may resign or be removed by the Board of
Directors and new members may be appointed by the Board of Directors.
5.2 Any person appointed to be a member of the Committee shall signify his
acceptance in writing to the Board of Directors. Any member of the
Committee may resign by delivering his written resignation to the
Board of Directors and such resignation shall become effective upon
such delivery or upon any date specified therein.
5.3 A majority of the members of the Committee at the time in office shall
constitute a quorum for the transaction of the business at any
meeting. Any determination or action of the Committee may be made or
taken by a majority of the members present at any meeting thereof, or
without a meeting by a resolution or written memorandum concurred in
by a majority of the members then in office.
5.4 The Committee shall select a Chairman and may select a secretary
65
<PAGE> 12
(who may, but need not, be a member of the Committee) to keep its
records or to assist it in the doing of any act or thing to be done or
performed by the Committee.
5.5 No member of the Committee shall vote or be counted for quorum
purposes on any matter relating solely to himself or his rights under
the Plan.
5.6 Subject to the limitations of the Plan, the Committee shall establish
rules for the administration of the Plan and the transaction of its
business. It shall have the exclusive right (except as to matters
reserved to the Board of Directors by the Plan or which the Board of
Directors may reserve to itself) to interpret the Plan and to decide
all matters arising thereunder, including the right to remedy possible
ambiguities, inconsistencies, or omissions. All determinations of the
Committee or the Board of Directors in respect to any matter hereunder
shall be conclusive and binding in all persons. Without limiting the
generality of the foregoing, the Committee shall have the following
powers and duties:
(A) To require any person to furnish such information as it may
request for the purpose of the proper administration of the
Plan as a condition to receiving any benefits under the Plan;
(B) To make and enforce such rules and regulations and prescribe
the use of such forms as it shall deem necessary for the
efficient administration of the Plan;
66
<PAGE> 13
(C) To decide on questions concerning the Plan and the eligibility
of any Employee to participate in the Plan, in accordance with
the provisions of the Plan;
(D) To determine the amount of benefits which shall be payable to
any person in accordance with the provisions of the Plan; to
inform the Employer of the amount of such Benefits; and to
provide a full and fair review to any Participant whose claim
for benefits has been denied in whole or in part;
(E) To allocate any of such powers and duties to or among
individual members of the Committee;
(F) To designate persons other than Committee members to carry out
any duty or power which would otherwise be a fiduciary
responsibility of the Committee or Administrator, under the
terms of the Plan.
5.7 The Committee, subject to approval of the Board of Directors, may
employ the services of such persons as it may deem necessary or
desirable in connection with the Plan. The Committee, the Company, an
Employer (and any person to whom it may delegate any duty or power in
connection with the administration of the Plan) and all persons
connected therewith may rely upon all tables, valuations,
certificates, reports and opinions furnished by any duly appointed
actuary, accountant (including Company Employees who are actuaries or
accountants), or legal counsel, or other specialist, and they shall be
fully protected in respect to any action
67
<PAGE> 14
taken or permitted in good faith in reliance thereon. All actions so
taken or permitted shall be conclusive upon all persons.
5.8 To the extent permitted by law, neither the Committee, nor any member
of the Committee, nor any other person, shall incur any liability for
any acts or for any failure to act except for his own willful
misconduct or willful breach of this Plan or the trust created
pursuant to the provisions hereof.
5.9 Unless otherwise agreed to by the Company, the members of the
Committee shall serve without compensation for services as such, but
all reasonable expenses incurred in the performance of their duties
shall be paid by the Company. Unless otherwise determined by the
Board of Directors or unless required by any Federal or State law, no
member of the Committee shall be required to give any bond or other
security in any jurisdiction.
5.10 All expenses incurred prior to the termination of the Plan that shall
arise in connection with the administration of the Plan, including but
not limited to administrative expenses and compensation and other
expenses and charges of any actuary, counsel, accountant, specialist,
or other person who shall be employed by the Committee in connection
with the administration thereof, shall be paid by the Company or by an
Employer.
