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, 1997
Commission File Number 0-4518
DEPOSIT GUARANTY CORP.
(Exact Name Of Registrant As Specified In Charter)
Mississippi 64-0472169
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
210 East Capitol Street, Jackson, MS 39201
(Address Of Principal Executive Offices)
(Zip Code)
(601) 354-8564
(Registrant's Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Shares Of Common Stock, No Par Value, Outstanding
As Of June 30, 1997: 40,781,431
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PART I. Financial Information
ITEM 1. Financial Statements
Deposit Guaranty Corp. and Subsidiaries
Condensed Consolidated Statements of Condition
(In Thousands Except Share Data)
June 30, December 31,
1997 1996
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Assets
Cash and due from banks $393,166 $385,009
Interest-bearing bank balances 2,178 1,732
Federal funds sold and securities
purchased under agreements to resell 39,025 47,640
Trading account securities 1,749 2,505
Securities available for sale 1,387,604 1,462,038
Investment securities (fair value:
1997 - $174,592 ; 1996 - $152,412 ) 170,540 145,087
Loans, net of unearned income 4,273,777 3,979,877
Less: Allowance for possible loan losses (69,483) (62,205)
------------ -----------
Net loans 4,204,294 3,917,672
Bank premises and equipment 165,461 148,327
Goodwill and other intangibles 128,452 89,239
Other assets 196,073 183,648
----------- -----------
Total assets $6,688,542 $6,382,897
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Liabilities
Deposits:
Noninterest-bearing $1,258,150 $1,160,914
Interest-bearing 4,057,651 3,864,835
----------- -----------
Total deposits 5,315,801 5,025,749
Federal funds purchased, securities
sold under agreements to repurchase
and other short-term borrowings 565,865 543,029
Long-term liabilities 99,426 99,405
Other liabilities 106,705 133,448
----------- -----------
Total liabilities 6,087,797 5,801,631
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:
1997 - 40,781,431 shares; 1996 - 39,185,394
shares 22,360 21,491
Surplus 155,096 174,995
Retained earnings 425,972 383,211
Market valuation for securities available for
sale, net of income taxes (2,683) 1,569
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Total stockholders' equity 600,745 581,266
----------- -----------
Total liabilities and stockholders' equity $6,688,542 $6,382,897
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PART I. Financial Information
ITEM 1. Financial Statements (Continued)
Deposit Guaranty Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings
(In Thousands Except Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------
1997 1996 1997 1996
------------------------------ -------------------------
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Interest income
Interest and fees on loans $92,065 $79,314 $182,704 $156,451
Interest on investment securities:
Taxable 2,909 2,597 6,037 5,395
Exempt from Federal income tax 2 0 3 0
Interest on securities available for sale:
Taxable 21,417 15,429 44,876 35,399
Exempt from Federal income tax 2,656 3,053 5,308 5,811
Interest on trading account securities 68 94 90 213
Interest on Federal funds sold and securities
purchased under agreements to resell 560 4,089 1,474 6,067
Interest on bank balances 36 147 43 258
----------------------------- -------------------------
Total interest income 119,713 104,723 240,535 209,594
----------------------------- -------------------------
Interest expense
Interest on deposits 40,897 37,000 82,037 74,376
Interest on Federal funds purchased, securities
sold under agreements to repurchase and
other short-term borrowings 6,955 6,661 13,714 14,992
Interest on long-term debt 1,580 1,074 3,057 1,074
----------------------------- ------------------------
Total interest expense 49,432 44,735 98,808 90,442
----------------------------- ------------------------
Net interest income 70,281 59,988 141,727 119,152
Provision for possible loan losses 1,875 1,335 3,750 2,670
----------------------------- ------------------------
Net interest income after provision for
possible loan losses 68,406 58,653 137,977 116,482
----------------------------- ------------------------
Other operating income
Service charges on deposit accounts 10,169 8,682 20,128 16,899
Fees for trust services 4,664 3,852 9,327 7,677
Gains on investment securities 540 487 626 73
Other service charges, commissions
and fees 14,589 13,750 29,391 27,786
Other 1,780 1,146 2,921 5,148
----------------------------- -----------------------
Total other operating income 31,742 27,917 62,393 57,583
