<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1995
Commission File Number 0-4518
DEPOSIT GUARANTY CORP.
--------------------------------------------------
(Exact Name Of Registrant As Specified In Charter)
Mississippi 64-0472169
------------------------------- ----------------------------
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
210 East Capitol Street, Jackson, MS 39201
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(Address Of Principal Executive Offices)
(Zip Code)
(601) 354-8564
-------------------------------
(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Shares Of Common Stock, No Par Value, Outstanding
As Of June 30, 1995: 18,851,417
<PAGE> 2
10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1995 1994
-----------------------------------
<S> <C> <C>
Assets
Cash and due from banks $346,093 $326,768
Interest-bearing bank balances - 135,298
Federal funds sold and securities
purchased under agreements to resell 102,745 224,109
Trading account securities 1,692 4,531
Securities available for sale 21,963 8,631
Investment securities (market value:
1995 - $1,676,574 ; 1994 - $1,332,142 ) 1,647,621 1,330,171
Loans 3,257,505 2,877,746
Less: Unearned income (15,419) (18,348)
Allowance for possible loan losses (58,552) (55,873)
---------- ----------
Net loans 3,183,534 2,803,525
Bank premises and equipment 140,773 131,621
Other assets 185,802 166,243
---------- ----------
TOTAL ASSETS $5,630,223 $5,130,897
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing $999,055 $947,511
Interest-bearing 3,414,990 3,091,039
---------- ----------
Total deposits 4,414,045 4,038,550
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 655,296 564,789
Other liabilities 78,771 84,009
---------- ----------
TOTAL LIABILITIES 5,148,112 4,687,348
---------- ----------
STOCKHOLDERS' EQUITY
Cumulative preferred stock, no par value,
authorized: 10,000,000 shares of class A
voting; and 10,000,000 shares of class B
non-voting; issued and outstanding: none -- --
Common stock, no par value, authorized
50,000,000 shares; issued and outstanding:
1995 - 18,851,417 shares; 1994 - 17,648,052
shares 20,679 19,361
Surplus 156,644 154,726
Retained earnings 302,807 269,508
Market valuation for securities available for
sale, net of income taxes 1,981 1,973
Treasury stock (1994 - 70,000 shares) -- (2,019)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 482,111 443,549
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,630,223 $5,130,897
========== ==========
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1995 1994 1995 1994
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $69,782 $48,848 $134,725 $93,420
Interest on investment securities:
Taxable 25,231 7,615 47,099 11,616
Exempt from Federal income tax 2,076 2,268 4,362 4,388
Interest on securities available for sale:
Taxable 412 9,253 905 27,071
Exempt from Federal income tax 25 3 50 7
Interest on trading account securities 84 73 137 113
Interest on Federal funds sold and securities
purchased under agreements to resell 1,176 3,444 2,623 5,891
Interest on bank balances - 1,652 1,141 2,565
-------------------------------- --------------------------------
TOTAL INTEREST INCOME 98,786 73,156 191,042 145,071
-------------------------------- --------------------------------
INTEREST EXPENSE
Interest on deposits 35,333 26,388 68,106 51,871
Interest on Federal funds purchased, securities
sold under agreements to repurchase and
other short-term borrowings 7,736 3,791 13,468 7,353
-------------------------------- --------------------------------
TOTAL INTEREST EXPENSE 43,069 30,179 81,574 59,224
-------------------------------- --------------------------------
NET INTEREST INCOME 55,717 42,977 109,468 85,847
Provision for possible loan losses 1,000 (2,750) 1,000 (2,750)
-------------------------------- --------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 54,717 45,727 108,468 88,597
-------------------------------- --------------------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 7,782 6,827 15,355 13,183
Fees for trust services 3,500 3,338 7,001 6,674
Securities available for sale gains 24 1,088 19 9,820
Other service charges, commissions
and fees 8,952 7,476 17,955 15,975
Other income 799 2,589 1,885 3,625
