<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Commission File Number 0-4518
DEPOSIT GUARANTY CORP.
-------------------------------------------------
(Exact Name Of Registrant As Specified In Charter)
Mississippi 64-0472169
- ------------------------------- ----------------------------
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
210 East Capitol Street, Jackson, MS 39201
------------------------------------------
(Address Of Principal Executive Offices)
(Zip Code)
(601) 354-8564
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(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Shares Of Common Stock, No Par Value, Outstanding
As Of September 30, 1996: 19,432,016
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $348,955 $343,706
Interest-bearing bank balances 3,751 --
Federal funds sold and securities
purchased under agreements to resell 179,363 441,015
Trading account securities 5,685 3,381
Securities available for sale 1,230,067 1,199,391
Investment securities (market value:
1996 - $160,101; 1995 - $141,649) 155,081 139,033
Loans, net of unearned income 3,893,340 3,579,302
Allowance for possible loan losses (61,342) (58,719)
---------- ----------
Net loans 3,831,998 3,520,583
Bank premises and equipment 147,570 144,340
Other assets 279,929 234,750
---------- ----------
TOTAL ASSETS $6,182,399 $6,026,199
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing $1,076,439 $1,094,627
Interest-bearing 3,806,641 3,686,032
---------- ----------
Total deposits 4,883,080 4,780,659
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 511,417 599,482
Long-term liabilities 99,392 --
Other liabilities 126,493 107,005
---------- ----------
TOTAL LIABILITIES 5,620,382 5,487,146
---------- ----------
STOCKHOLDERS' EQUITY
Cumulative preferred stock, no par value,
authorized: 25,000,000 shares of class A
voting; and 25,000,000 shares of class B
non-voting; issued and outstanding: none -- --
Common stock, no par value, authorized
100,000,000 shares; issued and outstanding:
1996 - 19,432,016 shares; 1995 - 19,379,643
shares 21,314 21,257
Surplus 169,904 171,073
Retained earnings 371,913 327,633
Market valuation for securities available for
sale, net of income taxes (1,114) 19,090
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 562,017 539,053
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,182,399 $6,026,199
========== ==========
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DEPOSIT GUARANTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 85,231 $ 74,579 $ 241,682 $ 209,304
Interest on investment securities:
Taxable 2,449 24,738 7,844 71,837
Exempt from Federal income tax -- 2,121 -- 6,483
Interest on securities available for sale:
Taxable 18,316 1,368 53,715 2,273
Exempt from Federal income tax 2,824 61 8,635 111
Interest on trading account securities 85 99 298 236
Interest on Federal funds sold and securities
purchased under agreements to resell 1,801 1,029 7,868 3,652
Interest on bank balances 45 12 303 1,153
----------------------- -----------------------
TOTAL INTEREST INCOME 110,751 104,007 320,345 295,049
----------------------- -----------------------
INTEREST EXPENSE
Interest on deposits 38,346 36,633 112,722 104,739
Interest on Federal funds purchased, securities
sold under agreements to repurchase and
other short-term borrowings 6,154 8,921 21,146 22,389
Interest on long-term debt 1,506 -- 2,580 --
----------------------- -----------------------
TOTAL INTEREST EXPENSE 46,006 45,554 136,448 127,128
----------------------- -----------------------
NET INTEREST INCOME 64,745 58,453 183,897 167,921
Provision for possible loan losses 1,335 1,040 4,005 2,040
----------------------- -----------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 63,410 57,413 179,892 165,881
----------------------- -----------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 9,107 8,211 26,006 23,566
Fees for trust services 3,924 3,564 11,601 10,565
Gains on securities available for sale 6 69 79 88
Other service charges, commissions
and fees 14,305 10,233 42,091 28,188
Other income 2,007 1,887 7,155 3,772
----------------------- -----------------------
TOTAL OTHER OPERATING INCOME 29,349 23,964 86,932 66,179
----------------------- -----------------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 32,413 27,931 94,436 80,490
Net occupancy expense 4,182 3,643 11,613 10,149
Equipment expense 4,479 3,983 12,827 11,873
Service fees 4,099 2,883 11,437 8,366
Communication 2,792 2,066 7,792 6,427
FDIC assessment 2 (342) 93 4,462
Advertising and public relations 2,479 1,856 7,389 6,274
Other expense 8,821 8,596 26,140 21,490
----------------------- -----------------------
TOTAL OTHER OPERATING EXPENSE 59,267 50,616 171,727 149,531