----------------------------- -----------------------
Other operating expense
Salaries and employee benefits 35,738 30,806 70,865 62,023
Net occupancy 4,748 3,766 9,450 7,431
Equipment 4,793 4,198 9,863 8,348
Service fees 4,427 4,328 7,696 7,338
Communication 3,125 2,547 6,164 5,000
FDIC assessment 172 89 336 91
Advertising and public relations 2,590 2,465 5,076 4,910
Amortization of intangibles 2,768 1,530 5,475 3,062
Other 8,472 6,326 18,224 14,257
----------------------------- -----------------------
Total other operating expense 66,833 56,055 133,149 112,460
----------------------------- -----------------------
Income before income taxes 33,315 30,515 67,221 61,605
Income tax expense 11,384 10,079 22,678 19,680
----------------------------- -----------------------
Net income $21,931 $20,436 $44,543 $41,925
============================= =======================
Net income per share $0.54 $0.53 $1.08 $1.09
Weighted average shares outstanding 40,490,608 38,193,210 41,340,885 38,387,754
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PART I. Financial Information
ITEM 1. Financial Statements (Continued)
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Six Months Ended June 30,
--------------------------------------------
1997 1996
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Cash flows from operating activities:
Net income $ 44,541 41,925
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for possible loan losses 3,750 2,670
Provision for possible losses on other real estate 576 73
Provision for depreciation and amortization 18,711 14,702
Provision for deferred income tax expense (benefit) 1,566 61
Amortization (accretion) of premium (discount) on
investment securities, net 21 136
Accretion of discount on securities available for sale, net (1,026) (2,050)
Accretion of discount on long-term debt 21 --
Deferred loan fees and costs (1,508) (1,105)
Decrease in other liabilities (8,143) 2,917
(Increase) decrease in other assets (10,596) (3,447)
Net cash received from (paid for) loans held for resale 40,603 (9,095)
(Gains) losses on securities available for sale 812 (73)
Gains on sales of investment securities (1,438) --
Other, net 497 3,792
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Net cash provided by operating activities 88,387 50,506
------------ -----------
Cash flows from investing activities:
Net increase in interest-bearing bank balances (445) (4,007)
Proceeds from sales of securities available for sale 577,407 916,647
Proceeds from sales of investment securities 11,421 27,126
Proceeds from maturities and principal repayments of investment securities 27,560 --
Proceeds from maturities and principal repayments of securities available
for sale 101,686 316,001
Purchases of investment securities (62,189) (11,595)
Purchases of securities available for sale (529,691) (1,355,227)
Net decrease in Federal funds sold and securities
purchased under agreements to resell 68,160 354,843
Net increase in loans (55,133) (210,727)
Proceeds from sales of other real estate 1,691 2,233
Purchases of bank premises and equipment (13,097) (9,880)
Proceeds from sales of bank premises and equipment 195 173
Payment for purchase of common stock of acquired company
and other acquisition costs (10,017) (15)
Cash and due from banks of acquired companies 32,851 5,143
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Net cash used by investing activities 150,399 30,715
------------ -----------
Cash flows from financing activities:
Net decrease in deposits (153,107) (84,884)
Net increase (decrease) in Federal funds purchased,
securities sold under agreements to repurchase,
and other short-term borrowings 15,034 (93,429)
Repayment of line of credit to fund loans held for resale -- --
Proceeds from issuance of long-term debt 0 99,381
Proceeds from the exercise of common stock options 1,777 1,768
Purchases of common stock (78,327) (20,469)
Cash dividends paid (16,006) (11,307)
------------ -----------
Net cash provided (used) by financing activities (230,629) (108,940)
------------ -----------
Increase (decrease) in cash and due from banks 8,157 (27,719)
Cash and due from banks at beginning of period 385,009 343,706
------------ ----------
Cash and due from banks at end of period $ 393,166 $ 315,987
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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 $20.9 million and $20.3 million during
the six month period ended June 30, 1997 and 1996, respectively.
Interest:
The Company paid $98.7 million and $89.7 million in interest on deposits and
other borrowings during the six month period ended June 30, 1997 and 1996,
respectively.
