<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, 1996
Commission File Number 0-4518
DEPOSIT GUARANTY CORP.
----------------------
(Exact Name Of Registrant As Specified In Charter)
Mississippi 64-0472169
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(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
210 East Capitol Street, Jackson, MS 39201
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(Address Of Principal Executive Offices)
(Zip Code)
(601) 354-8564
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(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Shares Of Common Stock, No Par Value, Outstanding
As Of June 30, 1996: 19,657,816
<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>
June 30, December 31,
1996 1995
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $315,987 $343,706
Interest-bearing bank balances 4,007 --
Federal funds sold and securities
purchased under agreements to resell 87,177 441,015
Trading account securities 4,231 3,381
Securities available for sale 1,316,229 1,199,391
Investment securities (market value:
1996 - $129,124; 1995 - $141,649) 123,787 139,033
Loans, net of unearned income 3,856,447 3,579,302
Allowance for possible loan losses (60,319) (58,719)
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Net loans 3,796,128 3,520,583
Bank premises and equipment 148,392 144,340
Other assets 319,921 234,750
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TOTAL ASSETS $6,115,859 $6,026,199
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing $1,048,221 $1,094,627
Interest-bearing 3,755,812 3,686,032
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Total deposits 4,804,033 4,780,659
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 510,220 599,482
Long-term liabilities 99,381 --
Other liabilities 145,804 107,005
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TOTAL LIABILITIES 5,559,438 5,487,146
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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 - 19,657,816 shares; 1995 - 19,379,643
shares 21,562 21,257
Surplus 180,811 171,073
Retained earnings 356,401 327,633
Market valuation for securities available for
sale, net of income taxes (2,353) 19,090
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TOTAL STOCKHOLDERS' EQUITY 556,421 539,053
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,115,859 $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 Six Months Ended
June 30, June 30,
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1996 1995 1996 1995
--------------------- -----------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 79,314 $69,782 $156,451 $134,725
Interest on investment securities:
Taxable 2,597 25,231 5,395 47,099
Exempt from Federal income tax -- 2,076 -- 4,362
Interest on securities available for sale:
Taxable 15,429 412 35,399 905
Exempt from Federal income tax 3,053 25 5,811 50
Interest on trading account securities 94 84 213 137
Interest on Federal funds sold and securities
purchased under agreements to resell 4,089 1,176 6,067 2,623
Interest on bank balances 147 -- 258 1,141
---------------------- -----------------------
TOTAL INTEREST INCOME 104,723 98,786 209,594 191,042
---------------------- -----------------------
INTEREST EXPENSE
Interest on deposits 37,000 35,333 74,376 68,106
Interest on Federal funds purchased, securities
sold under agreements to repurchase and
other short-term borrowings 6,661 7,736 14,992 13,468
Interest on long-term debt 1,074 -- 1,074 --
---------------------- -----------------------
TOTAL INTEREST EXPENSE 44,735 43,069 90,442 81,574
---------------------- -----------------------
NET INTEREST INCOME 59,988 55,717 119,152 109,468
Provision for possible loan losses 1,335 1,000 2,670 1,000
---------------------- -----------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 58,653 54,717 116,482 108,468
---------------------- -----------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 8,682 7,782 16,899 15,355
Fees for trust services 3,852 3,500 7,677 7,001
Gains on securities available for sale 487 24 73 19
Other service charges, commissions
and fees 13,750 8,952 27,786 17,955
Other income 1,146 799 5,148 1,885
---------------------- -----------------------
Total other operating income 27,917 21,057 57,583 42,215
---------------------- -----------------------
OTHER OPERATING EXPENSE
Salaries and employee benefits 30,806 26,340 62,023 52,559
Net occupancy expense 3,766 3,313 7,431 6,506
Equipment expense 4,198 4,070 8,348 7,890
Service fees 4,328 3,035 7,338 5,483
Communication 2,547 2,255 5,000 4,361
FDIC assessment 89 2,415 91 4,804
Advertising and public relations 2,465 2,201 4,910 4,418
Other expense 7,856 6,747 17,319 12,894
---------------------- -----------------------
TOTAL OTHER OPERATING EXPENSE 56,055 50,376 112,460 98,915
---------------------- -----------------------
INCOME BEFORE INCOME TAXES 30,515 25,398 61,605 51,768
Income tax expense 10,079 8,024 19,680 16,423
---------------------- -----------------------
NET INCOME $ 20,436 $17,374 $ 41,925 $ 35,345
====================== =======================
NET INCOME PER SHARE $1.07 $0.91 $2.18 $1.84
WEIGHTED AVERAGE SHARES OUTSTANDING 19,096,605 19,080,014 19,193,877 19,187,536
</TABLE>
<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,
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,925 $ 35,345
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for possible loan losses 2,670 1,000
Provision for possible losses on other real estate 73 --