-------------------------------- --------------------------------
TOTAL OTHER OPERATING INCOME 21,057 21,318 42,215 49,277
-------------------------------- --------------------------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 26,340 24,427 52,559 48,183
Net occupancy expense 3,313 3,141 6,506 6,061
Equipment expense 4,070 3,286 7,890 6,540
Service fees 3,035 2,972 5,483 5,415
Communication 2,256 1,954 4,361 3,698
FDIC assessment 2,416 2,224 4,804 4,403
Advertising and public relations 2,202 2,118 4,418 4,172
Other expense 6,744 4,152 12,894 8,960
-------------------------------- --------------------------------
TOTAL OTHER OPERATING EXPENSE 50,376 44,274 98,915 87,432
-------------------------------- --------------------------------
INCOME BEFORE INCOME TAXES 25,398 22,771 51,768 50,442
Income tax expense 8,024 7,065 16,423 16,066
-------------------------------- --------------------------------
NET INCOME $17,374 $15,706 $35,345 $34,376
================================ ================================
NET INCOME PER SHARE $0.91 $0.89 $1.84 $1.95
WEIGHTED AVERAGE SHARES OUTSTANDING 19,080,014 17,668,852 19,187,536 17,668,509
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------------
1995 1994
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,345 $ 34,376
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 1,000 (2,750)
Provision for depreciation and amortization 11,882 8,726
Provision for deferred income tax expense (benefit) (53) 4,485
Accretion of discount on investment securities, net (15,460) (3,458)
Accretion of discount on securities available for sale, net (41) (1,821)
Deferred loan fees and costs (1,440) (1,640)
Decrease in other liabilities (3,344) (10,082)
(Increase) decrease in other assets (9,853) 41,355
Net cash received from (paid for) loans held for resale (23,091) 53,792
Securities available for sale gains (19) (9,820)
Other, net (424) (1,337)
----------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (5,498) 111,826
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances 135,298 (55,062)
Proceeds from sales of securities available for sale 20,650 1,264,892
Proceeds from maturities of investment securities 276,364 110,411
Proceeds from maturities of securities available for sale 13,331 162,484
Purchases of investment securities (497,196) (312,611)
Purchases of securities available for sale (1,219) (946,982)
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell 128,859 (49,042)
Net increase in loans (227,507) (162,250)
Proceeds from sales of other real estate 1,780 3,035
Purchases of bank premises and equipment (11,828) (8,069)
Proceeds from sales of bank premises and equipment 181 2,533
Payment for purchase of common stock of
First Columbus Financial Corporation -- (49,343)
Cash and due from banks of acquired banks and branch operations 12,309 14,072
----------- ------------
NET CASH USED BY INVESTING ACTIVITIES (148,978) (25,932)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 122,504 (24,251)
Net increase (decrease) in Federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings 88,910 (50,005)
Proceeds from the exercise of common stock options 454 20
Purchases of Company common stock (27,990) --
Cash dividends paid (10,077) (8,834)
----------- ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 173,801 (83,070)
----------- ------------
INCREASE IN CASH AND DUE FROM BANKS 19,325 2,824
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 326,768 293,894
----------- ------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 346,093 $ 296,718
=========== ============
</TABLE>
4
<PAGE> 5
INCOME TAXES:
The Company made income tax payments of $16.6 million and $17.7 million
during the six month periods ended June 30, 1995 and 1994, respectively.
INTEREST:
The Company paid $76.6 million and $60.2 million in interest on deposits and
other borrowings during the six month periods ended June 30, 1995 and 1994,
respectively.
SECURITIES:
During 1994, the Company transferred securities available for sale with a
carrying value of $139.5 million to its investment securities portfolio. These
securities had an unrealized holding gain of $2.7 million at the transfer date,
net of deferred income taxes, reported as a separate component of stockholders'
equity.