Acquisitions:
During the first six months of 1997, the Company exchanged 1.760 million shares
of common stock, in a purchase business combination, for all the outstanding
common shares of Jefferson Guaranty Bancorp. The following reflects the assets
acquired and liabilities assumed (in thousands):
Fair value of assets acquired $336,188
Fair value of common stock issued and/or cash paid
for common stock and other acquisition costs (50,165)
---------
Liabilities assumed ($286,023)
==========
Also during the first six months of 1997, the Company exchanged 1.569 million
shares of common stock, in a pooling of interests business combination, for all
the common shares of First Capital Bancorp, Inc. which had assets of
approximately $186 million at December 31, 1996.
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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 are of a normal,
recurring nature .
The condensed consolidated financial statements of Deposit Guaranty Corp.
include the financial statements of Deposit Guaranty Louisiana Corp. and G & W
Life Insurance Co., wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE B - DERIVATIVE FINANCIAL INSTRUMENTS
Trading Instruments: Derivative financial instruments held for trading are
recorded at fair value. These instruments are used by the Company to generate
additional noninterest income. Realized and unrealized gains and losses on
trading positions are recognized in noninterest income during the period in
which the gain or loss occurs. Interest revenue and expense arising from trading
instruments are included in other operating income. Due to the immaterial impact
of trading instruments on the Company's financial statements, additional
disclosures are not required.
Risk Management Instruments: As part of its asset/liability management
activities, the Company may enter into interest rate futures, forwards, swaps
and option contracts. These derivative financial instruments are categorized as
risk management instruments and are carried at fair value unless the instrument
qualifies for hedge accounting treatment. Fair value adjustments on risk
management instruments carried at fair value are reflected in operating income.
Gains and losses realized on futures and forward contracts qualifying as hedges
are deferred and amortized over the terms of the related assets or liabilities
and are included as adjustments to interest income or interest expense.
Settlements on interest rate swaps and option contracts are recognized over the
lives of the agreements as adjustments to interest income or interest expense.
Interest rate contracts used in connection with the securities portfolio that is
designated as available for sale are carried at fair value with gains and
losses, net of applicable deferred income taxes, reported in a separate
component of stockholders' equity, consistent with the reporting of unrealized
gains and losses on such securities.
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Premiums paid for interest rate caps qualifying for hedge accounting are
included in deposits and are amortized to interest expense over the life of the
caps. Premiums paid for interest rate floors qualifying for hedge accounting are
included in commercial loans and are amortized to interest income over the life
of the floors. Due to the immaterial impact of risk management instruments on
the Company's financial statements, additional disclosures are not required.
NOTE C - CONTINGENCIES
The Company's subsidiary, Deposit Guaranty National Bank (DGNB), is a defendant
in a case in which the plaintiffs are beneficiaries of a trust for which DGNB is
the trustee. 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 D - ACCOUNTING CHANGES
Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" as amended by
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 125 establishes accounting and reporting standards
for transfers and servicing of financial assets and extinguishment of
liabilities. It further requires that an entity recognize the financial and
servicing assets it controls and the liabilities it has incurred, derecognize
financial assets when control has been surrendered, and derecognize 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, as amended, was effective for transfers
and servicing of financial assets and extinguishments of liabilites occurring
after December 31, 1996, and is effective after December 31, 1997, for
repurchase agreements, dollar- roll agreements, securities lending, and similar
transactions. The effect of this statement on the June 30, 1997, financial
statements was not material. The adoption of the provisions delayed by SFAS No.
127 are not expected to have a material impact on the Company's financial
position or results of operations.
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NOTE E - ACQUISITIONS
On January 3, 1997, the Company exchanged a combination of 1,759,688 shares of
its common stock and $10 million cash for all of the outstanding shares of
Jefferson Guaranty Bancorp, a $300 million asset bank holding company
headquartered in Metairie, Louisiana, 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 1997 financial statements
from the date of purchase.
On March 31, 1997, the Company exchanged 1,568,466 shares of its common stock
for all of the outstanding shares of First Capital Bancorp, Inc., a $186 million
asset bank holding company headquartered in Monroe Louisiana, in a transaction
accounted for as a pooling of interests. The results of operations of this
acquired company, which are not material, are included in the 1997 financial
statements from January 1, 1997. Prior years' financial statements were not
restated as the changes would have been immaterial.
