SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 0-4518
DEPOSIT GUARANTY CORP.
(Exact name of registrant as specified in its charter)
Mississippi 64-0472169
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 East Capitol Street, Jackson, MS 39201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 354-8564
Securities registered pursuant to Section
12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
Common Stock, No Par Value New York Stock Exchange
Securities registered pursuant to Section
12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates of the Registrant
as of February 20, 1998: $2,063,499,710.
Common stock, no par value, outstanding as of February 20, 1998:
40,831,953 shares
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2
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<TABLE>
<CAPTION>
CROSS REFERENCE INDEX
Page
<S> <C> <C> <C>
PART I Item 1 Business
Statistical data required by Exchange Act Guide 3-5
and Securities Act Guide 3 included in
Management's Discussion and Analysis 7-28
Item 2 Properties 5
Item 3 Legal Proceedings 6
Item 4 There has been no submission of matters to a vote
of shareholders during the quarter ended December
31, 1997.
PART II Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 6,27,28
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-28
Item 8 Financial Statements and Supplementary Data 28-53
Item 9 There has been no disagreement with accountants
on accounting and financial matters.
PART III Item 10 Directors and Executive Officers of the Registrant 4-5,54-55
Item 11 Executive Compensation 56-60
Item 12 Security Ownership of Certain Beneficial Owners 61,62
and Management
Item 13 Certain Relationships and Related Transactions 63
PART IV Item 14 Exhibits, Financial Statement Schedules, 63
and Reports on Form 8-K
(a)(1) Financial Statements (See Item 8 for
reference)
(2) Financial Statement Schedules normally
required on Form 10-K are omitted since
they are not applicable.
(3) Exhibit index is on page 65 of this Form
10-K and exhibits
are filed herewith.
(b) Reports on Form 8-K.
(c) The response to this portion of Item 14
is submitted as a
separate section of this report.
(d) Not applicable
</TABLE>
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PART I
Item 1. Business
General
Deposit Guaranty Corp. (the "Company") is a Mississippi
business corporation organized in 1968 as a bank holding company registered
under the Bank Holding Company Act of 1956, as amended and is headquartered in
Jackson, Mississippi. During 1997, the Company merged its four independently
chartered banking subsidiaries into Deposit Guaranty National Bank (the "Bank").
As part of the consolidation process, the Company acquired the 2% minority
interest in the Bank and now owns 100% of the Bank. Through the Bank, which
includes 170 banking offices, the Company serves customers primarily in
Mississippi, Louisiana, and Arkansas, offering complete banking, mortgage
banking, brokerage and trust services. The Company also provides mortgage
banking services in Texas, Nebraska, Iowa, Indiana, and Oklahoma through two of
its subsidiaries.
On January 3, 1997, the Company acquired Jefferson Guaranty Bancorp, a
one bank holding company, headquartered in Metairie, Louisiana, with
approximately $299 million in total assets. The Company paid a combination of
1,759,688 shares of the Company's common stock and $10 million in cash for all
of the outstanding common stock of Jefferson Guaranty Bancorp. The transaction
was accounted for as a purchase business combination.
On March 31, 1997, the Company acquired First Capital Bancorp, Inc., a
bank holding company headquartered in Monroe, Louisiana with approximately $186
million in total assets by exchanging 1,568,467 shares of the Company's common
stock for all of the outstanding shares of First Capital Bancorp. Inc. The
transaction was accounted for as a pooling of interests.
On July 1, 1997, the Company acquired NBC Financial Corporation, a bank
holding company located in Baton Rouge, Louisiana with approximately $69 million
in total assets. The transaction, which called for the exchange of 422,529
shares of the Company's common stock for all of the outstanding shares of NBC
Financial Corporation, was accounted for as a purchase business combination.
On August 1, 1997, the Company paid $18.9 million cash for the
outstanding common shares of CitiSave Financial Corporation of Baton Rouge,
Louisiana. CitiSave Financial Corporation is the 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.
On March 23, 1998, the Company acquired Victory Bancshares, Inc.
located in Memphis, Tennessee with approximately $115 million in total assets.
745,650 shares of the Company's common stock were exchanged for all of the
outstanding shares of Victory Bancshares. The acquisition of Victory Bancshares
was accounted for as a pooling of interests.
During the first quarter of 1997, the Board of Directors of the Company
approved the use of an accelerated share repurchase program with a third party
as a means of accomplishing previously approved and future share repurchases in
connection with specific purchase business combinations.
On December 8, 1997, the Company announced that it had reached an
agreement to be acquired by First American Corporation, a financial services
company headquartered in Nashville, Tennessee with $10.9 billion in assets. The
merger is expected to take place during the second quarter of 1998 in a tax free
exchange of common stock and is expected to be accounted for as a pooling of
interests. The agreement calls for the exchange of 1.17 shares of First American
Corp. stock for each share of the Company's common stock. Information regarding
First American Corp. can be found in its annual report on Form 10-K.
Supervision and Regulation
As a bank holding company, the Company's activities and those of its
banking and nonbanking subsidiaries are limited to the business of banking and
activities closely related or incidental to banking. The Company may not
directly or indirectly acquire the ownership or control of more than 5% of any
class of voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board.
The Bank is subject to supervision and examination by the Office of the
Comptroller of the Currency ("OCC"). The Bank is insured by, and therefore
subject to the regulations of, the Federal Deposit Insurance Corporation
("FDIC"), and is also subject to requirements and restrictions under federal
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon, and limitations on the types of investments that may be made
and the types of services that may be offered. Other federal and state laws and
regulations also affect the operations of the Company's subsidiaries.
The Bank is subject to restrictions under federal law applicable to
certain transactions between it and the Company and its nonbanking subsidiaries,
including loans, other extensions of credit, investments or asset purchases.
Such transactions between The Bank and the Company or any nonbanking subsidiary
are limited in amount to 10% of the Bank's capital and surplus. The total of
such transactions between the Bank and the Company and certain of its
affiliates, with certain exceptions, is limited to an aggregate of
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20% of Deposit Guaranty's capital and surplus. Furthermore, loans and extensions
of credit from the Bank to the Company or its nonbank affiliates are required to
be secured in specified amounts by specified types of collateral. At December
31, 1997, the Bank could lend the Company a maximum of approximately $42 million
in aggregate.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act ("FIRREA") on August 9, 1989, a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly controlled depository institution
in danger of default if the FDIC notifies the depository institution within two
years of incurring such loss. Under Federal Reserve policy, the Company is
expected to act as a source of financial strength to its subsidiary bank and to
commit resources to support the subsidiary.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provides criteria for categorizing the capital strength of FDIC
insured depository institutions. FDICIA substantially revises the depository
institution regulatory and funding provisions of the Federal Deposit Insurance
Act and makes revisions to several other federal banking statutes. The Bank has
been categorized as "well capitalized" under the guidelines of FDICIA.
The Bank is subject to FDIC deposit insurance assessments. The Bank
qualified for the lowest assessment allowed by FDICIA. Beginning in 1997, the
FDIC began assessing the banks only for the purpose of retiring debt of the
Financing Corporation (FICO). This assessment is charged at an annual rate of
$.013 of Bank Insurance Fund deposits.
During 1997, the Company and its subsidiaries were engaged in the
general banking business and activities closely related to banking or to
managing or controlling banks, as authorized by the laws of the United States
and regulations pursuant thereto. The Bank comprises more than 99% of the
related combined revenue, profits and assets of all industry segments of the
Company.
Competition
The Company is a leader in many of its markets located throughout
Mississippi, Louisiana and Arkansas. In Mississippi, Deposit Guaranty National
Bank is the second largest bank in terms of deposits. In Louisiana, the Bank
ranks sixth.
There are numerous other banks and financial institutions which compete
with the Company and its subsidiaries in making loans, accepting deposits,
providing credit, and performing other banking services. The Company also
competes with other providers of financial services, such as investment
companies, brokerage firms, finance companies and insurance companies, which are
involved in marketing various types of loans, investments and other services.