68
<PAGE> 15
ARTICLE 6
CLAIMS PROCEDURES
6.1 Any Employee, beneficiary, or his duly authorized representative may
file a claim for a plan benefit to which the claimant believes that he
is entitled. Such a claim must be in writing on a form provided by
the Plan Administrator and delivered to the Administrator in person or
by mail, postage paid. Within ninety (90) days after receipt of such
claim, the Administrator shall send to the claimant by mail, postage
prepaid, notice of the granting or denying, in whole or in part, of
such claim, unless special circumstances require an extension of time
for processing the claim. In no event shall the extension exceed
ninety (90) days from the end of the initial period. If such
extension is necessary, the claimant will be given a written notice to
this effect prior to the expiration of the initial 90-day period. The
Administrator may, in its discretion, deny or grant a claim in whole
or in part as provided by the Plan. If notice of the denial of a
claim is not furnished in accordance with this section, the claim
shall be deemed denied and the claimant shall be permitted to exercise
his right to review pursuant to Sections 6.3 and 6.4.
6.2 The Administrator shall provide, to every claimant who is denied a
claim for benefits, written notice setting forth in the manner
calculated to be understood by the claimant:
(A) The specific reason or reasons for the denial or adjustment;
69
<PAGE> 16
(B) Specific reference to pertinent Plan provisions;
(C) A description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material is necessary; and
(D) An explanation of the Plan's claim review procedure.
6.3 Within sixty (60) days after the receipt by the claimant of written
notification of the denial (in whole or in part) of his claim, the
claimant or his duly authorized representative, upon written
application to the Committee, in person or by certified mail, postage
prepaid, may request a review of such denial, may review pertinent
documents, and may submit issues and comments in writing.
6.4 Upon its receipt of notice of a request for review, the Committee
shall make a prompt decision on the review. The decision on review
shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and
specific references to the pertinent plan provision on which the
decision is based. The decision on review shall be made not later
than sixty (60) days after the Committee's receipt of a request for a
review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered not later than
120 days after receipt of a request for review. If an extension is
necessary, the claimant shall be given written notice
70
<PAGE> 17
of the extension prior to the expiration of the initial 60-day period.
If notice of the decision on the review is not furnished in accordance
with this Section 6.4, the claim shall be deemed denied and the
claimant shall be permitted to exercise his right to legal remedy
pursuant to Section 6.5.
6.5 After exhaustion of the claims procedure as provided under this Plan,
nothing shall prevent any person from pursuing any other legal remedy.
71
<PAGE> 18
ARTICLE 7
AMENDMENT OR TERMINATION OF PLAN
7.1 The Board of Directors reserves the power at any time and from time to
time, and retroactively if deemed necessary or appropriate, to modify
or amend in whole or part any or all of the provisions of the Plan.
Alternatively, should the Board of Directors, in its sole discretion,
determine that due to a change in Federal or State law (a) the
Employer's marginal tax rate has been reduced below thirty-three
percent (33%) or (b) for any reason other than that described in
clause (a) above, the Employer's cost of providing the benefits
otherwise payable pursuant to this Plan has materially increased, the
Employer may reduce the benefit payments due hereunder for all periods
subsequent to the date thereof (or the date of the tax change if
earlier); provided, however, that in no event shall such reduction
adversely affect the payment of the Total Deferrals and provided
further that such benefit shall not be decreased to less than that
which would be determined by using the ten year U. S. Treasury Bill
rate compounded annually in effect at the date of such change.
7.2 The Board of Directors reserves the power to discontinue or terminate
the Plan at any time. Upon termination the Board of Directors may, in
its sole discretion, determine whether to continue the Plan as to
existing deferrals or whether to pay out such amounts as a
Pre-Retirement Benefit as provided in Section 4.1.
72
<PAGE> 19
7.3 Any such amendment, discontinuance or termination shall be effective
at such date as the Board of Directors shall determine.
73
<PAGE> 20
ARTICLE 8
GENERAL PROVISIONS
8.1 Neither this Plan nor any action taken with respect to it shall confer
upon any person the right to be continued in the employment of the
Employer.
8.2. The provisions of the Plan shall be construed, administered and
enforced according to applicable Federal law and the laws of the State
of Mississippi.
8.3 No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to do so shall be void. No
benefit under the Plan shall in any manner be liable for or subject to
the debts, contracts, liabilities, engagements or torts of any person.