----------------------- -----------------------
INCOME BEFORE INCOME TAXES 33,492 30,761 95,097 82,529
Income tax expense 11,292 10,050 30,972 26,472
----------------------- -----------------------
NET INCOME $ 22,200 $ 20,711 $ 64,125 $ 56,057
======================= =======================
NET INCOME PER SHARE $ 1.14 $ 1.09 $ 3.32 $ 2.93
WEIGHTED AVERAGE SHARES OUTSTANDING 19,623,909 19,133,117 19,310,085 19,141,161
</TABLE>
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64,125 $ 56,057
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for possible loan losses 4,005 2,040
Provision for possible losses on other real estate 119 --
Provision for depreciation and amortization 22,143 18,023
Provision for deferred income tax expense (benefit) 1,093 (2,604)
Amortization (accretion) of premium (discount) on
investment securities, net 424 (27,255)
Accretion of discount on securities available for sale, net (2,701) (81)
Accretion of discount on long-term debt 11 --
Deferred loan fees and costs (1,865) (2,112)
Increase (decrease) in other liabilities (8,395) (37,967)
Increase in other assets (5,838) (41,576)
Net cash (paid) received for loans held for resale 1,804 (61,284)
Gains on securities available for sale (79) (88)
Other, net 3,029 342
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 77,875 (96,505)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances (3,751) 135,298
Proceeds from sales of securities available for sale 1,148,382 71,716
Proceeds from maturities and principal repayments of investment
securities 35,961 640,491
Proceeds from maturities and principal repayments of securities
available for sale 489,557 17,519
Purchases of investment securities (51,844) (608,075)
Purchases of securities available for sale (1,649,407) (50,332)
Net decrease in Federal funds sold and securities
purchased under agreements to resell 262,656 36,767
Net increase in loans (243,804) (303,973)
Proceeds from sales of other real estate 3,818 2,835
Purchases of bank premises and equipment (13,766) (11,211)
Proceeds from sales of bank premises and equipment 341 289
Payment for purchase of common stock of acquired company
and other acquisition costs (3,586) (19,925)
Cash and due from banks of acquired companies 5,772 24,996
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (19,671) (63,605)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (5,837) 149,885
Net increase (decrease) in Federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings (98,463) 52,547
Proceeds from issuance of long-term debt 99,381 --
Proceeds from the exercise of common stock options 2,441 787
Purchases of common stock (32,713) (40,416)
Cash dividends paid (17,764) (15,571)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (52,955) 147,232
----------- -----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 5,249 (12,878)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 343,706 326,768
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 348,955 $ 313,890
=========== ===========
</TABLE>
<PAGE> 5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE DATA)
INCOME TAXES:
The Company made income tax payments of $28.8 million and $24.5 million during
the nine month periods ended September 30, 1996 and 1995, respectively.
INTEREST:
The Company paid $136.0 million and $124.3 million in interest on deposits and
other borrowings during the nine month periods ended September 30, 1996 and
1995, respectively.
ACQUISITIONS:
During 1996, the Company exchanged 634 thousand shares of common stock in a
purchase business combination, for all the outstanding common shares of Bank of
Gonzales Holding Company, Inc. The following reflects the assets acquired and
liabilities assumed (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $141,516
Fair value of common stock issued and/or cash paid
for common stock and other acquisition costs 27,896
--------
Liabilities assumed $113,620
========
</TABLE>
During 1996, the Company acquired, in a purchase business combination, the
common stock of McAfee Mortgage & Investment Company. The following reflects
cash paid, assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $ 18,073
Cash paid for common stock and other acquisition 3,571
--------
Liabilities assumed $ 14,502
========
</TABLE>
<PAGE> 6
PART I. Financial Information
ITEM 1. Financial Statements
Deposit Guaranty Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all information and footnotes necessary for a fair presentation
of financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. All adjustments which, in the opinion
of management, are necessary for a fair presentation of financial position and
results of operations have been made. These adjustments consist only of normal,
recurring adjustments.