ACQUISITIONS:
During 1995, the Company exchanged 1.4 million shares of its common stock for
all the outstanding common shares of Citizens National Bancshares, Inc. in a
transaction accounted for as a pooling of interests.
During 1995, the Company recognized the exchange of 680 thousand shares of
common stock for all the outstanding common shares of LBO Bancorp, Inc. The
following reflects the assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $109,336
Fair value of common stock issued 19,736
-----------
Liabilities assumed $89,600
===========
</TABLE>
During 1994, the Company purchased substantially all of the common stock of
First Columbus Financial Corporation for $49.3 million. In conjunction with
the acqusition, liabilities were assumed as follows (in thousands).
<TABLE>
<S> <C>
Fair value of assets acquired $228,652
Fair value of common stock issued 49,343
-----------
Liabilities assumed $179,309
===========
</TABLE>
5
<PAGE> 6
PART I. Financial Information
ITEM 1. Financial Statements
Deposit Guaranty Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all information and footnotes necessary for a fair presentation
of financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. All adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and results of operations have been made. These adjustments consist
only of normal, recurring adjustments.
The condensed consolidated financial statements of Deposit Guaranty Corp.
include the financial statements of Deposit Guaranty National Bank, a 98%-owned
subsidiary, G & W Life Insurance Co., and Commercial National Corporation,
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
NOTE B - CONTINGENCIES
The Company's subsidiary, Commercial National Bank (CNB), is a defendant in
litigation arising out of a Louisiana Housing Finance Agency Municipal Bond
Issue. CNB was trustee for the issue, and in general, it is claimed that fraud
was practiced on the bondholders in that the proceeds of the issue were not
used for the purpose stated in the official statement. Additionally, the claim
alleges conspiracy and improper conduct concerning CNB's role as trustee. In
addition, some of the codefendants of CNB have asserted claims against CNB for
contribution in the event those defendants are found to be liable to plaintiff.
Likewise, CNB has asserted contribution claims against its codefendants.
Although the litigation currently involves only one bondholder, certification
as a class action suit has been requested. The claims do not specify damages,
but involve a $150 million bond issue. While the ultimate outcome of the
lawsuit at this time cannot be predicted with certainty, management believes
that CNB has good and meritorious defenses and should prevail.
The Company's subsidiary, Deposit Guaranty National Bank (DGNB), is a defendant
in a case in which the plaintiffs are some of the beneficiaries of a trust and
DGNB is the trustee of the trust. In an amended complaint, 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.
<PAGE> 7
In addition, the Company is subject to numerous other pending and threatened
legal actions arising in the normal course of business, and management believes
that the ultimate resolution of these matters will not have a material effect
on the Company's consolidated financial statements.
NOTE C - ACCOUNTING CHANGES
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." As required by
SFAS No. 114, a loan is impaired when based on current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. SFAS No. 114 requires
a creditor to measure impaired and restructured loans at the present value of
expected future cash flows, discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. SFAS No. 118
amends SFAS No. 114 by eliminating the income recognition provisions outlined
in SFAS No. 114 and allowing creditors to use previously used methods for
recognizing interest income on impaired loans. The adoption of these
Statements did not have a material impact on the consolidated financial
statements.
Effective January 1, 1995, the Company adopted the provisions of SFAS No. 116,
"Accounting for Contributions Received and Contributions Made." SFAS No. 116
requires that contributions made by the Company, including unconditional
promises to give, be recognized as expenses at their fair values in the period
made. Conditional promises to give are recognized when the conditions are
substantially met. Adoption of this Statement did not have a material impact
on the consolidated financial statements.
NOTE D - LOANS
The following table summarizes the activity in the allowance for possible loan
losses for the six-month periods ended June 30, 1995 and 1994 (in thousands).