If any person entitled to benefits under the Plan becomes bankrupt or
attempts to anticipate, alienate, sell, transfer, assign, pledge,
encumber or charge any benefit under the Plan, or if any attempt is
made to subject any such benefit to the debts, contracts, liabilities,
engagements or torts of the person entitled to any such benefit,
except as specifically provided in the Plan, then such benefit shall
cease and terminate in the discretion of the Administrator, and it may
hold or apply the same or any part thereof to the benefit of any
dependent or beneficiary or such person, in such manner and proportion
as it may deem proper.
74
<PAGE> 21
8.4 If the Administrator determines that any person entitled to payments
under the Plan is incompetent by reason of physical or mental
disability, it may cause all payments thereafter becoming due to such
person to be made to any other person for his benefit, without
responsibility to follow the application of amounts so paid.
Administrator may, as a condition of making payment, require the
appointment of a guardian or conservator for such person by a court
having jurisdiction. Payments made pursuant to this section shall
completely discharge the Administrator and Employer.
8.5 The Employer's obligation to make payments to any person under this
Plan is purely contractual and the parties do not intend that the
amounts payable hereunder be held by the Employer in trust or as a
segregated fund for the Employee, the Beneficiary, or other person
entitled to payments hereinbefore described. The benefits provided
under this Plan shall be payable solely form the general assets of the
Employer and neither the Employee, the Beneficiary or other person
entitled to payments hereinbefore provided shall have any interest in
any assets of the Employer by virtue of this Plan. The Plan merely
grants the Employee, the Beneficiary or other persons entitled
payments hereinbefore described the contractual right to receive
future benefits. Employer's obligation under the Plan shall be merely
that of an unfunded and unsecured promise of Employer to pay money in
the future.
8.6 All communications in connection with the Plan made by a Participant
shall become effective only when duly executed on forms provided by
and
75
<PAGE> 22
filed with the Administrator.
8.7 Notwithstanding any other provision of this Plan, if the Participant's
employment with Employer terminates due to a change in control prior
to Participant meeting the requirements of Section 4.4 hereof,
Employee will be entitled to Termination Benefits as provided in
Section 4.2 but the amount of the benefit will be the present value of
the Pre Retirement and Post Retirement benefits set forth in the
Deferral Agreement using interest factors implied in said Deferral
Agreement. This section shall apply for two (2) years after a change
of control has occurred. A change on control shall mean an occurrence
whereby:
(A) Any person, partnership, corporation, trust or similar entity
or group shall acquire or control, after the date hereof, more
than twenty-five (25%) of the voting securities of the
Employer in a transaction or series of transactions or
(B) At any time during any two (2) year period a majority of the
Board of Directors of the Employer is not comprised of
individuals who were members of such Board of Directors at the
commencement of such two (2) year period.
For purposes of this definition the term "Group" shall mean any
persons who act in concert within the meaning of Section 14(d)(2) of
the Securities Exchange Act of 1934 as Amended.
76
<PAGE> 23
8.8 The employer reserves the right to withhold all applicable Federal,
State and local taxes on any monies paid to employees under the Plan.
8.9 Notices and all other communications provided for in this Plan shall
be in writing and shall be deemed to have been duly given when
delivered or mailed by United states certified mail, return receipt
requested, postage prepaid, addressed to the parties at the addresses
shown on the Deferral Agreement.
77
<PAGE> 24
AMENDMENT NO. 1
TO THE EXECUTIVE AND DIRECTORS
DEFERRED INCOME PLAN OF
DEPOSIT GUARANTY CORP.
Pursuant to Article 7 of the Executive and Directors Deferred Income
Plan of Deposit Guaranty Corp. the following Section 4.7 is added to
Article 4 effective January 1, 1989:
"4.7 Early Retirement Payments
Notwithstanding the provisions of 4.2 above, if a Participant who has
attained age 55 and has ten years of service as defined by the
Employer's Qualified Retirement Plan shall elect to take early
retirement pursuant to said Qualified Retirement Plan, such
Participant shall be paid post-retirement payments as provided in
Section 4.4 in lieu of any termination benefits under Section 4.2.