On June 30, 1997, the Company exchanged 422,529 shares of its common stock
for all of the outstanding shares of NBC Financial Corporation, a bank
holding company located in Baton Rouge, Louisiana, with approximately $70
million in total assets. The transaction was accounted for as a
purchase business combination. This aquisition, which was not material, will
be included in the Company's financial statements beginning July 1, 1997.
On July 31, 1997, the Company paid $18.9 million cash for the outstanding
common shares of CitiSave Financial Corporation of Baton Rouge, La. CitiSave
Financial Corporation, parent company of Citizens Savings Association, F.A.,
which has six banking offices in Baton Rouge and $75 million in total assets.
The transaction was accounted for as a purchase business combination. The
results of operations of this acquired company, which are not material, will
be included in the 1997 financial statements from the date of purchase.
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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, 1997, and the related condensed
consolidated statements of earnings for the three-month and six-month periods
ended June 30, 1997 and 1996, the related condensed consolidated statements of
cash flows for the six-month periods ended June 30, 1997 and 1996.
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, 1996, 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 5, 1997 (February
20, 1997 as to Note 3), 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, 1996, 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 15, 1997
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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 periods
ended March 31, 1997 and 1996. This discussion should be read in conjunction
with the condensed consolidated financial statements included in Part I, Item I.
Subsequent to the second quarter of 1996, the Company acquired Bank of Gonzales
Holding Company with $126 million in total assets, McAfee Mortgage and
Investment Company with approximately $240 million in annual mortgage loan
originations, and Tuscaloosa Bancshares, Inc. with total assets of $41 million.
During the first quarter of 1997, the Company acquired Jefferson Guaranty
Bancorp with total assets of approximately $300 million. These transactions were
accounted for as purchases and the results of operations of these entities are
included in the financial statements from the acquisition dates. On March 31,
1997, the Company acquired First Capital Bancorp, Inc., a bank holding company
with $186 million in total assets. This transaction was accounted for as a
pooling of interests and is included in the financial statements as of January
1, 1997. Prior years were not restated as the changes would have been
immaterial. The aforementioned acquisitions affect the comparability of the
financial statements.
Balance Sheet
Total assets increased $306 million to $6.689 billion at June 30, 1997, compared
to $6.383 billion at December 31, 1996 primarily due to merger activity.
Securities decreased $49 million, or 3%, to $1.558 billion at June 30, 1997.
Total loans increased $294 million, or 7%, to $4.274 billion at June 30, 1997.
Excluding the effect of the acquisitions, total loans would have exhibited a
slight decrease from December 31, 1996 to June 30, 1997, reflecting a slowdown
from the steady pace of growth experienced in prior periods. Federal funds sold
and securities purchased under agreements to resell decreased 18% to $39 million
at June 30, 1997. Other assets increased $52 million, or 19%, to $325 million at
June 30, 1997, primarily as a result of acquisition-related intangible assets.
Total deposits increased $290 million, or 6%, to $5.316 billion at June 30,
1997. Excluding the effect of the acquisitions, total deposits exhibited a
slight decrease from December 31, 1996 to June 30, 1997. Other liabilities
decreased $27 million, or 20%, to $107 million at June 30, 1997 compared to
December 31, 1996.Total stockholders' equity increased $20 million to $601
million at June 30, 1997 primarily as a result of $28.8 million in earnings
retained and a $4.3 million decrease in the fair value of securities available
for sale, net of income taxes. The effect of stock issued for acquisitions
increased equity $71.4 million which was more than offset by a decrease of $78.3
million resulting from the repurchase of shares issued in those acquisitions
accounted for using the purchase method of accounting for
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business combinations. Also included in the increase in equity was $1.8
million in stock options exercised.
As of June 30, 1997, the Company had interest rate swap contracts with a total
notional value of $122 million compared to $123 million at December 31, 1996 and
$124 million at June 30, 1996.