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Balance at December 31 $55,873 $62,032
Charge-offs (5,337) (9,372)
Recoveries 4,522 6,523
------- -------
Net charge-offs (815) (2,849)
Provision for possible loan losses 1,000 (2,750)
Allowance of acquired banks 2,494 1,224
------- -------
Balance at June 30 $58,552 $57,657
======= =======
</TABLE>
<PAGE> 8
The total recorded investment in impaired loans as of June 30, 1995 was $24.5
million of which $4.1 million has a related allowance of $1.2 million for
estimated credit losses determined in accordance with the provisions of SFAS
No. 114. The remaining $20.4 million of the impaired loans do not require an
allowance under the provisions of SFAS No. 114 since the estimated future cash
flows or the collateral value was considered sufficient to cover any future
deficiencies in loan payments. However, a general allowance for possible loan
losses is available to absorb losses on these loans. The average recorded
investment in impaired loans for the six month period was $21.9 million.
The Company continues to use the nonaccrual method for interest income on
impaired loans. Using this method, the accrual of interest is discontinued on
loans when management believes there is reasonable uncertainty as to the
collectability of the contract amount, or when the loan is contractually 90
days or more past due, or not well secured and not in the process of
collection. There was no interest income recognized in the second quarter of
1995 on loans identified as impaired.
NOTE E - ACQUISITIONS
On December 31, 1994, the Company exchanged 680 thousand shares of common stock
for all of the outstanding common shares of LBO Bancorp, Inc., a bank holding
company, in a purchase business combination. The fair value of the assets
acquired was $109 million. The acquisition, which was not material, was
reflected in the financial statements beginning January 1, 1995.
On March 10, 1995, the Company purchased the Coahoma County, Mississippi
operations of a local Mississippi bank. This acquisition added assets of
approximately $82 million.
On May 19, 1995, the Company exchanged 1.4 million shares of common stock for
all of the outstanding shares of Citizens National Bancshares, Inc., a bank
holding company, in a pooling of interests transaction. As a result of this
transaction, the Company has restated its financial statements to include
Citizens National as of January 1, 1995. The Company's restated net income
for the first quarter of 1995 is $18.0 million with restated total assets of
$5.4 billion as of March 31, 1995. Prior to the inclusion of Citizens
National, the Company's first quarter net income was $17.2 million with total
assets of $5.2 billion. Citizens National had first quarter net income and
total assets of $750 thousand and $193 million, respectively. Prior years'
financial statements were not restated as the changes would have been
immaterial.
On August 8, 1995, the Company purchased First Mortgage Corp, located in Omaha,
Nebraska for $15.8 million in a purchase business combination. First Mortgage
Corp. has a $1.1 billion mortgage servicing portfolio and 6 production
offices in Nebraska and Oklahoma.
On May 17, 1995, the Company entered into an agreement of merger with First
Merchants Financial Corporation, a bank holding company with approximately $280
million in total assets. Under the terms of this agreement, First Merchants
will be merged into Deposit Guaranty of Arkansas, a wholly-owned subsidiary of
Deposit Guaranty Corp. Under the agreement, 994,030 shares of Deposit Guaranty
Corp. common stock and up to $3.7 million in cash will be exchanged for all of
the issued and outstanding shares of First Merchants Financial Corporation.
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Deposit Guaranty Corp.:
We have reviewed the condensed consolidated statement of condition of Deposit
Guaranty Corp. and subsidiaries as of June 30, 1995, and the related condensed
consolidated statements of earnings for the three-month and six-month periods
ended June 30, 1995 and 1994, and the related condensed consolidated statements
of cash flows for the six-month periods ended June 30, 1995 and 1994.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of Deposit Guaranty Corp.
and subsidiaries as of December 31, 1994, and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated February 3,
1995, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated statement of condition as of December 31, 1994, is
fairly presented, in all material respects, in relation to the consolidated
statement of condition from which it has been derived.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Jackson, Mississippi
July 18, 1995
<PAGE> 10
PART I. Financial Information
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Deposit Guaranty Corp. and Subsidiaries
The following discussion reviews the financial condition and the results of
operations of Deposit Guaranty Corp. and subsidiaries (the Company) for the
three-month and six-month periods ending June 30, 1995 and 1994. This
discussion should be read in conjunction with the condensed consolidated
financial statements included in Part I, Item I.