The Administrative Committee may in its sole discretion authorize
payments to be made pursuant to Section 4.2 in lieu of benefits
provided under this Section if it deems such payment to be in the best
interest of the Participant, the Plan and the Employer."
78
<PAGE> 1
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1994
<TABLE>
<CAPTION>
Year Ended December 31, 1994
--------------------------------
Fully
Primary Diluted
----------- ------------
<S> <C> <C>
Computation of weighted average
shares outstanding:
Common stock outstanding,
January 1, 1994 17,667,852 17,667,852
Common stock issued due to
exercise of options 6,857 6,857
Shares purchased by
the Company (6,647) (6,647)
----------- -----------
Weighted average shares
outstanding 17,668,062 17,668,062
=========== ===========
Computation of net income:
Net income $67,130,000 $67,130,000
=========== ===========
Computation of per share
earnings:
Net income divided by weighted
average shares outstanding $3.80 $3.80
=========== ===========
</TABLE>
Note - Additional weighted average shares outstanding for options under the
Company's incentive stock plan were 128,452 and 127,768 for calculating primary
and fully diluted net income per share, respectively. The dilutive effect of
such options was, therefore, not material.
79
<PAGE> 2
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.
80
<PAGE> 3
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.
81
<PAGE> 1
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, 1994.
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 9.66%
G & W Life Insurance Company
Incorporated February 12, 1988
Corp. Ownership 100%
Commercial National Corporation **
Acquired February 8, 1990
Corp. Ownership 100%
CNC Acquisition Corp.
Incorporated August 5, 1994
Corp. Ownership 100%
82
<PAGE> 2
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%
Deposit Guaranty Leasing Company
Incorporated June 20, 1994
Bank Ownership 100%
83
<PAGE> 3
DEPOSIT GUARANTY CORP.
ORGANIZATION CHART(Cont.)
** SUBSIDIARIES OF COMMERCIAL NATIONAL CORPORATION
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%
84
<PAGE> 1
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 3, 1995 relating to the consolidated statements of
condition of Deposit Guaranty Corp. and subsidiaries as of December 31, 1994
and 1993, 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, 1994, which report appears in the December 31, 1994
annual report on Form 10-K of Deposit Guaranty Corp.
Our report refers to a change in the method of accounting for debt securities.
KPMG PEAT MARWICK LLP
Jackson, Mississippi
March 30, 1995
85
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 326,768
<INT-BEARING-DEPOSITS> 135,298
<FED-FUNDS-SOLD> 224,109
<TRADING-ASSETS> 4,531
<INVESTMENTS-HELD-FOR-SALE> 8,631
<INVESTMENTS-CARRYING> 1,330,171
<INVESTMENTS-MARKET> 1,332,142
<LOANS> 2,877,746
<ALLOWANCE> (55,873)
<TOTAL-ASSETS> 5,130,897
<DEPOSITS> 4,038,550
<SHORT-TERM> 564,789
<LIABILITIES-OTHER> 84,009
<LONG-TERM> 0
<COMMON> 19,361
0
0
<OTHER-SE> 424,188
<TOTAL-LIABILITIES-AND-EQUITY> 5,130,897
<INTEREST-LOAN> 204,434
<INTEREST-INVEST> 86,543
<INTEREST-OTHER> 16,295
<INTEREST-TOTAL> 307,272
<INTEREST-DEPOSIT> 109,316
<INTEREST-EXPENSE> 125,881
<INTEREST-INCOME-NET> 181,391
<LOAN-LOSSES> (4,750)
<SECURITIES-GAINS> 13,621
<EXPENSE-OTHER> 180,047
<INCOME-PRETAX> 99,593
<INCOME-PRE-EXTRAORDINARY> 67,130
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,130
<EPS-PRIMARY> 3.80
<EPS-DILUTED> 3.80
<YIELD-ACTUAL> 7.09
<LOANS-NON> 25,556
<LOANS-PAST> 3,055
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 224
<ALLOWANCE-OPEN> 62,032
<CHARGE-OFFS> 14,908
<RECOVERIES> 12,275
<ALLOWANCE-CLOSE> 55,873
<ALLOWANCE-DOMESTIC> 55,873
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,723
</TABLE>