The Company's customer base falls into two broad categories or
segments, corporate and retail. Corporate customers are middle to large
businesses who use a range of products from loans to cash management services.
Competition for corporate customers is focused heavily on price. Retail
customers range from individuals to small businesses. Although price drives
competition among retail customers, convenience and service quality are also
important. Retail customers use a wide variety of products including auto and
other consumer loans, deposit accounts and brokerage services.
Personnel
On December 31, 1997, the Company and its subsidiaries had
approximately 3,268 full-time equivalent employees.
Executive Officers of the Registrant
The chart provided below contains certain information concerning the
executive officers of the Company and its principal subsidiaries.
<TABLE>
Position(s) And Office(s)
Held With the Company Assumed
Name Age And Subsidiaries Present Office(s)
---- --- --------------------------- ------------------
<S> <C> <C> <C>
E. B. Robinson, Jr. 56 Chairman of the Board and January 1, 1984
Chief Executive Officer
of the Company and the Bank
Howard L. McMillan, Jr. 59 President and Chief January 1, 1984
Operating Officer of the
Company and the Bank
Thomas M. Hontzas 53 Executive Vice President May 18, 1982
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of the Company and
the Bank
(Continued)
Position(s) And Office(s)
Held With the Company Assumed
Name Age And Subsidiaries Present Office(s)
---- --- --------------------------- -------------------
W. Parks Johnson 55 Executive Vice President February 16, 1994
of the Company and
the Bank
James S. Lenoir 55 Executive Vice President February 15, 1983
and Chief Credit Officer
of the Company and the Bank
Arlen L. McDonald 49 Executive Vice President March 16, 1976
and Chief Financial
Officer of the Company
and the Bank
W. Stanley Pratt 52 Executive Vice President September 30, 1996
of the Company and
the Bank
Steven C. Walker 48 Executive Vice President September 30,1996
of the Company and
the Bank
Stephen E. Barker 41 Controller and Principal February 16, 1993
Accounting Officer of the
Company and the Bank
J. Clifford Harrison 44 General Counsel and January 1, 1996
Secretary of the Company
and the Bank
</TABLE>
All executive officers have held executive or senior management
positions with the Company or its principal subsidiaries for more than five
years.
Item 2. Properties
The Company has its principal office in Deposit Guaranty Plaza
("Plaza"), 210 East Capitol Street, Jackson, Mississippi, a twenty-two story
office tower. The Company owns the Plaza in addition to the building
("Building") at 200 East Capitol Street, Jackson, Mississippi, adjacent to the
Plaza. The building, completed in its present form in 1958, was renovated during
1975. Both the Plaza and the Building are occupied by the Company, the Bank, and
various tenants.
The Company also owns the Deposit Guaranty Center, located in downtown
Shreveport, Louisiana, at 333 Texas Street. The complex is occupied by the Bank
and various tenants. Deposit Guaranty Center is comprised of a twenty-four story
office tower which was placed in service in 1986, a fifteen story office
building constructed in 1940, and an adjoining parking garage which was
completed in 1986.
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The Company owns 143 of its 170 full-service branch banking facilities.
The remaining branch banking facilities as well as its mortgage branch
facilities are occupied under leases expiring from 1998 through 2018. The
Company also holds fee title to 10 tracts of land held as locations for
additional banking facilities in the future.
The Company's management considers all of its buildings and leased
premises to be in good condition. None of the properties described above are
subject to any significant encumbrances.
Item 3. Legal Proceedings
The Bank, is a defendant in a case in which the plaintiffs are
beneficiaries of a trust for which the Bank 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 and it's subsidiary are 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.
Item 4. Submission of Matters to a Vote of Security Holders
There has been no submission of matters to a vote of shareholders
during the quarter ended December 31, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
This information is contained under the heading "Dividend and Market
Information" in Part II Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations of this Form 10-K, at page 32.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
TABLE 1 - SELECTED FINANCIAL DATA
(In Thousands Except Share Data)
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Statements of earnings
<S> <C> <C> <C> <C> <C>
Interest income $ 485,465 $ 432,222 $ 402,704 $ 307,272 $ 299,327
Interest expense 200,869 182,688 173,432 125,881 124,687
--------- ------- ------- ------- -------
Net interest income 284,596 249,534 229,272 181,391 174,640
Provision for loan losses 7,500 5,340 2,160 ( 4,750) (16,000)
----- ----- ----- -------- -------
Net interest income after provision for
loan losses 277,096 244,194 227,112 186,141 190,640
Other operating income 133,603 117,245 91,989 93,499 74,781
Other operating expenses 271,047 237,208 211,452 180,047 171,567
------- ------- ------- ------- -------
Income before income taxes 139,652 124,231 107,649 99,593 93,854
Income tax expense 47,372 40,621 35,029 32,463 27,302
------ ------ ------ ------ ------
Net income $ 92,280 $ 83,610 $ 72,620 $ 67,130 $ 66,552
========= ========= ========= =========== =========
Net income per share
Basic $ 2.25 $ 2.16 $ 1.89 $ 1.90 $ 1.89
Diluted 2.23 2.14 1.87 1.89 1.87
Cash basis earnings per share* 2.49 2.31 2.01 1.96 1.93
Cash dividends per share .83 .72 .61 .53 .47
Weighted average shares outstanding
Basic 41,082,356 38,760,192 38,431,162 35,336,124 35,299,704
Diluted 41,413,294 39,006,669 38,780,032 35,593,028 35,565,656
Statement of condition - averages
Total assets $ 6,719,145 $ 6,026,548 $ 5,571,697 $ 4,940,977 $ 4,826,726
Earning assets 5,961,991 5,395,343 4,961,261 4,413,938 4,333,740
Securities available for sale 1,456,126 1,293,830 186,194 712,184 1,308,634
Investment securities 165,679 130,255 1,365,070 718,891 396,011
Loans 4,291,612 3,774,490 3,273,408 2,581,724 2,293,416
Deposits 5,305,687 4,750,894 4,438,797 3,997,038 3,867,669
Long-term liabilities 128,036 67,888 - - -
Total stockholders' equity 611,252 551,754 498,023 429,967 367,592
Selected ratios
Return on average assets 1.37% 1.39% 1.30% 1.36% 1.38%
Return on average equity 15.10 15.15 14.58 15.61 18.10
Net interest margin-tax equivalent 4.90 4.77 4.75 4.24 4.18
Efficiency ratio * 60.92 61.50 62.83 63.10 66.35
Loans to deposits 80.89 79.45 73.75 64.59 59.30
Allowance for loan losses to loans 1.46 1.56 1.64 1.95 2.56
Net charge-offs (recoveries) to average loans .29 .10 .12 .10 (.14)
Dividend payout 36.89 33.10 32.01 27.89 24.67
Average equity to average assets 9.10 9.15 8.94 8.70 7.62
Leverage ratio 7.47 8.23 7.87 8.43 8.13
Tier 1 risk-based 9.87 11.42 11.05 12.49 13.28
Total risk-based 11.12 12.67 12.30 13.75 14.54
</TABLE>
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All share data reflects a 2 for 1 stock split declared in 1996.
The dividend payout ratio is calculated using historical Deposit Guaranty Corp.
dividends per share.
* - Excludes the effects of acquisition related intangible amortization.
Forward Looking Information - Congress passed the Private Securities Litigation
Reform Act of 1995 in an effort to encourage corporations to provide
information about a company's anticipated future financial performance.
This act provides a safe harbor for such disclosure which protects companies
from unwarranted litigation if actual results are different
from management expectations. This report contains forward-looking statements
and reflects management's current views and estimates of future economic
circumstances, industry conditions, company performance and financial results.
These forward-looking statements are subject to a number of factors and
uncertainties which could cause the Company's actual results and experience to
differ from the anticipated results and expectations expressed in such
forward-looking statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL REVIEW
The following discussion reviews the results of operations and assesses the
financial condition of the Company. This discussion should be read in
conjunction with the consolidated financial statements included in this Annual
Report.