During the second and fourth quarters of 1994, the Company acquired First
Columbus Financial Corporation, a $209 million asset bank holding company, and
LBO Bancorp, Inc. with total assets of $109 million. During the first quarter
of 1995, the Company acquired the Coahoma County operations of a local
Mississippi bank with total assets of approximately $82 million. These
transactions were accounted for as purchases and, as such, the results of
operations of these entities are included in the financial statements from the
acquisition date and will affect the comparability of the financial statements
for 1994 and 1995.
During the second quarter of 1995, the Company acquired Citizens National
Bancshares, Inc. with total assets of $193 million. This transaction was
accounted for as a pooling of interests and, accordingly, the Company's
financial statements for 1995 have been restated to include the combined
financial results of both companies. Prior period financial statements were
not restated as the changes would have been immaterial.
BALANCE SHEET
Total assets were $5.630 billion at June 30, 1995, compared to $5.131 billion
at December 31, 1994. Loans, net of unearned income, increased $383 million
from $2.859 billion at December 31, 1994 to $3.242 billion at June 30, 1995.
Approximately, 60% of this increase in loans was the result of higher loan
demand in the Company's market area and approximately 40% of the increase is
due to acquisitions. Investment securities increased $317 million from $1.330
billion at December 31, 1994 to $1.648 billion at June 30, 1995. Correlating
with the increases in loans and investment securities were decreases in
interest-bearing bank balances and Federal funds sold and securities purchased
under agreements to resell of $135.3 million and $121.4 million, respectively.
Total deposits increased from $4.039 billion at December 31, 1994 to $4.414
billion at June 30, 1995. Approximately 90% of the increase in deposits was
the result of acquisitions. Total stockholders' equity increased to $482.1
million at June 30, 1995 compared to $443.6 million at December 31, 1994.
As of June 30, 1995, the Company had interest rate swap contracts with a total
notional value of $235 million compared to $265 million at December 31, 1994
and $105 million at March 31, 1995. During 1995, the Company sold interest
swap contracts with notional amounts totaling $65 million for a net gain of
$792 thousand. These swaps were hedging money market deposit accounts;
therefore, the gain is being amortized over the original life of the terminated
swap contracts. Also during 1995, the Company exercised its option not to
extend the maturity on a callable swap.
<PAGE> 11
NET INCOME
Net income for the second quarter of 1995 was $17.4 million compared to $15.7
million for the second quarter of 1994. Net income per share was $.91 for the
second quarter of 1995 compared to $.89 for the same period in 1994. Net
income for the second quarter of 1995 increased largely as a result of an
increase in net interest income of $12.7 million from $43.0 million to $55.7
million.
Net income for the six months ended June 30, 1995 was $35.3 million with net
income per share of $1.84 compared to net income of $34.4 million and net
income per share of $1.95 for the same period in 1994. Year-to-date net income
for 1995 included a provision for possible loan losses of $617 thousand, after
income taxes, compared to a negative provision of $1.8 million, after income
taxes, in 1994. Net income for 1994 also includes gains on the sales of
securities available for sale of $6.1 million, after income taxes. Excluding
these items, net income for the first six months of 1995 increased $9.5 million
compared to the same period in 1994 primarily as a result of an increase in net
interest income. For the first six months of 1995, the return on average
assets was 1.33% compared to 1.41% for the same period in 1994. The return on
average equity for the first six months of 1995 was 14.70% compared to 16.39%
for 1994.