Provision for depreciation and amortization 14,702 11,882
Provision for deferred income tax expense (benefit) 61 (53)
Amortization (accretion) of premium (discount) on
investment securities, net 136 (15,460)
Accretion of discount on securities available for sale, net (2,050) (41)
Deferred loan fees and costs (1,105) (1,440)
Increase (decrease) in other liabilities 2,917 (3,344)
Increase in other assets (3,447) (9,853)
Net cash paid for loans held for resale (9,095) (23,091)
(Gains) losses on securities available for sale (73) (19)
Other, net 3,792 (424)
---------- ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 50,506 (5,498)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing bank balances (4,007) 135,298
Proceeds from sales of securities available for sale 916,647 20,650
Proceeds from maturities and principal repayments of investment securities 27,126 276,364
Proceeds from maturities and principal repayments of securities available
for sale 316,001 13,331
Purchases of investment securities (11,595) (497,196)
Purchases of securities available for sale (1,355,227) (1,219)
Net decrease in Federal funds sold and securities
purchased under agreements to resell 354,843 128,859
Net increase in loans (210,727) (227,507)
Proceeds from sales of other real estate 2,233 1,780
Purchases of bank premises and equipment (9,880) (11,828)
Proceeds from sales of bank premises and equipment 173 181
Payment for purchase of common stock of acquired company
and other acquisition costs (15) --
Cash and due from banks of acquired companies 5,143 12,309
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 30,715 (148,978)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits (84,884) 122,504
Net increase (decrease) in Federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings (93,429) 88,910
Proceeds from issuance of long-term debt 99,381 --
Proceeds from the exercise of common stock options 1,768 454
Purchases of common stock (20,469) (27,990)
Cash dividends paid (11,307) (10,077)
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (108,940) 173,801
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INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (27,719) 19,325
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 315,987 326,768
---------- ------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 315,987 $ 346,093
========== ============
</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 $20.3 million and $16.6 million during
the six month period ended June 30, 1996 and 1995, respectively.
INTEREST:
The Company paid $89.7 million and $76.6 million in interest on deposits and
other borrowings durin six month periods ended June 30, 1996 and 1995,
respectively.
ACQUISITIONS:
During 1996, the Company recognized the exchange of 634 thousand shares of
common stock 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>
<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.
DGNB is a defendant in a class action lawsuit involving collateral protection
insurance. The lawsuit generally alleges that DGNB violated various banking
statutes and breached common law duties owed to the plaintiffs. While denying
liability, DGNB negotiated a settlement of the class action lawsuit, which was
approved by the court. Although the time within which the court's judgment may
be appealed has not yet expired, all persons who might have a right to appeal
that judgment according to the Fifth Circuit precedents have waived their right
to do so. The settlement terms provide for a settlement fund of cash and loan
credits of approximately $4 million and an injunction concerning DGNB's
collateral protection insurance program, including a prohibition against
collecting outstanding collateral protection insurance premiums or interest
thereon from members of the class. In 1995, $3.5 million was accrued for this
settlement. Management believes that this lawsuit will be resolved without a
material adverse effect on the financial condition of the Company.
<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, 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. 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 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 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 applied
prospectively; therefore, the Company's prior period financial statements will
not reflect the adoption of this pronouncement. The effect of this change
during the first six months was to increase net income by approximately
$1.3 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 about $240 million in mortgage loans in
1995. The results of operations of this acquired company, which are not
material, will be included in the 1996 financial statements beginning July 1,
1996.
<PAGE> 8
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.
<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, 1996, and the related condensed
consolidated statements of earnings for the three-month and six-month periods
ended June 30, 1996 and 1995, and the related condensed consolidated statements
of cash flows for the six-month periods ended June 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
July 16, 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 six
month periods ending June 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. with 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 with 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 date and
will affect the comparability of the financial statements for the first six
months of 1995 and the first six months of 1996.