1997 was a year of considerable change for the Company. During
the year, the Company combined its four separately chartered banking
subsidiaries into one strong, regional franchise. The combining of the four
subsidiary banks represents a significant achievement. During the transition,
the Company's financial results remained strong and showed improvement over
1996. Net income of $92.3 million for 1997 represents a 10% improvement from
1996. On a per share basis, the increase was only 4% or $.09 due to the dilutive
effect of an increase in the weighted average number of shares outstanding as a
result of an acquisition and the timing of share repurchases relating to
those acquisitions accounted for under the purchase method of accounting.
During 1997, the Company began using cash basis earnings per share as a
measure of financial performance. The Company's management believes that
cash basis earnings per share, which excludes the after-tax effect of
purchase accounting related intangible amortization, provides an additional
measure of the Company's operating results. In 1997, cash basis
earnings per share increased 8% to $2.49 compared to $2.31 for 1996. The volume
of earning assets continued to rise throughout 1997 primarily as a result of
acquisitions. Deposit volumes, excluding the effect of acquisitions, showed
little growth during the year due to intense competition from other
financial services providers. The net interest margin, however, remained strong
and, at 4.90% for the year, was well above the 4.77% reported for 1996. The
combined effect of the 11% increase in average earning assets and the 13 basis
point improvement in the net interest margin kept the balance of net interest
income at a healthy level.
At the end of 1997, total assets were $6.9
billion which represents an increase of 9%, or $557 million, from December 31,
1996. Average total assets for 1997 increased 11%, or $693 million, from 1996.
The regulatory capital ratios show some decline from 1996 yet remain high enough
to categorize the Company as well capitalized according to regulatory
guidelines. During 1997, the Company more fully employed its capital through a
series of mergers that placed the Company in desirable new markets and enhanced
its presence in existing markets. As a result of the merger activity, the
leverage ratio declined to 7.47% at December 31, 1997, compared to 8.23% for
1996. The tier 1 capital and total risk-based capital ratios at December 31,
1997 were 9.87% and 11.12%, respectively, compared to 11.42% and 12.67%,
respectively, for 1996. The capital ratios of the Bank categorize it as "well
capitalized" according to the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA). Much of the growth during the past three years resulted
from targeted acquisitions in new markets and acquisitions designed to enhance
the Company's presence in existing markets. The following table briefly outlines
each of the mergers completed during the past three years.
<TABLE>
Financial Total Assets Merger Accounting
Institution State (Millions) Date Treatment
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LBO Bancorp, Inc. LA $ 96 Jan. 1995 Purchase
Citizens National Bancshares LA 193 May 1995 Pooling
First Merchants Financial Corp. AR 280 Aug. 1995 Purchase
Bank of Gonzales Holding Company LA 126 Jun. 1996 Purchase
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Tuscaloosa Bancshares, Inc. LA 41 Nov. 1996 Purchase
Jefferson Guaranty Bancorp, Inc. LA 299 Jan. 1997 Purchase
First Capital Bancorp, Inc. LA 186 Mar. 1997 Pooling
NBC Financial Corporation LA 69 Jul. 1997 Purchase
CitiSave Financial Corporation LA 75 Aug. 1997 Purchase
Victory Bancshares, Inc. TN 115 Mar. 1998 Pooling
</TABLE>
In addition to the above mergers, the Company purchased the Coahoma County,
Mississippi operations of a local Mississippi bank in March, 1995, adding $82
million in assets.
On August 8, 1995, the Company purchased First Mortgage Corp., a mortgage
banking operation headquartered in Omaha, Nebraska. This acquisition was
accounted for as a purchase business combination. First Mortgage Corp. had a
$1.1 billion mortgage servicing portfolio and 6 production offices in Nebraska
and Oklahoma.
On June 29, 1996, the Company purchased McAfee Mortgage and Investment
Company, a mortgage banking operation headquartered 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.
TABLE 2 - SUMMARY OF QUARTERLY RESULTS
(In Thousands Except Per Share Data)
The summary of quarterly results of operations is presented in the following
table.
<TABLE>
Quarter Ended
Dec. 31 Sep. 30 Jun. 30 Mar. 31
------- ------- ------- -------
1997
<S> <C> <C> <C> <C>
Interest income $ 122,557 $ 122,459 $ 119,476 $ 120,973
Net interest income 71,421 71,448 70,281 71,446
Provision for loan losses 1,875 1,875 1,875 1,875
Gains on securities transactions 622 838 540 86
Income before income taxes 37,010 35,421 33,315 33,906
Net income 24,475 23,263 21,929 22,613
Net income per share
Basic .60 .57 .54 .54
Diluted .59 .57 .53 .53
Cash basis earnings per share* .66 .64 .60 .59
1996
Interest income $ 111,877 $ 110,751 $ 104,723 $ 104,871
Net interest income 65,637 64,745 59,988 59,164
Provision for loan losses 1,335 1,335 1,335 1,335
Gains (losses) on securities transactions 38 7 487 (414)
Income before income taxes 29,134 33,492 30,515 31,090
Net income 19,485 22,200 20,436 21,489
Net income per share
Basic .50 .57 .53 .56
Diluted .50 .57 .53 .55
Cash basis earnings per share* .54 .61 .57 .59
<FN>
* - Basic net income per share excluding the effects of amortization of
acquisition related intangibles.
</FN>
</TABLE>
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Identification of the changes in the significant components of earnings
from quarter-to-quarter aids in understanding the results of operations.
Earnings grew steadily throughout the last half of 1997 with no significant
unusual activity affecting any quarter. Expenses remained flat with the
exception of the effects of acquisitions. Revenues experienced moderate growth,
which, combined with the flat expenses yielded a favorable growing trend in net
earnings.
During 1996, loan growth, increasing yields and a lengthening of the
securities portfolio combined with an increase in interest-earning assets due to
acquisitions contributed to the increase in net interest income in the third and
fourth quarters. In the first quarter, a $1.8 million after-tax gain was
realized from the disposition of assets related to expired lease financing
transactions. In the fourth quarter, the Company recorded an after-tax charge of
$2.4 million for the estimated cost of the planned consolidation of its
subsidiary banks under one charter and the consolidation of certain back office
functions.
TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
(Dollars in Thousands)
The following table shows the major categories of interest-earning assets and
interest-bearing liabilities with their corresponding average balances, related
interest income or expense and the resulting yield or rate for 1997, 1996 and
1995.
<TABLE>
1997 1996 1995
---- ---- ----
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Assets Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------ ------- ------- ---- ------- ------- --- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
income $ 4,291,612 $ 374,235 8.72%$ 3,774,490 329,426 8.73%$ 3,273,408 $ 289,659 8.85%
Investment securities:
Taxable 165,449 13,531 8.18 130,250 10,467 8.04 1,256,785 87,896 6.99
Exempt from Federal
income tax 230 9 10.53 5 2 10.75 108,285 11,664 10.77
Securities available for sale:
Taxable 1,290,055 87,186 6.76 1,115,168 72,576 6.51 169,316 10,095 5.96
Exempt from Federal
income tax 166,071 15,204 9.16 178,662 16,602 9.29 16,878 1,415 8.38
Trading account securities 4,508 266 5.90 6,394 511 7.99 5,758 445 7.73
Federal funds sold and
securities purchased
under agreements to resell 40,330 2,264 5.61 184,757 9,989 5.41 107,529 6,317 5.87
Interest-bearing bank balances 3,736 193 5.17 5,617 325 5.79 23,302 1,153 4.95
-----------------------------------------------------------------------------------------------
Total interest-earning assets 5,961,991 492,888 8.27 5,395,343 439,898 8.15 4,961,261 408,644 8.24
Noninterest-earning assets:
Cash and due from banks 350,234 302,696 327,200
Bank premises and equipment 168,135 147,076 142,750
Other assets 309,119 235,543 194,437
Allowance for loan losses (68,463) (60,001) (59,126)
Unrealized gain (loss) on
securities available for sale (1,871) 5,891 5,175
-----------------------------------------------------------------------------------------------
Total assets $ 6,719,145 $ 6,026,548 $ 5,571,697
===============================================================================================
</TABLE>
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For purposes of these computations, nonaccruing loans are included in the daily
average loan amounts outstanding. Interest income and average yield on
tax-exempt assets have been calculated on a fully tax equivalent basis using a
tax rate of 35% for all years.