NET INTEREST INCOME
Net interest income for the second quarter of 1995 was $55.7 million, an
increase of 29.5%, from $43.0 million for the second quarter of 1994 due to a
10% increase in interest-earning assets and an increase in the net interest
margin. The increase in interest-earning assets is primarily concentrated in
loan volume. Average loan volumes increased 26% to $3.2 billion in 1995 as
compared to $2.5 billion in 1994. The net interest margin for the second
quarter of 1995 was 4.70%, increasing from 4.02% for the second quarter of
1994. This increase in the margin is primarily due to an increase in the
interest spread. The interest spread, the difference between the yield on
interest-earning assets and the rate paid on interest-bearing liabilities,
increased from 3.35% in 1994 to 3.73% in 1995 as interest rates paid on
deposits increased less than yields on interest-earning assets. An improvement
in the mix of earning assets also contributed to the increase in the interest
spread as average total loans as a percentage of interest-earning assets
increased from 56.70% during the second quarter of 1994 to 64.74% during the
same period in 1995, and as lower yielding short-term money market assets
decreased as a percentage of interest-earning assets from 11.83% to 1.6%.
Net interest income for the six months ended June 30, 1995 was $109.5 million
compared to $85.8 million for the same period in 1994. The tax equivalent net
interest margin increased from 4.05% in 1994 to 4.73% in 1995. This increase
in the margin is primarily the result of an increase in the interest spread
from 1995 to 1994 and an increase in loan volume. The interest spread
increased to 3.84% in the first six months of 1995 compared to 3.42% during the
same period in 1994. Average loan volumes increased 26% to $3.1 billion in
1995 compared to 1994.
<PAGE> 12
OTHER OPERATING INCOME
Other operating income for the second quarter of 1995 was $21.1 million
compared to $21.3 million for the second quarter of 1994. The decrease in
other operating income is primarily the result of a $1.0 million decrease in
gains on the sale of available for sale securities and a $1.8 million decrease
in other income during the second quarter of 1995 compared to the same period
for 1994. Other income decreased primarily as a result of the reimbursement of
legal fees in 1994 related to bond trustee activity. These decreases were
partially offset by increases in core fee revenue sources of $2.6 million.
Approximately $739 thousand of this increase represents the impact of
acquisitions while the remainder represents new business and increased
activity.
Other operating income for the six months ended June 30, 1995 was $42.2 million
compared to $49.3 million for the same period in 1994. The decrease in other
operating income for 1995 was primarily due to a decrease in gains on the sale
of available for sale securities of $9.8 million and a decrease of $1.7 million
in other income primarily resulting from the reimbursement of legal fees in
1994 related to bond trustee activity. These decreases were partially offset
by an increase of approximately $4.5 million in core fee revenue sources.
Approximately $1.4 million of this increase was due to acquisitions while the
remainder was a result of new business and increased activity.
OTHER OPERATING EXPENSE
Other operating expense for the second quarter of 1995 was $50.4 million, an
increase of $6.1 million or 13.8% over the second quarter of 1994.
Approximately $3.3 million of the increase is related to acquisitions.
Excluding acquisitions, the underlying expenses increased 6.3% as a result of
other real estate activity and personnel related cost. Other real estate
expenses for the second quarter of 1995 increased $1.9 million due to a
decrease in gains on sales of other real estate from the second quarter of
1994. Salaries and employee benefits, excluding the effect of the acquisition,
for the second quarter of 1995 increased approximately 3% or $608 thousand
compared to the second quarter of 1994 as a result of normal salary increases.
Other operating expense for the six months ended June 30, 1995 increased $11.5
million to $98.9 million in 1995 compared to $87.4 million for the same period
in 1994. Approximately $7.0 million of the increase is related to the impact
of the acquisitions. Excluding these acquisitions, the underlying costs
increased 5.1% as other real estate expenses increased $1.9 million and
personnel related expenses increased $1.9 million.