BALANCE SHEET
Total assets were $6.116 billion at June 30, 1996, compared to $6.026 billion
at December 31, 1995. Securities increased $102 million, or 8%, from $1.338
billion at December 31, 1995 to $1.440 billion at June 30, 1996. Total loans
increased $277 million, or 8%, from $3.579 billion at December 31, 1995 to
$3.856 billion at June 30, 1996. Approximately $73 million of this increase is
related to acquisitions. Excluding the effect of the acquisitions, total loans
increased approximately $204 million due to increased consumer demand. 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 80% from $441 million at December 31, 1995 to $87 million
at June 30, 1996 as these funds have been redeployed in the relatively higher
yielding earning assets. Total deposits increased slightly to $4.804 billion at
June 30, 1996 from $4.781 billion at December 31, 1995. Excluding the effect of
the acquisitions, total deposits exhibited a 2% decrease due to a seasonal
decrease in noninterest-bearing deposits. Long-term liabilities increased $99
million at June 30, 1996, compared to December 31, 1995, as a result of the
second quarter 1996 issuance of $100 million in ten year fixed-rate long-term
notes by the Company.
Total stockholders' equity increased to $556.4 million at June 30, 1996
compared to $539.1 million at December 31, 1995. Stockholders' equity
increased $29 million as a result of earnings retained and $7 million due to
the acquisition of the Bank of Gonzales Holding Company. These increases were
partially offset by a $21 million decrease in the market valuation of securities
available for sale, net of income taxes.
As of June 30, 1996, the Company had interest rate swap contracts with a total
notional value of $124 million compared to $154 million at December 31, 1995
and $235 million at June 30, 1995. During the first six months of 1996, the
Company was a counterparty to several short-term option contracts and
recognized $991 thousand in noninterest income resulting from the premiums
received on written covered call options. During the first six 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.
<PAGE> 11
NET INCOME
Net income for the second quarter of 1996 was $20.4 million, or $1.07 per
share, compared to $17.4 million, or $.91 per share, for the second quarter of
1995. This increase in second quarter earnings was primarily due to
increases in both net interest income and noninterest related sources of
income. The increase of $4.3 million in net interest income resulted from a
9% growth in interest-earning assets. Noninterest income increased $6.9 million
in the second quarter of 1996 compared to the same period in 1995 as a result
of increases of $1.2 million from the adoption of a new accounting policy
related to mortgage servicing rights, $2.8 million attributable to
acquisitions, and growth in core business lines.
Net income for the six months ended June 30, 1996 was $41.9 million, or $2.18
per share, compared to $35.3 million, or $1.84 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 six month period resulted from a 12% growth in
interest-earning assets primarily resulting from an 18% increase in average
total loans. Noninterest income increased $15.4 million in the second quarter
of 1996 compared to the same period in 1995. Of this increase, $2.0 million
resulted from the adoption of the new accounting policy related to mortgage
servicing rights, $5.5 million was attributable to acquisitions, $2.7 million
resulted from the first quarter 1996 disposition of assets related to lease
financing transactions and the remaining $5.2 million increase represents
growth in core business lines.
The return on average assets for the first six months of 1996 was 1.42%
compared to 1.33% for the same period in 1995. The return on average equity
for the first six months of 1996 was 15.86% compared to 14.70% for 1995.
NET INTEREST INCOME
Net interest income for the second quarter of 1996 was $58.7 million, an
increase of $4 million for the second quarter of 1995 primarily resulting from
a 9% increase in average interest-earning assets which was primarily
concentrated in loan volume. Average loan volumes during the second quarter of
1996 increased $543 million, or 17%, compared to the second quarter of 1995.
This increase in average loan volumes can be attributed to internal growth in
loans of 12% and a 5% increase in loans due to acquisitions. Average total
loans, the most profitable interest-earning asset, as a percentage of total
interest-earning assets increased from 65% during the second quarter of 1995 to
70% during the same period in 1996. Average money market assets grew to 6% of
interest-earning assets in the second quarter of 1996 compared to 2% in the
second quarter of 1995 as funds resulting from paydowns and the sale of
securities were held temporarily in short-term money market assets while they
were being reinvested in securities with more favorable interest rates and
being utilized to fund loan growth. The net interest margin for the second
quarter of 1996 was 4.68%, decreasing from 4.70% for the second quarter of
1995.
<PAGE> 12
Net interest income for the first six months of 1996 was $116.5 million, an
increase of 7%, from $108.5 million for the first six months of 1995 primarily
resulting from a 12% increase in interest-earning assets. Of the increase in
interest-earning assets, approximately 98% was due to increased average loan
volumes which increased 19% to $3.7 billion in 1996 as compared to $3.1 billion
in 1995. This increase in average loan volumes can be attributed to internal
growth in loans of 14%, and a 5% increase in loans due to acquisitions.