NET INTEREST INCOME
Net interest income is the largest component of net income and
represents the income earned on interest-earning assets less the cost of
interest-bearing liabilities. This major source of income represents the
earnings from the primary business of gathering funds from deposit and other
sources and investing those funds in loans and securities. The long-term
objective is to manage those assets and liabilities to maximize income, while
balancing interest-rate, credit, liquidity and capital risks.
Net interest income is presented in this discussion on a tax-equivalent
basis, so that the income from assets exempt from federal income taxes is
adjusted based on a statutory marginal federal income tax rate of 35%. The tax
equivalent net interest margin (margin) provides an indication of the efficiency
of the earnings from balance-sheet activities and is calculated by dividing
tax-equivalent net interest income by the average balance of interest-earning
assets. The margin is affected by changes in the spread between interest-earning
asset yields and interest-bearing liability rates (interest spread) and by the
percentage of interest-earning assets funded by interest-bearing liabilities
(liability funding).
Tax equivalent net interest income increased by $35 million, or 14%,
primarily due to an 11% increase in the level of average interest-earning
assets. The increase in average interest-earning assets was funded by a 12%
increase in average deposit balances. Much of the increase in earning assets and
deposits was the result of acquisitions completed during the year. Although loan
demand receded from the double-digit growth of the past, it outpaced deposit
growth leading to improvement in the earning
TABLE 3 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES (continued)
(Dollars in Thousands)
<TABLE>
1997 1996 1995
---- ---- ----
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Liabilities Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ----------- ------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing liabilities:
Savings and interest-bearing
transaction deposits $ 1,986,828 $ 50,440 2.54% $ 1,843,150 $ 47,809 2.59% $ 1,710,218 $ 47,807 2.80%
Time deposits 2,139,217 113,339 5.30 1,915,637 103,566 5.41 1,773,437 95,833 5.40
Federal funds purchased,
securities sold under
agreements to repurchase and
other short-term borrowings 562,620 28,780 5.12 545,735 27,222 4.99 555,193 29,792 5.37
Long-term liabilities 128,036 8,310 6.49 67,888 4,091 6.03 - - -
------- ----- ---- ------ ----- ---- --------- ------- ----
Total interest-bearing liabilities 4,816,701 200,869 4.17 4,372,410 182,688 4.18 4,038,848 173,432 4.29
Noninterest-bearing liabilities:
Deposits 1,179,642 992,107 955,142
Other liabilities 111,550 110,277 79,684
------- ------- ------
Total liabilities 6,107,893 5,474,794 5,073,674
Stockholders' equity 611,252 551,754 498,023
------- ------- -------
Total liabilities and
12
<PAGE>
stockholders' equity $ 6,719,145 $ 6,026,548 $ 5,571,697
=========== =========== ===========
Net interest income/margin -
tax equivalent 292,019 4.90% 257,210 4.77% 235,212 4.75%
------- ----- ------- ----- ------- -----
Tax equivalent
adjustment:
Loans 2,219 2,361 1,917
Investment securities 3 1 3,484
Securities available for sale 5,156 5,219 448
Other 45 95 91
-- -- --
Total tax equivalent
adjustment 7,423 7,676 5,940
----- ----- -----
Net interest income $ 284,596 $ 249,534 $ 229,272
========= ========= =========
</TABLE>
asset mix with average loan volumes representing 72% of the balance of total
earning assets compared to 70% for 1996. Average loan yields at 8.72% for 1997
remain substantially unchanged from 1996.
The performance of the Company's securities portfolio improved considerably
from 1996. As with the loan portfolio, the securities portfolio also increased
in proportion to total earning assets. During 1996, the securities portfolio
comprised 26% of earning assets, increasing to 27% during 1997. The average
tax-equivalent yield on the securities portfolio increased 15 basis points to
7.15% for 1997 compared to 7.00% for 1996.
Both the loan and securities portfolios benefited from a tightening of the
Company's liquidity position. During 1997, the average balance of lower yielding
federal funds sold and securities purchased under agreements to resell was less
than 1% of total earning assets compared to over 3% for 1996. The slow down in
loan demand allowed the Company to tighten its liquidity position while still
maintaining sufficient liquidity to meet loan demand and the needs of
depositors. The combined effect of the improved earning asset mix and a higher
average yield on the securities portfolio led to a 12 basis point improvement in
the average yield on the Company's earning assets.
The funding side of the balance sheet also contributed to the increase in
net interest income, although to a lesser extent. The average rate on
interest-bearing deposits declined 6 basis points from 1996. Although rates on
savings and interest-bearing transaction accounts show a slight decline, the 11
basis point decline in time deposit rates had the most profound effect on
reducing the overall cost of funds. Partially offsetting the effect of favorable
deposit rates is the use of higher-rate borrowed funds to finance the repurchase
of shares of the Company's common stock issued in acquisitions accounted for as
purchase business combinations. The combined effect of lower interest-bearing
deposit rates and the offsetting effect of a growing dependence on borrowed
funds resulted in only a slight decline in the average rate paid on
interest-bearing liabilities.
TABLE 4 - TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
(In Thousands)
The following table sets forth, for the periods indicated, a summary of the
changes in interest income and expense resulting from changes in volume and
changes in rates.
13
<PAGE>
<TABLE>
1997 Compared To 1996 1996 Compared To 1995
Increase (Decrease) Due To Increase (Decrease) Due To
-------------------------------------------------------------------------
Volume Rate Net Volume Rate Net
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans $ 45,144 $ (335) $ 44,809 $ 44,340 $ (4,573) $ 39,767
Investment securities:
Taxable 2,830 234 3,064 (78,787) 1,358 (77,429)
Exempt from Federal income tax 90 (83) 7 (11,663) 1 (11,662)
Securities available for sale:
Taxable 11,385 3,225 14,610 56,394 6,087 62,481
Exempt from Federal income tax (1,170) (228) (1,398) 13,546 1,641 15,187
Trading account securities (151) (94) (245) 50 16 66
Federal funds sold and securities purchased
under agreements to resell (7,814) 89 (7,725) 4,537 (865) 3,672
Interest-bearing bank balances (109) (23) (132) (875) 47 (828)
----- ---- ----- ----- -- -----
Total 50,205 2,785 52,990 27,542 3,712 31,254
------ ----- ------ ------ ----- ------
Interest expense on:
Savings and interest-bearing transaction deposits 3,721 (1,090) 2,631 3,716 (3,714) 2
Time deposits 12,096 (2,323) 9,773 7,684 49 7,733
Federal funds purchased, securities sold
under agreements to repurchase, and other
short-term borrowings 843 715 1,558 (508) (2,062) (2,570)
Long-term liabilities 3,627 592 4,219 4,091 - 4,091
----- --- ----- ----- ------- -----
Total 20,287 (2,106) 18,181 14,983 (5,727) 9,256
------ ------- ------ ------ ------- -----
Changes in net interest income - tax equivalent $ 29,918 $ 4,891 $ 34,809 $ 12,559 $ 9,439 $ 21,998
========= ======== ========= ======== ======== ========
</TABLE>
The increase (decrease) due to changes in average balances reflected in the
above table was calculated by applying the preceding year's rate to the current
year's change in the average balance. The increase (decrease) due to changes in
average rates was calculated by applying the preceeding year's change in
the average rates to the current year's average balance. Using this
method of calculating increases (decreases), any increase or decrease due to
both changes in average balances and rates is reflected in the changes
attributable to average rate changes.