<PAGE> 13
CREDIT QUALITY
As a result of management's assessment of the adequacy of the allowance for
possible loan losses, the Company determined that an addition to the allowance
of $1.0 million was necessary for the second quarter of 1995 compared to a
reduction in the allowance of $2.75 million in 1994.
The allowance for possible loan losses at June 30, 1995, was $58.6 million or
1.81% of total loans and 202% of nonperforming loans outstanding compared to
$55.9 million or 1.95% of total loans and 219% of nonperforming loans at
December 31, 1994. Net charge-offs for the second quarter of 1995 were $868
thousand compared to second quarter 1994 net charge-offs of $5.2 million.
Year-to-date net charge-offs were $815 thousand for 1995 compared to net
charge-offs of $2.8 million for 1994. Nonperforming loans increased $3.3
million to $28.9 million at June 30, 1995 compared to $25.6 million at December
31, 1994, primarily as a result of the addition of a $6.0 million credit to
nonaccrual loans.
CAPITAL
The Company maintains risk-based capital levels well in excess of the minimum
guidelines adopted by the Federal Reserve Board for bank holding companies.
The Company's tier 1 capital and total risk-based capital ratios at June 30,
1995 were 11.71% and 12.97%, respectively. This compares to a tier 1 capital
ratio of 12.49% and total risk-based capital ratio of 13.75% at December 31,
1994. The Company's leverage ratio was 8.26% at June 30, 1995 compared to
8.43% at December 31, 1994.
The Company's banking subsidiaries have maintained leverage, tier 1 and total
risk-based capital ratios well above the 5%, 6% and 10% levels necessary to be
categorized as "well capitalized" insured depository institutions under the
guidelines set forth by the Federal Deposit Insurance Corporation Improvement
Act of 1991. At June 30, 1995, Deposit Guaranty National Bank's leverage ratio
was 8.10%, tier 1 capital ratio was 10.97% and its total risk-based capital
ratio was 12.22%. At June 30, 1995, Commercial National Bank's leverage, tier
1 and total capital ratios were 8.36%, 13.96% and 15.23%, respectively.
Citizens National Bank's leverage, tier 1 and total capital ratios at June 30,
1995 were 10.15%, 17.82% and 19.07%, respectively.
LIQUIDITY
Liquidity for a financial institution can be expressed in terms of maintaining
sufficient funds available to meet both expected and unanticipated obligations
in a cost effective manner. Liquidity is maintained through the Company's
ability to convert assets into cash, manage the maturities of liabilities and
generate funds on a short-term basis, either through the national Federal funds
market, backup lines of credit, or through the National CD market. The Company
relies largely on core deposits to fund loan demand and long-term investments.
The Company has maintained a high level of liquidity as loans have been at a
lower than desired level. Loan demand has continued to increase for the first
six months of 1995 and was funded by a reduction in short-term investments.
<PAGE> 14
ACCOUNTING CHANGES
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
This statement requires that the majority of long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995. The Company is currently analyzing
the impact that adoption of this statement will have on its financial
statements.
On May 12, 1995, The FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122
provides guidance for recognition of mortgage servicing rights as an asset when
a mortgage loan is sold or securitized and servicing rights retained. This
statement also requires that impairment of mortgage servicing rights be
measured as the difference between the carrying amount of the servicing rights
and their current fair values. SFAS No. 122 is to be applied prospectively in
fiscal years beginning after December 15, 1995. Earlier application is
encouraged in fiscal years or interim periods for which financial statements or
information has not been issued. The Company is currently analyzing the impact
that adoption of this statement will have on its financial statements.
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes to the legal proceedings described
in Item 3 of the Registrant's annual report on Form 10-K (file number 0-4518)
filed with the Commission for the fiscal year ended December 31, 1994 and the
quarter ended March 31, 1995.