The condensed consolidated financial statements of Deposit Guaranty Corp.
include the financial statements of Deposit Guaranty National Bank, a 98%-owned
subsidiary, Deposit Guaranty Arkansas Corp., G & W Life Insurance Co., and
Deposit Guaranty Louisiana Corp., wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
NOTE B - CONTINGENCIES
The Company's subsidiary, Deposit Guaranty National Bank (DGNB), is a defendant
in a case in which the plaintiffs are some of the beneficiaries of a trust and
DGNB is the trustee of the trust. In an amended complaint, the plaintiffs claim
that DGNB was negligent in its dealings with the trust property, breached its
trust duties by allegedly abusing its discretion and negligently handling trust
assets, engaged in self dealing, and was grossly negligent in its handling of
the trusts. The case seeks actual damages for waste of trust assets and loss of
income and punitive damages, both in an unspecified amount to be proven at
trial, and attorney fees and court costs. While the ultimate outcome of the
lawsuit cannot be predicted with certainty, management denies all liability and
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.
NOTE C - ACCOUNTING CHANGES
Effective January 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by the Company be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use is based on the
fair value of the asset.
<PAGE> 7
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. The adoption of SFAS No. 121 did not
have a material impact on the consolidated financial statements.
Effective January 1, 1996, the Company adopted the provisions of SFAS No. 122,
"Accounting for Mortgage Servicing Rights, an Amendment of SFAS No. 65." SFAS
No. 122 provides guidance for recognition of mortgage servicing rights as an
asset when mortgage loans are sold or securitized and servicing rights retained.
This statement also requires that an 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 applied prospectively; therefore,
the Company's prior period financial statements do not reflect the adoption of
this pronouncement. The effect of this change during the nine month period ended
September 30, 1996 was to increase net income by approximately $2.8 million.
NOTE D - ACQUISITIONS
At the end of the second quarter of 1996, the Company exchanged 634,000 shares
of its common stock for all of the outstanding shares of Bank of Gonzales
Holding Company, a $126 million asset bank holding company, in a transaction
accounted for as a purchase business combination. The results of operations of
this acquired company, which are not material, are included in the 1996
financial statements from the date of purchase.
At the end of the second quarter of 1996, Deposit Guaranty Mortgage Company
completed its purchase of McAfee Mortgage and Investment Company, located in
Lubbock, Texas, in a transaction accounted for as a purchase business
combination. McAfee Mortgage and Investment Company has fifteen offices located
throughout Texas and originated approximately $240 million in mortgage loans in
1995. The results of operations of this acquired company, which are not
material, are included in the 1996 financial statements beginning July 1, 1996.
On July 25, 1996, the Company entered into an agreement of merger with
Tuscaloosa Bancshares, Inc., a bank holding company with approximately $41
million in total assets. The agreement requires the Company to issue 210,989
shares of its common stock in exchange for all of the common shares of
Tuscaloosa Bancshares, Inc. The acquisition, which is expected to close in the
fourth quarter of 1996, will be accounted for using the purchase accounting
method. The Company has been authorized by its Board to purchase in the open
market all or part of the Company's common shares to be exchanged in the
acquisition.
On August 23, 1996, the Company entered into a definitive agreement to acquire
Jefferson Guaranty Bancorp, a one bank holding company, located in Metairie,
Louisiana, with approximately $300 million in total assets. Under the
agreement, the Company will pay a combination of its common stock and cash for
all of the outstanding common stock and common stock equivalents of Jefferson
Guaranty Bancorp which are expected to total 1,745,491 shares at closing.
<PAGE> 8
Each of these shares will be exchanged for $29.00 in cash or .637363 shares of
the Company's common stock at the shareholder's election. Under the agreement,
the Company's common stock will represent in aggregate at least 55 percent but
no more than 80 percent of the value received. The transaction, which will be
accounted for as a purchase business combination, is expected to be consummated
during the first quarter of 1997. The Company has been authorized by its Board
to purchase in the open market all or part of the Company's common shares to be
exchanged in the acquisition.
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Deposit Guaranty Corp.:
We have reviewed the condensed consolidated statement of condition of Deposit
Guaranty Corp. and subsidiaries as of September 30, 1996, and the related
condensed consolidated statements of earnings for the three-month and
nine-month periods ended September 30, 1996 and 1995, and the related condensed
consolidated statements of cash flows for the nine-month periods ended
September 30, 1996 and 1995.
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, 1995, 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 6,
1996, 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, 1995, is
fairly presented, in all material respects, in relation to the consolidated
statement of condition from which it has been derived.