Improvement in the mix of interest-bearing liabilities versus noninterest
bearing liabilities had some positive effect on net interest income. In 1996,
73% of the Company's total assets were funded by interest-bearing liabilities.
In 1997, that percentage declined to 72% due to a 19% increase in the balance of
noninterest-bearing deposits.
The effects of balance sheet activities described above resulted in an
increase in net interest income and improvement in other performance indicators
as well. The net interest margin, at 4.90% for 1997, shows substantial
improvement from the 4.77% reported for 1996 as does the net interest spread of
4.10% for 1997 compared to 3.97% for 1996.
The increase in net interest income in 1996 over 1995 occurred mostly as
a result of an increase in business volumes on both sides of the balance sheet.
Although earning asset yields declined sharply from 1995 to 1996, a decrease in
rates on interest-bearing liabilities completely offset the effect. Improvement
in the earning asset mix led to a 2 basis point improvement in both the net
interest margin and the net interest spread.
Interest Rate Sensitivity
Net interest income is managed through the Asset/Liability Management
(ALM) process. A board committee establishes ALM policy guidelines that limit
the potential variation in net interest income and the economic value of equity
due to market interest rate swings. The Asset/Liability Committee, comprised of
members of executive management, sets the day-to-day operating guidelines,
approves strategies affecting net interest income and coordinates activities
within board policy limits.
14
<PAGE>
TABLE 5 - INTEREST SENSITIVITY
(In Thousands)
The following table reflects the interest sensitivity of the Company over
various periods as of December 31, 1997, based on contractual maturities as of
that date.
<TABLE>
0-3 4-12 1-5 Over 5
Months Months Years Years Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans, net of unearned income $ 1,403,089 $ 707,232 $ 1,771,620 $ 549,742 $ 4,431,683
Investment securities 12,642 1,826 20,773 139,710 174,952
Securities available for sale 168,632 126,215 388,360 741,320 1,424,527
Trading account securities 1,459 - - - 1,459
Federal funds sold and securities
purchased under agreements to resell 59,590 - - - 59,590
Interest-bearing bank balances 11,218 - - - 11,218
------ ----------- --------- ----------- ----------
Total interest-earning assets 1,656,630 835,273 2,180,753 1,430,773 6,103,429
Noninterest-earning assets - - - 836,298 836,298
----------- ------------ ----------- ----------- -----------
Total assets $ 1,656,630 $ 835,273 $ 2,180,753 $ 2,267,071 $ 6,939,727
=========== ============ =========== =========== ===========
Liabilities and stockholders' equity
Interest-bearing liabilities:
Savings deposits $ 1,943,575 $ - $ - $ - $ 1,943,575
Time deposits 589,521 915,526 641,570 13,426 2,160,043
Short-term borrowings 642,812 - - - 642,812
---------- ------------ ------------ ----------- -----------
Total interest-bearing liabilities 3,175,908 915,526 641,570 13,426 4,746,430
Noninterest-bearing deposits - - - 1,270,344 1,270,344
Other liabilities - - - 101,318 101,318
Long-term debt - - - 186,397 186,397
Stockholders' equity - - - 635,238 635,238
----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $ 3,175,908 $ 915,526 $ 641,570 $ 2,206,723 $ 6,939,727
=========== =========== =========== =========== ===========
Interest rate contracts $ 405,857 $ (51,149) $ (259,774) $ (94,934)
Interest sensitive gap (1,113,421) (131,402) 1,279,409 (34,586)
Cumulative interest sensitive gap (1,113,421) (1,244,823) 34,586 -
Cumulative interest sensitive gap
as a percent of total assets (16.04)% (17.94)% .50% -
----------- -------- -------- ------------ ----------
</TABLE>
Simulation of the effects of interest rate changes on net interest
income is a broader measure of interest rate risk than the static interest
sensitive gap position and is therefore the primary tool used by the Company. A
computer model is used to simulate the effect of complex interactions of
customer choices, product promotions, and potential market interest rate
scenarios. Derivative financial instruments and other financial instruments used
for purposes other than trading are included in this exercise. The Company
believes the market risk in its trading portfolio is immaterial.
15
<PAGE>
Under a policy established by the Company's Board of Directors, the
Company limits the amount of interest rate risk the Company can take by
establishing variation limits to net interest income and economic value of
equity based on simulations with specific assumptions. The Company supplements
these with a number of other simulations which measure key sensitivities to
several specific rate scenarios as well as potential competitive issues related
to loan and deposit volume levels and pricing.
Board policy limits the negative variation of net interest income and
economic value of equity to 10% and 20% respectively. To provide a consistent
comparative analysis, specific guidelines for each method are followed. A
baseline forecast of net interest income and economic value of equity is
established assuming a stable interest rate environment. For net interest income
variation, simulations are run trending interest rates up and down 200 basis
points over the next twelve months from the baseline forecast. At December 31,
1997, this analysis indicated a negative variation of approximately 2.2% with a
10% policy limitation for an increase in rates. The variation for a decline in
rates was estimated to be 0.5%.
For variation in economic value of equity, simulations are run assuming
interest rates move up and down immediately by 200 basis points, remain at those
levels, and no management action occurs. This rate shock, while unlikely in
management's opinion, provides insight into some components of interest rate
risk for the Company. At December 31, 1997, this measure indicated approximately
10.3% negative variation in the economic value of equity with a 200 basis point
increase in external market interest rates compared to a policy limit of 20%.
The variation for a decline in rates was estimated to be 6.9%.
Given the various methods used to measure and manage interest rate
risk, the Company believes its interest rate risk profile is in appropriate
balance with its profit objectives.
TABLE 6 - RISK MANAGEMENT DERIVATIVE POSITION
(Dollars In Thousands)
The following table identifies the year end open positions for the Company's
risk management interest rate contracts at December 31, 1997.
<TABLE>
Pay Rate Receive Rate
-------------------------------------------
Fair Underlying
Maturity Notional Value Rate Index Rate Index Asset/Liability
- -------- -------- ----- ---- ----- ---- ----- ---------------
<S> <C> <C> <C> <C>
Interest rate swaps Pay fixed:
2007 $ 21,225 $ (545) 6.65% Fixed 6.00% Libor Mortgage Loans
2004 85,000 (1,439) 6.33 Fixed 5.88 Libor FHLB Advances
Pay/receive floating:
2002 50,000 (693) 5.75 Libor 5.77 5Y CMT AFS Agency Bond
Interest rate floors
1998 50,000 - 5.00 - - - Commercial loans
2000 65,000 563 6.00 - - - Commercial loans
2001 185,000 1,041 5.25 - - - Commercial loans
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DERIVATIVE ACTIVITIES
Risk Management Derivatives
Derivative instruments were used in 1997 and 1996 primarily as a means
of protecting market value and income. The specific types of derivatives used
were interest rate swaps, forward contracts, interest rate caps and floors and
other option contracts.
Interest rate swaps were the primary instruments used to manage
interest rate risk. These are contractual agreements between counterparties to
exchange interest streams based on notional principal amounts over a set period
of time. The notional amount does not represent an amount at risk, but is used
as a basis for determining the actual cash flows related to the interest rate
contracts. At
16
<PAGE>
December 31, 1997, the notional value of interest rate swap contracts totaled
$156.2 million compared to $122.6 million at December 31, 1996. This amount is
composed of agreements where the Company pays fixed rates on notional amounts
totaling $106.2 million with an average rate of 6.39%. The Company has two basis
swaps with a total notional value $50 million where the Company receives one
floating amount and pays another floating amount. At December 31, 1997, there
would be no cost to replace these contracts if the counterparty defaults. All
interest rate swap counterparties are at least AA-rated by Standard and Poors or
have collateral arrangements with the Company. A stress test is used to
determine the effect of market movements on the value of the interest rate
swaps. The stress test estimates the value of the instrument assuming a parallel
300 basis point shift in rates.