Net Income
Net income for the second quarter of 1997 increased $1.5 million, or $ .01 per
share, to $21.9 million, or $ .54 per share, due to an increase in business
volumes resulting primarily from acquisitions. An increase in earning assets and
a 20 basis point improvement in interest spreads resulted in an 17% increase in
net interest income. Noninterest income increased $3.8 million, or 14%, to $31.7
million in the second quarter of 1997 compared to the same period in 1996, while
noninterest expense increased $10.7 million, or 19% including the effect of
amortization of intangibles relating to recent acquisitions.
Net income for the six months ended June 30, 1997 was $44.5 million, or $1.08
per share, compared to $41.9 million, or $1.09 per share, for the same period in
1996. Net interest income increased due to a 12% growth in interest-earning
assets, mostly in average loan volumes. Noninterest income for the first six
months of 1997 increased by $4.8 million to $62.4 million. Noninterest income
for the first six months of 1996 included a gain of $2.7 million resulting from
the disposition of assets related to lease financing transactions. Excluding the
1996 gain on the lease transactions, noninterest income increased $7.5 million
primarily as a result of acquisitions.
The return on average assets for the first six months of 1997 was 1.34% compared
to 1.42% for the same period in 1996. The return on equity ratio measures how
effectively the Company has been able to generate earnings on its capital.
During the first six months of 1997, the Company earned 14.89% on average common
stockholders' equity compared to 15.86% for the same period in 1996.
Net Interest Income
Net interest income for the second quarter of 1997 was $70.3 million, an
increase of $10.3 million from the second quarter of 1996 primarily resulting
from an 11% growth in average interest-earning assets which was concentrated in
loans. Average loan volumes during the second quarter of 1997 increased $546.9
million, or 15%, compared to the second quarter of 1996. Acquisitions caused
approximately 95% of the increase in average loan volumes. Average total loans,
the most profitable interest-earning asset, as a percentage of total
interest-earning assets increased from 70% during the second quarter of 1996 to
72% during the same period in 1997. The net interest margin for the second
quarter of 1997 was 4.90%, increasing from 4.68% for the second quarter of 1996.
This increase is primarily due to a 20 basis point increase in the
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interest spread, the difference between the yield on interest-earning assets and
the rate paid on interest-bearing liabilities, as the yields on loans and
securities increased while rates paid on deposits declined slightly.
Net interest income for the first six months of 1997 was $141.7 million, an
increase of 19%, from $119.2 million for the first six months of 1996 primarily
resulting from an 12% increase in interest-earning assets. Approximately 91% was
due to increased average loan volumes which increased 16% to $4.2 billion in
1997 as compared to $3.7 billion in 1995. This increase in average loan volumes
can be attributed primarily to acquisitions. Average total loans, as a
percentage of total interest-earning assets, increased from 69% during the first
six months of 1996 to 71% during the same period in 1997.
The tax-equivalent net interest margin increased from 4.65% for the first six
months of 1996 to 4.90% for the same period in 1997. 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 28 basis points from 3.88% in 1996 to
4.16% in 1997 due to the yields on loans and securities increasing while rates
paid on deposits decreased.
Other Operating Income
Other operating income for the second quarter of 1997 increased $3.8 million to
$31.7 million primarily as a result of acquisitions and growth in core business
lines. Approximately 68% of the increase can be attributed to acquisitions. The
remaining increase represents a 4% growth in fees from core business lines,
primarily service charges on deposit accounts and other retail service fees.
Other operating income for the first six months of 1997 as compared to the same
period in 1996 increased $4.8 million to $62.4 million. Comparability between
the first six months of 1997 and 1996 is impacted by a $2.7 million gain from
the disposition of assets from expired lease financing transactions in 1996.
Excluding the $2.7 million gain in 1996, other operating income increased $7.5
million, primarily as a result of acquisitions (approximately 70%) and 5% growth
in core business lines.