/s/KPMG PEAT MARWICK LLP
----------------------------------
KPMG PEAT MARWICK LLP
Jackson, Mississippi
October 15, 1996
<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. (the Company) for the three-month and nine
month periods ended September 30, 1996 and 1995. This discussion should be read
in conjunction with the condensed consolidated financial statements included in
Part I, Item I.
At the end of the third quarter of 1995, the Company acquired First Mortgage
Corp. which had a $1.1 billion dollar servicing portfolio and Merchants National
Bank with total assets of $280 million. At the end of the second quarter of
1996, the Company acquired Bank of Gonzales which had total assets of
approximately $126 million and McAfee Mortgage and Investment Company. 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 dates and affect the comparability of the financial statements for
the nine month periods ended September 30, 1995 and 1996.
BALANCE SHEET
Total assets were $6.182 billion at September 30, 1996, compared to $6.026
billion at December 31, 1995. Approximately $115 million of the increase in
total assets is related to acquisitions occurring in 1996. Securities increased
$47 million, or 4%, from $1.338 billion at December 31, 1995 to $1.385 billion
at September 30, 1996. Total loans increased $314 million, or 9%, from $3.579
billion at December 31, 1995 to $3.893 billion at September 30, 1996. Excluding
the effect of the acquisitions, total loans increased approximately $227
million, or 6%. In correlation with the increases in securities and loans was a
significant decrease in Federal funds sold and securities purchased under
agreements to resell which decreased 59% from $441 million at December 31, 1995
to $179 million at September 30, 1996 as these funds have been redeployed in
the relatively higher yielding earning assets. Total deposits increased $102
million to $4.883 billion at September 30, 1996 from $4.781 billion at December
31, 1995. Excluding the effect of the acquisitions, total deposits remained
relatively flat. Long-term liabilities increased $99 million at September 30,
1996 compared to December 31, 1995, as a result of the second quarter 1996
issuance of $100 million in ten year fixed rate notes by the Company.
Total stockholders' equity increased to $562.0 million at September 30, 1996
compared to $539.1 million at December 31, 1995. Stockholders' equity increased
$44.3 million as a result of earnings retained and $4.9 million due to the
acquisitions, net of stock repurchases. These increases were partially offset by
a $20.2 million decrease in the market valuation of securities available for
sale, net of income taxes.
As of September 30, 1996, the Company had interest rate swap contracts with a
total notional value of $123 million compared to $154 million at December 31,
1995 and at September 30, 1995.
<PAGE> 11
During the nine months ended September 30, 1996, the Company was a counterparty
to several short-term option contracts and recognized $1.4 million in
noninterest income resulting from the premiums received on written covered call
options. During the first nine months of 1995, the Company sold interest rate
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 was amortized over the original life of the terminated swap
contracts.
NET INCOME
Net income for the third quarter of 1996 was $22.2 million, or $1.14 per share,
compared to $20.7 million, or $1.09 per share, for the third quarter of 1995.
This increase in third quarter earnings was primarily due to increases in net
interest income and noninterest related sources of income. The increase of $6.3
million in net interest income resulted primarily from a 7% growth in
interest-earning assets. Noninterest income increased $5.4 million and included
increases of approximately $1.6 million from the adoption of a new accounting
policy related to mortgage servicing rights, approximately $1 million
attributable to acquisitions and $2.8 million resulting from continued growth in
other core business lines. Noninterest expense increased $8.7 million in the
third quarter of 1996 compared to the same period in 1995 primarily as a result
of $2.3 million related to acquisitions and $3.2 million in personnel related
costs.
Net income for the nine months ended September 30, 1996 was $64.1 million, or
$3.32 per share, compared to $56.1 million, or $2.93 per share, for the same
period in 1995. The increase in net income for 1996 was largely due to
increases in net interest income and noninterest related sources of income. The
increase in net interest income for the nine month period resulted from a 10%
growth in interest-earning assets primarily resulting from a 17% increase in
average total loans. Noninterest income increased $20.8 million for the nine
months ended September 30, 1996 compared to the same period in 1995. Of this
increase, $4.8 million resulted from the adoption of the new accounting policy
related to mortgage servicing rights, $6.4 million was attributable to
acquisitions, $2.7 million resulted from the first quarter 1996 disposition of
assets related to lease financing transactions, and $1.4 million due to
premiums received from the Company's written covered call program. The
remaining $5.5 million increase represents growth in core business lines. These
increases in noninterest income sources were offset by an increase in
noninterest expenses of $22.2 million for the nine month period. This increase
in noninterest expense resulted primarily from increases of $18.8 million
related to acquisitions and $6.5 million in personnel related expense.