Interest rate caps were purchased during 1994 to limit the future
funding rates on floating rate deposit accounts resulting from forecasted rising
interest rates. These interest rate caps were based on the three month LIBOR
rate and assigned to certificates of deposits with maturities of three months or
less. As of December 31, 1997, the Company had no outstanding interest rate cap
contracts compared to $100 million notional value at December 31, 1996.
Interest rate floors were purchased during 1995 and 1996 to limit any
loss resulting from falling interest rates. These interest rate floors were
based on the three month LIBOR rate and assigned to floating rate commercial
loans. The Company had outstanding interest rate floor contracts with a total
notional value of $300 million at December 31, 1997 and 1996. The interest rate
floors have one to four year maturities and a fair value of $1.6 million at
December 31, 1997.
TABLE 7 - RISK MANAGEMENT DERIVATIVE POSITION
(In Thousands)
<TABLE>
<CAPTION>
The following table shows the interest rate swap activity (notional amounts) for
1997.
1997
Interest
December 31, December 31, Income
Maturity 1996 Purchased Matured 1997 (Expense)
- -------- ---- --------- ------- ---- ---------
<S> <C> <C> <C> <C> <C>
Pay fixed
2004 $ - 85,000 - 85,000 (162)
2007 22,622 - 1,397 21,225 (204)
------ - ----- ------ -----
Total 22,622 85,000 1,397 106,225 (366)
------ ------ ----- ------- -----
Receive fixed
2006 100,000 - 100,000 - 616
Pay/Receive floating
2002 - 50,000 - 50,000 (14)
Total swaps $ 122,622 135,000 101,397 156,225 236
============ ======= ======= ======= ===
</TABLE>
Forward commitments are contracts for the delayed delivery of
securities, foreign currencies or money market instruments in which the seller
agrees to make delivery of a specified instrument at a specified future date and
a specified price or yield. Credit risk may arise from the possibility that
counterparties may not have the ability to fulfill their commitments. Market
risk arises from the movements in interest rates and security values. The
majority of the forward commitments represent agreements to sell mortgage loans.
As of December 31, 1997, the contract amounts for forward commitments totaled
$139 million compared to $131 million at December 31,1996.
Derivative Controls
17
<PAGE>
Various controls are utilized to manage the risks associated with
derivative instruments. These controls include specific internal policies,
tracking systems, and legal contracts in conjunction with management oversight,
internal and external audits, and regulatory compliance examinations. These
reviews are performed on a continuous basis.
Management and board oversight is achieved through strict internal
policy and operating guidelines which include specific approvals for each
transaction. Specific operating limits have been established for common
derivative transactions. Additionally, certain transactions require approval
from the executive committee. An on-site compliance officer reports directly to
the Board of Directors.
An automated derivatives management system is used to generate
position, pricing, and risk management reports. This system generates reports
used to maintain accurate and timely information on all derivative positions.
Derivatives credit risk is minimal. Each counterparty is either
AA-rated or higher by Standard and Poors or has executed a bilateral collateral
agreement with the Company. Collateral agreements are designed to protect
against possible default by the counterparties. Active counterparties are
required to post collateral on any net positive market value above $100 thousand
on an ongoing basis. As of December 31, 1997, counterparty collateral with a
fair value of $590 thousand was being held.
TABLE 8 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
(In Thousands)
<TABLE>
<CAPTION>
The carrying amounts of securities available for sale and investment securities
are presented as of the dates indicated.
December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Securities available for sale
U.S. Treasury and other U.S. Government agencies $ 554,999 $ 711,515 $ 868,626
Obligations of states and political subdivisions 182,708 180,833 144,487
Mortgage-backed securities 686,820 568,261 183,777
Other securities - 1,429 2,501
--------- ----- -----
Total securities available for sale 1,424,527 1,462,038 1,199,391
--------- --------- ---------
Investment securities
U.S. Treasury and other U.S. Government agencies 9,369 9,379 9,369
Obligations of states and political subdivisions 55 105 -
18
<PAGE>
Mortgage-backed securities 18,375 60,581 80,481
Other securities 147,153 75,022 49,183
------- ------ ------
Total investment securities 174,952 145,087 139,033
------- ------- -------
Total securities available for sale $ 1,599,479 $ 1,607,125 $ 1,338,424
and investment securities
=============================================
</TABLE>
Securities Available for Sale and Investment Securities
The securities portfolio is the second largest component of
interest-earning assets at $1.6 billion at December 31, 1997 and 1996 compared
to $1.3 billion at December 31, 1995. The securities portfolio includes
securities classified as available for sale and for investment purposes. These
two segments of the securities portfolio are managed to optimize their long-term
total return.
Securities available for sale are subject to sale prior to their
contractual maturities allowing the Company the ability to respond to changes in
the interest rate environment. This portfolio can also be a secondary liquidity
source and provide a balance to interest rate and credit risks in other
categories of the balance sheet. Securities available for sale are accounted for
at fair value with unrealized gains or losses excluded from earnings and
reported as a separate component of stockholders' equity, net of deferred income
taxes. The investment securities portfolio consists of debt securities which the
Company has the positive intent and ability to hold to maturity and is carried
at amortized cost.
Securities available for sale decreased $38 million to $1.4 billion at
December 31, 1997, compared to December 31, 1996. Investment securities at
December 31, 1997 were $175 million, an increase of $30 million compared to
year-end 1996. Securities, excluding mortgage-backed securities, maturing within
five years or less at December 31, 1997, represented 21% of total securities
compared to 35% at December 31, 1996 and 61% at December 31, 1995.
Mortgage-backed securities at December 31, 1997 increased to 44% of total
securities compared to 39% at December 31, 1996 and 20% at year-end
1995. Securities exempt from Federal income taxes represented 11% of year-end
total securities in 1997, 1996 and 1995.
Average securities increased $198 million, or 14%, in 1997 from 1996's
average balance compared to a decrease of $127 million in 1996 from 1995's
average balance. As a percent of average interest-earning assets, average
securities increased slightly to 27% compared to 26% in 1996 and 31% in 1995.
This decrease in the relative level of securities from 1995 to 1996 was a result
of loan demand.
Loans
The loan portfolio is the largest component of earning assets and is
also the highest yielding. Quality loan growth has been a key driver in the
Company's overall financial performance over the past three years. The trend of
growth continued throughout 1997, however, the rate of growth has been in a
steady decline since 1995. Loans totaled $4.4 billion at December 31, 1997, an
increase of 11%, or $452 million, from the balance at December 31, 1996. During
1996, the portfolio grew approximately 11% from the balances reported for 1995.
Acquisitions of other financial institutions accounted for approximately 80% of
the 1997 loan growth while only approximately 23% of the 1996 loan growth was
the result of acquisitions. Internal loan growth rates for 1997, 1996 and 1995
were 2%, 8% and 12%, respectively.
The portfolio mix at December 31, 1997 consists of 50% real estate
loans, 28% commercial, financial and agricultural loans and 22% consumer loans,
which is substantially unchanged from the portfolio mix at December 31, 1996.
Diversification of the loan portfolio is a means of reducing the risks
associated with fluctuations in economic conditions. At December 31, 1997, there
were no concentrations of 10% or more of total loans in any single industry. The
geographical concentrations of the loan portfolio are 71% located in
Mississippi, 25% in Louisiana, and 4% in Arkansas.
TABLE 9 - MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES
(Dollars in Thousands)
The following table shows the maturities and weighted average yields of the
Company's securities available for sale and investment securities at December
31, 1997.