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
<TABLE>
<CAPTION>
Table Sequential
Exhibit Number Page Number
------- ------ -----------
<S> <C> <C>
Plan of acquisition, reorganization,
arrangement, liquidation or succession (2) N/A
Instruments defining the rights of
security holders, including indentures (4) N/A
Material Contracts (10) N/A
Statements re: computation of per share
earnings (11) 18
Letters re: unaudited interim financial
information (15) 19
Letter re: change in certifying (16) N/A
accountant
Letter re: change in accounting
principles (18) N/A
Previously unfiled documents (19) N/A
Report furnished to security holders (20) N/A
Published report regarding matters
submitted to vote of security holders (23) N/A
Consent of experts and counsel (24) N/A
Power of attorney (25) N/A
Financial data schedule (27) 20
Additional exhibits (28) N/A
</TABLE>
---------------
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1995.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEPOSIT GUARANTY CORP.
----------------------
(Registrant)
DATE: August 14, 1995 /s/ Stephen E. Barker
--------------- ---------------------
Stephen E. Barker
Controller and Principal
Accounting Officer
<PAGE> 1
Deposit Guaranty Corp.
Computation of Net Income Per Share
June 30, 1995
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
Primary and Primary and
Fully Diluted Fully Diluted
------------------ ----------------
<S> <C> <C>
Computation of weighted average
shared outstanding:
Common stock outstanding,
beginning balance 19,139,919 17,578,052
Common stock issued due
to mergers 0 2,063,265
Common stock issued due to
exercise of options 3,722 11,147
Shares purchased by
the Company (63,626) (464,928)
----------- -----------
Weighted average shares
outstanding 19,080,015 19,187,536
=========== ===========
Computation of net income:
Net income $17,374,000 $35,345,000
=========== ===========
Computation of net income per
share:
Net income divided by weighted
average shares outstanding $ .91 $ 1.84
=========== ===========
</TABLE>
Note: For the six-months ended June 30, 1995, additional weighted average
shares outstanding for options under the Company's incentive stock plan were
162,931 and 163,443 for calculating primary and fully diluted net income per
share, respectively. The dilutive effect of such options was, therefore, not
material.
<PAGE> 1
Deposit Guaranty Corp.
Jackson, Mississippi
Gentlemen:
RE: June 30, 1995 Quarterly Report on Form 10-Q
With respect to the subject Quarterly Report, we acknowledge our awareness of
the use therein of our report dated July 18, 1995 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act, such report is not considered
a part of a Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of Sections 7
and 11 of the Act.
Very truly yours,
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG PEAT MARWICK LLP
Jackson, Mississippi
August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 346,093
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 102,745
<TRADING-ASSETS> 1,692
<INVESTMENTS-HELD-FOR-SALE> 21,693
<INVESTMENTS-CARRYING> 1,647,621
<INVESTMENTS-MARKET> 1,676,574
<LOANS> 3,257,505
<ALLOWANCE> (58,552)
<TOTAL-ASSETS> 5,630,223
<DEPOSITS> 4,414,045
<SHORT-TERM> 655,296
<LIABILITIES-OTHER> 78,771
<LONG-TERM> 0
<COMMON> 20,679
0
0
<OTHER-SE> 461,432
<TOTAL-LIABILITIES-AND-EQUITY> 5,630,223
<INTEREST-LOAN> 134,725
<INTEREST-INVEST> 52,553
<INTEREST-OTHER> 3,764
<INTEREST-TOTAL> 191,042
<INTEREST-DEPOSIT> 68,106
<INTEREST-EXPENSE> 81,574
<INTEREST-INCOME-NET> 109,468
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 98,915
<INCOME-PRETAX> 51,768
<INCOME-PRE-EXTRAORDINARY> 35,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,345
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 4.73
<LOANS-NON> 28,931
<LOANS-PAST> 6,047
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 425
<ALLOWANCE-OPEN> 55,873
<CHARGE-OFFS> 5,337
<RECOVERIES> 4,522
<ALLOWANCE-CLOSE> 58,552
<ALLOWANCE-DOMESTIC> 58,552
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,438
</TABLE>