The return on average assets for the first nine months of 1996 was 1.43%
compared to 1.37% for the same period in 1995. The return on average equity for
the first nine months of 1996 was 15.82% compared to 15.35% for 1995.
<PAGE> 12
NET INTEREST INCOME
Net interest income for the third quarter of 1996 increased $6.3 million, or
11% from the third quarter of 1995 primarily resulting from a 7% increase in
average interest-earning assets which was primarily concentrated in loan
volume.
Average loan volumes during the third quarter of 1996 increased $519 million,
or 15%, compared to the third quarter of 1995. This increase can be attributed
to internal growth in loans of 13% and a 2% increase in loans due to
acquisitions occurring after the third quarter of 1995. Average total loans,
the highest yielding interest-earning asset, increased as a percentage of total
interest-earning assets from 66% during the third quarter of 1995 to 71% during
the same period in 1996. The net interest margin for the third quarter of 1996
was 4.90%, increasing from 4.72% for the third quarter of 1995.
Net interest income for the nine month period ended September 30, 1996
increased $16 million, or 10%, from the same period in 1995 primarily resulting
from a 10% increase in interest-earning assets. The increase in
interest-earning assets was primarily attributable to increased average loan
volumes which increased 17% to $3.7 billion in 1996 as compared to 1995. This
increase in average loan volumes can be attributed to internal growth in loans
of 16%, and a 1% increase in loans due to acquisitions. The net interest margin
remained stable at 4.73% for the nine months ended September 30, 1996 and the
same period in 1995.
OTHER OPERATING INCOME
Other operating income for the third quarter of 1996 was $29.3 million compared
to $24.0 million for the third quarter of 1995. This 22% increase in other
operating income is primarily the result of acquisitions, the adoption of a new
accounting pronouncement, and growth in core business lines. Approximately
$1 million of the third quarter 1996 other operating income represents an
increase due to acquisitions. The Company's adoption of SFAS No. 122 in January
1996, attributed to an increase in mortgage loan origination income of
approximately $1.6 million in the third quarter of 1996 as compared to the same
period in 1995. The remaining increase in noninterest income for the third
quarter of 1995 compared to the second quarter of 1996 represents a $2.8
million growth in fees from core business lines, primarily mortgage loan
servicing fees, service charges on deposit accounts, broker/dealer fee income
and other retail service fees.
Other operating income for the nine month period ended September 30, 1996,
increased $20.8 million from $66.2 million at September 30, 1995 to $86.9
million at September 30, 1996.
The increase in other operating income is primarily due to acquisitions, gains
on lease financing transactions, the adoption of a new accounting pronouncement,
premiums received on the Company's written covered call option program, and
growth in core business lines. Approximately $6.4 million of the increase during
the nine month period in 1996 was due to acquisitions. A gain of $2.7 million
occurred in the first quarter of 1996 resulting from the disposition of assets
related to lease financing transactions. The Company's adoption of SFAS No. 122
resulted in an increase in mortgage loan origination income of $4.8 million for
the nine month period ended September 30, 1996. The Company's written covered
call option program earned $1.4 million due to premiums received on expired
written option contracts. The remaining $5.4 million increase in noninterest
income for the nine month period was attributable to growth in core fee revenue
sources.
<PAGE> 13
OTHER OPERATING EXPENSE
Other operating expense for the third quarter of 1996 was $59.3 million, an
increase of $8.7 million, or 17%, over the third quarter of 1995 primarily due
to acquisitions and increased personnel costs. Noninterest expense increased
$2.3 million as a result of acquisitions. Excluding the effects of the
acquisitions, salaries and employee benefits increased $3.2 million, or 12%, in
the third quarter of 1996 compared to 1995 as a result of annual merit
increases, employee incentive cost, and increased employee benefit costs.
Other operating expense for the nine months ended September 30, 1996 increased
$22.2 million to $171.7 million in 1996 compared to $149.5 million for the same
period in 1995. Approximately $18.8 million of this increase was a result of
acquisitions. The remaining increase is primarily the result of increases in
salaries and employee benefits and consultant fees. Excluding the effects of
the acquisitions, salaries and employee benefits increased $6.5 million, or 8%,
during the nine month period ended September 30, 1996 compared to the same
period in 1995 as a result of annual merit increases, employee incentive cost
and increased employee benefit costs. Consultant fees increased $1.4 million in
1996 primarily as a result of the cost of profit enhancement projects.