Other Operating Expense
Other operating expense for the second quarter of 1997 was $66.8 million, an
increase of $10.8 million, or 19%, over the second quarter of 1996 primarily as
a result of acquisitions. Excluding the $7.1 million increase due to
acquisitions, other operating expense increased approximately $3.7 million, or
7% in 1997 compared to 1996. This increase was primarily as a result of
underlying increases in personnel expense. Personnel expense, excluding
acquisitions, for the second quarter of 1997 increased $1.4 million, or 4%,
compared to the second quarter of 1996, primarily as a result of annual merit
increases. Other operating expense for the six months ended June 30, 1997
increased $20.7 million to $133.2 million in 1997 compared to $112.5 million for
<PAGE>
the same period in 1996. Approximately $14.8 million of this increase was a
result of acquisitions. The remaining increase is primarily the result of
increases in personnel expenses. Excluding the effects of the acquisitions,
personnel expenses increased $1.8 million, or 3%, during the first six months of
1997 compared to the same period in 1996 as a result of annual merit increases.
Credit Quality
The provision for possible loan losses was $1.9 million for the second quarter
of 1997 compared to a $1.3 million provision for the second quarter of 1996. The
allowance for possible loan losses at June 30, 1997, was $69.5 million or 1.63%
of total loans and 264% of nonperforming loans outstanding compared to $62.2
million or 1.56% of total loans and 364% of nonperforming loans at December 31,
1996. Net charge-offs for the second quarter of 1997 were $1.8 million, or .17%
of average loans, compared to second quarter 1996 net charge-offs of $1.6
million, or .17% of average loans.
Year-to-date net charge-offs were $3.3 million for 1997 compared to $2.7 million
for 1996. Nonperforming loans increased $4 million, primarily as a result of one
credit, to $26.3 million at June 30, 1997, compared to $17.1 million at December
31, 1996 and $20.8 million at June 30, 1996.
Capital
Total stockholders' equity increased $19.5 million to $600.7 million at June 30,
1997 primarily due to earnings retained. The effect of stock issued in
acquisitions was somewhat offset by the Company's repurchase of shares of its
common stock. The Company's common stock repurchase program is for the purpose
of offsetting the shares issued in specific purchase accounting 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, 1997
were 10.14% and 11.39%, respectively. This compares to a tier 1 capital ratio of
11.42% and total risk-based capital ratio of 12.67% at December 31, 1996. The
Company's leverage ratio was 7.31% at June 30, 1997 compared to 8.23% at
December 31, 1996.
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. Deposit Guaranty National Bank's leverage,
tier 1 and total risk-based capital ratios were 7.75%, 11.60%, and 12.85%,
respectively for June 30, 1997 compared to 8.96%, 12.07%, and 13.32% at December
31, 1996. Commercial National Bank's leverage, tier 1 and total risk-based
capital ratios were 9.44%, 13.06%, and 14.32%, respectively for June 30, 1997
compared to 9.05%, 11.54%, and 12.79% at December 31, 1996.
<PAGE>
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, which consist of total deposits less
certificates of deposit greater than or equal to $100,000, to fund loan demand
and long-term investments.
Accounting Changes
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
Statement establishes standards for computing and presenting earnings per share
by simplifying the standards previously found in APB Opinion No. 15, "Earnings
per Share." SFAS No. 128 replaces the presentation of primary earnings per share
with a presentation of basic earnings per share and requires dual presentation
of basic and diluted earnings per share on the face of the income statement.
It further requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. The adoption of this statement is not expected to have a material
impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting comprehensive income and its
components in a full set of general-purpose financial statements. SFAS No. 130,
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement displayed with the same prominence as other financial statements. The
statement requires that the Company classify items of other comprehensive income
by their nature and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the Statement of Condition. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of this statement
will not have a material impact on the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires that the Company
report financial and descriptive information about its reportable segments.
Financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. This Statement also requires that the Company report
descriptive information about the way the operating segments were determined,
the products and services provided by the operating segments, differences
between the measurements used in
<PAGE>
reporting segment information and those used in the Company's financial
statements, and changes in the measurement of segment amounts from period to
period. SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. The adoption of this statement will not have a material
impact on the financial statements.