19
<PAGE>
<TABLE>
Maturing
After After
One Year Five Years Mortgage-
Within But Within But Within After Backed Carrying
BALANCES: One Year Five Years Ten Years Ten Years Securities Amount
- --------- -------- ---------- --------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury and other U.S. Government agencies $ 15,340 $ 250,711 $ 220,462 $ 68,486 $ - $ 554,999
Obligations of states and political subdivisions 8,932 36,632 54,252 82,892 - 182,708
Mortgage-backed securities - - - - 686,820 686,820
--------- --------- --------- --------- ----------- ------------
Total securities available for sale 24,272 287,343 274,714 151,378 686,820 1,424,527
------ ------- ------- ------- ------- ---------
Investment securities
U.S. Treasury and other U.S. Government agencies 369 9,000 - - - 9,369
Obligations of states and political subdivisions 55 - - - - 55
Mortgage-backed securities - - - - 18,375 18,375
Other securities 5,842 11,962 116,450 12,899 - 147,153
----- ------ ------- ------ -------- -------
Total investment securities 6,266 20,962 116,450 12,899 18,375 174,952
----- ------ ------- ------ -------- -------
Total securities available for
sale and investment securities $ 30,538 $ 308,305 $ 391,164 $ 164,277 $ 705,195 $ 1,599,479
========= ========= ========= ========= ========= ===========
WEIGHTED AVERAGE YIELD:
Securities available for sale
U.S. Treasury and other U.S. Government agencies 6.66% 6.77% 6.88% 7.64% -%
Obligations of states and political subdivisions 10.19 8.83 7.74 8.78 -
Mortgage-backed securities - - - - 6.99
---------------------------------------------------------
Total securities available for sale 7.96 7.03 7.05 8.26 6.99
---- ---- ---- ---- ----
Investment securities
U.S. Treasury and other U.S. Government agencies 5.35 5.65 - - -
Obligations of states and political subdivisions 8.46 - - - -
Mortgage-backed securities - - - - 10.01
Other securities 6.62 5.69 7.66 6.00 -
---- ---- ---- ---- -----
Total investment securities 6.56 5.67 7.66 6.00 10.01
---- ---- ---- ---- -----
Total securities available for
sale and investment securities 7.67% 6.94% 7.23% 8.09% 7.07%
===== ===== ===== ===== =====
</TABLE>
Loans secured by real estate are the largest category of loans at $2.2
billion at December 31, 1997. The largest subsection of the real estate portion
of the loan portfolio is loans secured by one-to-four family residential
properties. Loans to businesses for intermediate and longer term financing of
land and buildings represent the second largest component within the real estate
portfolio. The mix of the real estate portfolio is substantially unchanged from
that reported in prior years.
One-to-four family residential property loans are underwritten to take into
consideration family incomes available to service debt, credit histories and the
value of the properties being financed. While this group is considered low risk,
it can be adversely impacted by economic patterns.
Loans to businesses for the financing of land and buildings are
underwritten taking into consideration the quantity and quality of the business'
cash flow, its future prospects and the property's value. Sufficient margin in
the financed property is required should liquidation of the property become
necessary to repay the loan.
20
<PAGE>
TABLE 10 - LOAN PORTFOLIO
(In Thousands)
<TABLE>
<CAPTION>
Loans outstanding at the indicated dates are shown in the following table
classified by type of loan.
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 1,261,556 $ 1,104,648 $ 1,010,174 $ 927,551 $ 712,522
Real estate - construction 207,322 170,711 122,765 92,411 70,506
Real estate - mortgage 2,001,094 1,800,031 1,615,166 1,152,068 1,051,752
Consumer 961,711 904,487 831,197 687,368 583,805
------- ------- ------- ------- -------
$ 4,431,683 $ 3,979,877 $ 3,579,302 $2,859,398 $2,418,585
=========== =========== =========== ========== ==========
</TABLE>
Construction and land development loans are made in familiar markets to
developers and builders who have a proven record of success. These loans are
underwritten through the use of feasibility studies, sensitivity analysis of
absorption rates and financial analysis of the developers. Sources of repayment
may be pre-committed permanent loans, sales of developed properties or an
interim or mini-permanent loan commitment. These types of loans are monitored by
on-site inspections and architects' reports. They are considered more risky than
the other real estate loans due to their ultimate repayment being sensitive to
interest rate changes, general economic conditions and the availability of
long-term financing.
Commercial, financial and agricultural loans increased to $1.3 billion at
December 31, 1997 from $1.1 billion and $1.0 billion at December 31, 1996 and
1995, respectively. The commercial, financial and agricultural loan portfolio is
a diverse group of loans to small, medium and large businesses in a variety of
different industries. The purpose of these loans varies from supporting seasonal
working capital needs to the term financing of equipment. These loans are
underwritten by a thorough evaluation of the prospective borrower's management,
financial condition and the business' ability to generate sufficient cash flow
to repay the debt in an orderly manner. While some of the short term loans may
be made on an unsecured basis, most are secured by assets having an adequate
equity margin. Additionally, most loans to closely held corporations are
guaranteed by their owners.
Various Federal and State loan guarantee programs are used to provide
credit enhancements for loans to small businesses. The use of these programs
enables financing to be provided in amounts and on terms which might not be
otherwise available to the small business. All guaranteed loans are subject to
the same underwriting criteria as other types of loans as the use of guarantee
programs is considered as a secondary source of repayment.
The commercial loan portfolio is sufficiently diverse to minimize the
impact of a decline in a single industry. It is geographically concentrated in
Mississippi, Louisiana, and Arkansas so it is exposed to the risk of a general
downturn in the economies of the markets served in these three states.
TABLE 11 - REAL ESTATE LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>
The following table shows the composition of real estate loans outstanding at
December 31, 1997.
Percent of Percent of
Balance Real Estate Loans Gross Loans
-----------------------------------------------
<S> <C> <C> <C>
Commercial real estate
Construction and land development $ 207,322 9.4% 4.7%
21
<PAGE>
Multifamily 125,507 5.7 2.8
Nonfarm nonresidential 750,273 33.9 16.9
------- ---- ----
1,083,102 49.0 24.4
--------- ---- ----
Residential and farmland
Residential 1,018,339 46.1 23.0
Farmland 106,975 4.9 2.4
------- --- ---
1,125,314 51.0 25.4
--------- ---- ----
$ 2,208,416 100.0% 49.8%
=========== ====== =====
</TABLE>
TABLE 12 - LOAN MATURITIES AND INTEREST RATE SENSITIVITY
(In Thousands)
The following table shows the amounts of loans, excluding consumer and real
estate mortgage loans, in certain categories outstanding as of December 31, 1997
which, based on remaining scheduled repayments of principal, are due in the
periods indicated. Also, the amounts due after one year are classified according
to their sensitivity to changes in interest rates.
<TABLE>
Maturing
-------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 549,601 $ 588,440 $ 123,515 $ 1,261,556
Real estate - construction 91,168 72,355 43,799 207,322
------ ------ ------ -------
$ 640,769 $ 660,795 $ 167,314 $ 1,468,878
========= ========= ========= ===========
Interest Sensitivity
--------------------------------------------------------------
Fixed Variable
Rate Rate Total
--------------------------------------------------------------
Due after one, but within five years $ 427,054 $ 233,741 $ 660,795
Due after five years 136,754 30,560 167,314
------- ------ -------
$ 563,808 $ 264,301 $ 828,109
========= ========= =========
</TABLE>
Consumer loans increased $57 million, or 6%, in 1997 versus 9% and 21% in 1996
and 1995, respectively, which is a continuation of a slowing trend in the growth
rate in that segment of the portfolio. The decline in the growth rate of the
consumer loan portfolio reflects a national trend of slowing consumer demand.
The consumer loan portfolio is composed of installment loans, home equity loans,
unsecured revolving credit products, and other similar types of credit
facilities. Consumer credits are underwritten using a computer based multiple
discriminant analysis which is commonly called credit scoring. This analysis
considers factors such as income, debt levels and credit history. This system
provides uniformity in the decision making process and better quality control.
Consumer loans are concentrated in Mississippi, Louisiana, and Arkansas and
would be adversely impacted by an economic recession or other conditions which
would affect consumer incomes.
22
<PAGE>
Additionally, the needs of low to moderate income borrowers is an area of
continued focus and efforts are ongoing to expand the credit facilities tailored
to their special needs. An extensive branch network brings loan officers in
close contact with small business customers and consumers. The expanded use of
government credit enhancement programs has improved the ability to meet the
needs of small businesses and differentiate the Company from competitors.