These increases were somewhat offset by a decrease in the FDIC assessment of
$4.4 million for the nine month period ended September 30, 1996 compared to the
same period in 1995 due to the reduction of premiums on insured deposits.
CREDIT QUALITY
The provision for possible loan losses was $1.3 million for the third quarter of
1996 compared to a $1.0 million provision for the third quarter of 1995. The
allowance for possible loan losses at September 30, 1996, was $61.3 million or
1.58% of total loans and 375% of nonperforming loans outstanding compared to
$58.7 million or 1.64% of total loans and 262% of nonperforming loans at
December 31, 1995. Net charge-offs for the third quarter of 1996 were $317
thousand, or .03% of average loans, compared to third quarter 1995 net
charge-offs of $756 thousand, or .10% of average loans. Year-to-date net
charge-offs were $3.0 million for 1996 compared to net charge-offs of $1.6
million for the same period in 1995. Nonperforming loans decreased to $16.4
million at September 30, 1996, compared to $22.5 million at December 31, 1995
and $30.2 million at September 30, 1995.
CAPITAL
Total stockholders' equity increased to $562 million at September 30, 1996
compared to $539.1 million at December 31, 1995. This increase in stockholders'
equity was primarily due to earnings retained and acquisitions, net of stock
repurchases. The Company's earnings for the first nine months of 1996 were $64.1
million which were partially offset by dividend declarations of $19.8 million.
During the second quarter of 1996, the Company issued approximately 634 thousand
shares of its common stock with a market value of $27.9 million in the
acquisition of the Bank of Gonzales Holding Company.
<PAGE> 14
These increases in stockholders' equity were offset by the Company's repurchase
of 706 thousand shares of its common stock for $32.7 million in the nine month
period in 1996 and a $20.2 million decrease in the market valuation of
securities available for sale, net of income taxes. The Company's common stock
repurchases were for the purpose of offsetting the shares issued in specific
acquisitions.
The Company maintains risk-based capital levels well in excess of the minimum
guidelines adopted by the Federal Reserve Board for bank holding companies. The
Company's tier 1 capital and total risk-based capital ratios at September 30,
1996 were 11.02% and 12.27%, respectively. This compares to a tier 1 capital
ratio of 11.05% and total risk-based capital ratio of 12.30% at December 31,
1995. The Company's leverage ratio was 8.13% at September 30, 1996 compared to
7.87% at December 31, 1995.
The Company's banking subsidiaries have maintained leverage, tier 1 and total
risk-based capital ratios well above the 5%, 6% and 10% minimum guidelines
necessary to be categorized as "well capitalized" insured depository
institutions under the guidelines set forth by the Federal Deposit Insurance
Corporation Improvement Act of 1991.
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.
During the nine month period ended September 30, 1996, the Company experienced
the continuing trend of loan growth exceeding deposit growth which resulted in
loan to deposit ratio increasing to 80%. Additional funding for this loan
growth was obtained from a reduction in short-term investments.
The Company issued $100 million in fixed rate long-term notes during April
1996. These notes have original maturities of ten years and are included in
long-term debt.
In order to better manage interest rate risk, these notes were converted to
floating rate instruments using an interest rate swap contract. The proceeds
from the sale of the notes are for general corporate purposes, including
reductions in short-term borrowings and for current and future acquisitions.
ACCOUNTING CHANGES
In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement provides accounting and reporting standards for
stock-based employee compensation plans and also applies to transactions in
which the Company acquires goods and services from nonemployees in exchange for
the Company's equity instruments. SFAS No. 123 defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all employee
stock compensation plans.
<PAGE> 15
Entities electing to continue using the accounting treatment outlined in APB
Opinion No. 25, "Accounting for Stock Issued to Employees" are required to make
pro forma disclosures of net income and net income per share, as if the fair
value based method had been adopted. The accounting and disclosure requirements
of this Statement are effective for transactions entered into in fiscal years
beginning after December 15, 1995. The adoption of this statement did not have
a material impact on the consolidated financial statements because the Company
continued following the accounting treatment outlined in APB Opinion No. 25.
In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. SFAS No. 125
requires that an entity recognize the financial and servicing assets it
controls and the liabilities it has incurred. The entity will derecognize
financial assets when control has been surrendered and derecognizes liabilities
when extinguished. Consistent standards are provided by this Statement for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. This Statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996. The Company is currently analyzing the impact that adoption of this
Statement will have on its financial statements.