<PAGE>
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, 1996 and in Part II., Item
1 of the Quarterly Report on Form 10- Q for the quarter ended March 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of security-holders of the company was held on April 15,
1997. The following nominees were elected as directors:
Total Votes for Total Votes Withheld
Nominee Nominee for Nominee
- ----------- --------------- ---------------------
Class A Director
- --------------------
(to serve until
1999 Annual Meeting)
1. Richard D. McRae, Jr. 24,737,828 62,783
Class B Directors
- --------------------
(to serve until
2000 Annual Meeting)
1. Haley R. Barbour 24,703,347 97,264
2. William R. James 24,733,977 66,634
3. Booker T. Jones 24,604,417 196,194
4. E.B. Robinson, Jr. 24,731,698 68,913
5. J. Kelley Williams 24,737,050 63,561
Class C Director
- ----------------------
(to serve until
1998 Annual Meeting)
1. Sharon S. Greener 24,731,300 69,311
The term of office for the following directors continued after the meeting:
Richard H. Bremer, Howard L. McMillan and John N. Palmer (Class A), Warren A.
Hood, Jr., Charles L. Irby, and W.R. Newman, III (Class C).
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibit
Exhibit Number
Statements re: computation of per share
earnings (11)
Letters re: unaudited interim financial
information (15)
Financial data schedule (27)
(b) No reports on Form 8-K have been filed during the quarter ended June 30,
1997.
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, 1997 By: /s/Stephen E. Barker
---------------------
Stephen E. Barker
Controller and Principal
Accounting Officer and
Authorized Officer
Exhibit 11
<TABLE>
<CAPTION>
Deposit Guaranty Corp.
Computation of Net Income Per Share
Three Months Ended Six Months Ended
June 30, 1997 June 30,1997
------------------- ----------------
Primary and Primary and
Fully Diluted Fully Diluted
------------------- ----------------
<S> <C> <C>
Computation of weighted average shared outstanding:
Common stock outstanding,
beginning balance 40,743,822 39,185,394
Common stock issued due
to mergers 217,512 3,418,227
Common stock issued due to
exercise of options 5,009 51,803
Shares purchased by
the Company ( 50,752) ( 1,314,539)
----------- -------------
Weighted average shares
outstanding 40,915,591 41,340,885
========== ===========
Computation of net income:
Net income $21,931,000 $44,543,000
=========== ===========
Computation of net income per
share:
Net income divided by weighted
average shares outstanding $ .54 $ 1.08
=========== ===========
Note: For the three-months ended June 30, 1997, additional weighted average
shares outstanding for options under the Company's incentive stock plan were
298,194 and 432,288 for calculating primary and fully diluted net income per
share, respectively. The dilutive effect of such options was, therefore, not
material.
</TABLE>
Exhibit 15
Deposit Guaranty Corp.
Jackson, Mississippi
Gentlemen:
RE: June 30, 1997 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 15,1997 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, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 393,166
<INT-BEARING-DEPOSITS> 2,178
<FED-FUNDS-SOLD> 39,025
<TRADING-ASSETS> 1,749
<INVESTMENTS-HELD-FOR-SALE> 1,387,604
<INVESTMENTS-CARRYING> 170,540
<INVESTMENTS-MARKET> 174,592
<LOANS> 4,273,777
<ALLOWANCE> (69,483)
<TOTAL-ASSETS> 6,688,542
<DEPOSITS> 5,315,801
<SHORT-TERM> 565,865
<LIABILITIES-OTHER> 106,705
<LONG-TERM> 99,426
0
0
<COMMON> 22,360
<OTHER-SE> 578,385
<TOTAL-LIABILITIES-AND-EQUITY> 6,688,542
<INTEREST-LOAN> 182,704
<INTEREST-INVEST> 56,224
<INTEREST-OTHER> 1,607
<INTEREST-TOTAL> 240,535
<INTEREST-DEPOSIT> 82,037
<INTEREST-EXPENSE> 98,808
<INTEREST-INCOME-NET> 141,727
<LOAN-LOSSES> 3,750
<SECURITIES-GAINS> (812)
<EXPENSE-OTHER> 133,149
<INCOME-PRETAX> 67,221
<INCOME-PRE-EXTRAORDINARY> 44,543
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,543
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 4.90
<LOANS-NON> 26,343
<LOANS-PAST> 15,749
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 819
<ALLOWANCE-OPEN> 64,704
<CHARGE-OFFS> 8,404
<RECOVERIES> 5,063
<ALLOWANCE-CLOSE> 69,483
<ALLOWANCE-DOMESTIC> 69,483
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,959
</TABLE>