Average total loans, the most profitable interest-earning asset, as a
percentage of total interest-earning assets increased from 65% during the first
six months of 1995 to 69% during the same period in 1996. The tax-equivalent
net interest margin decreased from 4.73% for the first six months of 1995 to
4.64% for the same period in 1996. This decrease in the margin is primarily due
to a decrease in the interest spread. The interest spread, the difference
between the yield on interest-earning assets and the rate paid on
interest-bearing liabilities, decreased from 3.96% in 1995 to 3.88% in 1996 due
to the yields on interest earning assets decreasing at a faster pace than
interest rates paid on deposits.
OTHER OPERATING INCOME
Other operating income for the second quarter of 1996 was $27.9 million
compared to $21.1 million for the second quarter of 1995. The 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 $2.8 million of the second quarter 1996 other operating income
represents an increase due to acquisitions occurring in the third quarter of
1995. The Company's adoption of SFAS No. 122 in January 1996, resulted in an
increase in mortgage loan origination income of approximately $800 thousand in
the second quarter of 1996 as compared to the same period in 1995. The remaining
increase in noninterest income for the second quarter of 1995 compared to the
second quarter of 1996 represents a $2.8 million, or 13%, growth in fees from
core business lines primarily service charges on deposit accounts,
broker/dealer fee income and other retail service fees.
Other operating income for the first six months increased $15.4 million from
$42.2 million at June 30, 1995 to $57.6 million at June 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, and
growth in core business lines. Approximately $5.5 million of the increase
during the first six months of 1996 was due to acquisitions occurring after the
second quarter of 1995. 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 $2.0 million for the first six months of
1996. The remaining increase in noninterest income for the six month period
was attributable to growth in core fee revenue sources.
OTHER OPERATING EXPENSE
Other operating expense for the second quarter of 1996 was $56.1 million, an
increase of $5.7 million, or 11%, over the second quarter of 1995 primarily due
to acquisitions. Excluding the effects of the acquisitions, other operating
expense was virtually flat as the underlying increase in salaries and employee
benefits and consulting and professional fees were offset by the savings from
the FDIC assessment reduction.
<PAGE> 13
Excluding the effects of the acquisitions, salaries and employee benefits
increased $1.9 million, or 7%, in the second quarter of 1996 compared to 1995
as a result of annual merit increases, employee incentive cost and increased
employee benefit costs. Consultant fees increased $572 thousand for the second
quarter of 1996 compared to 1995, primarily as a result of the cost of profit
enhancement projects.
These overall increases in noninterest expense were somewhat offset by a
decrease in the FDIC assessment and gains on the sale of other real estate.
The FDIC assessment decreased $2.3 million for the second quarter of 1996 as
compared to the same period in 1995 due to the elimination of premiums on
insured deposits.
Other operating expense for the six months ended June 30, 1996 increased $13.5
million to $112.5 million in 1996 compared to $98.9 million for the same period
in 1995. Approximately $11.2 million of this increase was a result of
acquisitions made after the second quarter of 1995. 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 $4.4 million during the first six months of 1996
compared to 1995 as a result of annual merit increases, employee incentive cost
and increased employee benefit costs. Consultant fees increased $1 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
$4.7 million for the first six months of 1996 to compared to the same period in
1995 due to the elimination of premiums on insured deposits.
CREDIT QUALITY
The provision to the allowance for possible loan losses was $1.3 million for
the second quarter of 1996 compared to a $1.0 million provision in 1995. The
allowance for possible loan losses at June 30, 1996, was $60.3 million or 1.56%
of total loans and 302% 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 second quarter of 1996 were $1.6 million, or
.17% of average loans, compared to second quarter 1995 net charge-offs of $868
thousand, or .11% of average loans. Year-to-date net charge-offs were $2.7
million for 1996 compared to net recoveries of $815 thousand for 1995.
Nonperforming loans decreased to $20.8 million at June 30, 1996, compared to
$22.5 million at December 31, 1995 and $28.9 million at June 30, 1995.