<PAGE> 16
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, 1995 and in Part
II., Item 1 of the Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.
<PAGE> 17
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
Articles of incorporation (3) 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) 20
Letters re: unaudited interim financial
information (15) 21
Letter re: change in accounting
principles (18) N/A
Report furnished to security holders (19) N/A
Published report regarding matters
submitted to vote of security holders (22) N/A
Consent of experts and counsel (23) N/A
Power of attorney (24) N/A
Financial data schedule (27) 22
Additional exhibits (99) N/A
</TABLE>
- --------------
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1996.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEPOSIT GUARANTY CORP.
--------------------------------
(Registrant)
DATE: November 14, 1996 /s/ Stephen E. Barker
----------------- --------------------------------
Stephen E. Barker
Controller and Principal
Accounting Officer
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Statements re: computation of per share earnings
15 Letters re: unaudited interim financial information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
Deposit Guaranty Corp.
Computation of Net Income Per Share
September 30, 1996
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Primary and Primary and
Fully Diluted Fully Diluted
------------------ -----------------
<S> <C> <C>
Computation of weighted average
shared outstanding:
Common stock outstanding,
beginning balance 19,657,816 19,379,643
Common stock issued due
to mergers -- 215,079
Common stock issued due to
exercise of options 5,010 66,156
Shares purchased by
the Company (38,917) (350,793)
------------ ------------
Weighted average shares
outstanding 19,623,909 19,310,085
============ ============
Computation of net income:
Net income $ 22,200,000 $ 64,125,000
============ ============
Computation of net income per
share:
Net income divided by weighted
average shares outstanding $ 1.14 $ 3.32
============ ============
</TABLE>
Note: For the nine-months ended September 30, 1996, additional weighted average
shares outstanding for options under the Company's incentive stock plan were
143,567 and 141,824 for calculating primary and fully diluted net income per
share, respectively. The dilutive effect of such options was, therefore, not
material.
<PAGE> 1
EXHIBIT 15
Deposit Guaranty Corp.
Jackson, Mississippi
Gentlemen:
RE: September 30, 1996 Quarterly Report on Form 10-Q
With respect to the subject Quarterly Report, we acknowledge our awareness of
the use therein of our report dated October 15, 1996 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act, such report is not considered
a part of a Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of Sections 7
and 11 of the Act.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
---------------------------------------
KPMG PEAT MARWICK LLP
Jackson, Mississippi
November 14, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 348,955
<INT-BEARING-DEPOSITS> 3,751
<FED-FUNDS-SOLD> 179,363
<TRADING-ASSETS> 5,685
<INVESTMENTS-HELD-FOR-SALE> 1,230,067
<INVESTMENTS-CARRYING> 155,081
<INVESTMENTS-MARKET> 160,101
<LOANS> 3,893,340
<ALLOWANCE> (61,342)
<TOTAL-ASSETS> 6,182,399
<DEPOSITS> 4,883,080
<SHORT-TERM> 511,417
<LIABILITIES-OTHER> 126,493
<LONG-TERM> 99,392
0
0
<COMMON> 21,314
<OTHER-SE> 540,703
<TOTAL-LIABILITIES-AND-EQUITY> 6,182,399
<INTEREST-LOAN> 241,682
<INTEREST-INVEST> 70,492
<INTEREST-OTHER> 8,171
<INTEREST-TOTAL> 320,345
<INTEREST-DEPOSIT> 104,739
<INTEREST-EXPENSE> 136,448
<INTEREST-INCOME-NET> 183,897
<LOAN-LOSSES> 4,005
<SECURITIES-GAINS> 79
<EXPENSE-OTHER> 171,727
<INCOME-PRETAX> 95,097
<INCOME-PRE-EXTRAORDINARY> 95,097
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,125
<EPS-PRIMARY> 3.32
<EPS-DILUTED> 3.32
<YIELD-ACTUAL> 4.73
<LOANS-NON> 16,376
<LOANS-PAST> 7,292
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 374
<ALLOWANCE-OPEN> 58,719
<CHARGE-OFFS> 10,639
<RECOVERIES> 7,592
<ALLOWANCE-CLOSE> 61,342
<ALLOWANCE-DOMESTIC> 61,342
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,415
</TABLE>