CAPITAL
Total stockholders' equity increased to $556.4 million at June 30, 1996 compared
to $539.1 million at December 31, 1995. This increase in stockholders' equity
was primarily due to earnings retained and the acquisition of the Bank of
Gonzales Holding Company. The Company's earnings for the first six months of
1996 were $41.9 million which were somewhat offset by dividend declarations of
$13.1 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 443 thousand shares of the its common stock for $20.5 million in the first
six months of 1996 and due to a $21.4 million decrease in the market valuation
of securities available for sale, net of income taxes. The Company's common
stock repurchase program is for the purpose of offsetting the shares issued in
the 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 June 30,
1996 were 11.72% and 12.98%, 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 8.27% at June 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 first six months of 1996, the Company experienced the continuing
trend of loan growth exceeding deposit growth which resulted in the loan to
deposit ratio increasing to 78%. Additional funding for this loan growth was
obtained from a reduction in investment portfolio securities.
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 anticipation of lower interest rates, these notes were
converted to floating-rate instruments using an interest rate swap contract.
The proceeds from the sale of the notes have been used for general corporate
purposes, including reductions in short-term borrowings and for current and
potential 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
Amended 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) 19
Letters re: unaudited interim financial
information (15) 20
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) 21
Additional exhibits (99) N/A
</TABLE>
(b) The Company filed a report on Form 8-K, dated April 23, 1996, disclosing
the issuance of $100 million in fixed-rate long-term debt.
<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: August 14, 1996 /s/ Stephen E. Barker
--------------- ---------------------
Stephen E. Barker
Controller and Principal
Accounting Officer
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Table
Exhibit Number
------- ------
<S> <C>
Plan of acquisition, reorganization,
arrangement, liquidation or succession (2)
Amended articles of incorporation (3)
Instruments defining the rights of
security holders, including indentures (4)
Material Contracts (10)
Statements re: computation of per share
earnings (11)
Letters re: unaudited interim financial
information (15)
Letter re: change in accounting
principles (18)
Report furnished to security holders (19)
Published report regarding matters
submitted to vote of security holders (22)
Consent of experts and counsel (23)
Power of attorney (24)
Financial data schedule (27)
Additional exhibits (99)
</TABLE>
<PAGE> 1
Deposit Guaranty Corp.
Computation of Net Income Per Share
June 30, 1996
<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 19,097,343 19,379,643
Common stock issued due
to mergers 6,963 3,482
Common stock issued due to
exercise of options 8,527 48,778
Shares purchased by
the Company (16,229) (238,025)
----------- -----------
Weighted average shares
outstanding 19,096,605 19,193,877
=========== ===========
Computation of net income:
Net income $20,436,000 $41,925,000
=========== ===========
Computation of net income per
share:
Net income divided by weighted
average shares outstanding $ 1.07 $ 2.18
=========== ===========
</TABLE>
Note: For the six-months ended June 30, 1996, additional weighted average
shares outstanding for options under the Company's incentive stock plan were
166,978 and 163,935 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: June 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 July 16, 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
August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 315,987
<INT-BEARING-DEPOSITS> 4,007
<FED-FUNDS-SOLD> 87,177
<TRADING-ASSETS> 4,231
<INVESTMENTS-HELD-FOR-SALE> 1,316,229
<INVESTMENTS-CARRYING> 123,787
<INVESTMENTS-MARKET> 129,124
<LOANS> 3,956,447
<ALLOWANCE> (60,319)
<TOTAL-ASSETS> 6,115,859
<DEPOSITS> 4,804,033
<SHORT-TERM> 510,220
<LIABILITIES-OTHER> 145,804
<LONG-TERM> 99,381
<COMMON> 0
0
21,562
<OTHER-SE> 534,859
<TOTAL-LIABILITIES-AND-EQUITY> 6,115,859
<INTEREST-LOAN> 156,451
<INTEREST-INVEST> 43,818
<INTEREST-OTHER> 6,325
<INTEREST-TOTAL> 209,594
<INTEREST-DEPOSIT> 74,376
<INTEREST-EXPENSE> 90,442
<INTEREST-INCOME-NET> 119,152
<LOAN-LOSSES> 2,670
<SECURITIES-GAINS> 73
<EXPENSE-OTHER> 112,480
<INCOME-PRETAX> 61,605
<INCOME-PRE-EXTRAORDINARY> 61,605
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,925
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.18
<YIELD-ACTUAL> 4.64
<LOANS-NON> 20,799
<LOANS-PAST> 6,298
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 256
<ALLOWANCE-OPEN> 58,719
<CHARGE-OFFS> 7,327
<RECOVERIES> 4,597
<ALLOWANCE-CLOSE> 60,319
<ALLOWANCE-DOMESTIC> 60,319
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,415
</TABLE>