Consumer credit products will continue to be aggressively marketed and new ones
developed utilizing the high level of technology available, however the Company
will continue to maintain a close watch on both local and national delinquency
trends.
DEPOSITS
The primary funding source for loans and investments is deposit
liabilities. The mix and repricing alternatives can significantly affect the
cost of this source of funds and therefore impact the margin. Strategies used to
manage deposit liabilities are designed to be flexible so that changes can be
made in consideration of interest rate movements and liquidity issues. Local
retail and commercial customers provide the majority of deposits.
Average deposits increased $555 million to $5.3 billion in 1997
compared to $4.8 billion in 1996, and $4.4 billion in 1995. Approximately 98%
and 20% of the increases in average deposits for 1997 and 1996, respectively,
resulted from acquisitions.
Average time deposits increased $234 million, or 12%, from the $2.0
billion reported in 1996. Average savings deposits and average demand deposits
increased $144 million and $177 million, respectively, in 1997 compared to 1996.
The deposit mix shifted slightly as average savings deposits decreased from 39%
of total average deposits in 1996 to 37% of total average deposits in 1997 and
average demand deposits increased from 20% of average total deposits in 1996 to
21% of average deposits in 1997. The deposit mix has remained substantially
unchanged with the exception of the slight shift from savings deposits toward
more demand deposits.
TABLE 13 - AVERAGE DEPOSITS
(In Thousands)
<TABLE>
<CAPTION>
The daily average amounts of deposits for the periods indicated are summarized
in the following table.
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Demand deposits $ 1,130,510 $ 953,872 $ 919,215
Savings and interest-bearing transaction deposits 1,986,828 1,843,150 1,710,218
Time deposits 2,188,349 1,953,872 1,809,364
--------- --------- ---------
Total $ 5,305,687 $ 4,750,894 $ 4,438,797
=========== =========== ===========
</TABLE>
LIQUIDITY
Liquidity for a financial institution can be expressed in terms of
maintaining sufficient funds available to meet both expected and unanticipated
obligations in a cost effective manner. Adequate liquidity allows the Company to
meet the demands of both the borrower and the depositor on a timely basis, as
well as pursue other business opportunities as they arise. Liquidity is
maintained through the Company's ability to convert assets into cash, manage the
maturities of liabilities and generate funds on a short-term basis either
through the national federal funds market, backup lines of credit, or through
the national CD market.
Short-term investments totaling $61 million at December 31, 1997
provide one source of the Company's liquidity. Cash flows from repayments and
maturities from the securities and loan portfolios provide an additional source
of liquidity. At December 31, 1997, $2.1 billion, or 48% of total loans, have
contractual maturities of one year or less. Additional liquidity can be achieved
through the sale of securities classified as available for sale.
The Company relies largely on core deposits to fund loan demand and
long-term investments. Core deposits, defined as total deposits less time
deposits of $100 thousand or more, have increased, ending the year at $4.9
billion which compares to $4.6 billion at the end of 1996. Additional funding is
provided from an established federal funds market within Mississippi, Louisiana
and other
23
<PAGE>
contiguous states. Although the Company prefers to meet liquidity requirements
through internally generated funding sources and through the matching of
maturities of assets and liabilities, it also maintains funding relationships
with numerous other financial institutions including membership with the Federal
Home Loan Bank.
The consolidated statements of cash flows can be used to review cash
flows from operating, investing and financing activities. Cash and cash
equivalents increased $33 million during 1997 to $418 million at December 31,
1997. Net cash provided by operating activities of $179 million for 1997
represents a substantial increase from $87 million reported for 1996. The
increase in net cash provided by operating activities from 1996 to 1997 was
primarily due to cash received from the sale of mortgage loans. The increase in
net cash provided by operating activities from 1995 to 1996 was primarily due to
a decrease in the amount of cash used to fund mortgage loans held for sale from
1995 to 1996.
Investing activities, primarily loans and securities, provided cash of
$19 million in 1997 compared to $117 million used in 1996. The change from 1996
is primarily due to a slow down in loan demand. In 1995, investing activities
used cash of $152 million. This use of cash was largely a result of a high level
of loan demand and increases in short-term investments. These uses of cash were
partially offset by cash provided by decreases in securities and
interest-bearing bank balances.
Financing activities are the primary funding source of investing
activities. Financing activities include the gathering of deposits and use of
purchased funds as well as issuance and repurchase of the Company's stock.
Financing activities used cash of $164 million in 1997 and provided $72 million
in cash in 1996. A decrease in deposit volumes (excluding the effect of
acquisitions) is primarily responsible for the net use of cash in 1997. An
increase in short term borrowings offset some of the effect of the drop in
deposit volumes.
During 1997, the Company was advanced $85 million from the Federal Home
Loan Bank. The proceeds of the advances were used to pay off higher rate short
term borrowings and to repurchase shares of the Company's common stock to offset
the dilutive effect of shares issued in acquisitions accounted for using the
purchase method of accounting. As another source of liquidity, the Company has
access to an additional $294 million in advances from the Federal Home Loan Bank
based upon its collateral pledge agreement.
During 1996, the Company issued debt securities which netted cash
proceeds of $99 million. Proceeds from the debt issuance were used to repay
certain short-term borrowings and repurchase the Company's common shares in
connection with certain acquisitions.
The parent company requires liquidity to pay dividends to its
shareholders and to meet operating expenses. Dividends and interest on
borrowings paid by the parent company are primarily funded from dividends
received from its banking subsidiary. The dividends paid by the banking
subsidiary are subject to certain regulations controlling national banks that
restrict the amount of dividends that may be distributed. The subsidiary bank
has available for payment of dividends in 1998, without prior regulatory
approval, $13.9 million plus its net profits for 1998. The operating expenses of
the parent company are primarily incurred in providing management and other
services for the subsidiary and are reimbursed monthly to provide the cash flow
necessary for these operations. From time to time the parent company uses
short-term lines of credit and issues long-term debt to meet acquisition and
expansion needs. During 1995, the Company registered $300 million of securities
with the Securities and Exchange Commission to facilitate acquiring funds
through the issuance of various instruments in the market place. At December 31,
1997, $100 million in such instruments was outstanding. These funds were used to
reduce its short-term borrowings and to fund the repurchase of stock issued for
acquisitions accounted for as purchase business combinations.
TABLE 14 - TIME DEPOSITS OF $100 THOUSAND OR MORE, MATURITY DISTRIBUTION
(In Thousands)
Maturities of time certificates of deposit of $100 thousand or more outstanding
at December 31, 1997, are summarized in the following table.
Time remaining until maturity
3 months or less $ 215,577
Over 3 through 6 months 107,909
Over 6 through 12 months 83,040
Over 12 months 75,438
------
Total $ 481,964
=========
24
<PAGE>
TABLE 15 - SHORT-TERM BORROWINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
The following table presents a summary of the Company's short-term borrowings at
December 31 for each of the last three years by category and the corresponding
interest rates
Daily Average Maximum
December 31 Average Interest Month-End
Balance Balance Rate Balance
-------------------------------------------------------
<S> <C> <C> <C>
1997
Federal funds purchased and securities sold
under agreements to repurchase $ 632,939 $ 527,971 5.1% $ 668,745
Other short-term borrowings 9,873 34,649 6.0 68,495
----- ------ ---
Total short-term borrowings $ 642,812 $ 562,620 5.1%
========= ========= ===
1996
Federal funds purchased and securities sold
under agreements to repurchase $ 532,537 $ 529,398 4.9% $ 627,785
Other short-term borrowings 10,492 16,337 5.7 44,997
------ ------ ---
Total short-term borrowings $ 543,029 $ 545,735 5.0%
========= ========= ===
1995
Federal funds purchased and securities sold
under agreements to repurchase $ 566,862 $ 539,384 5.4% $ 650,296
Other short-term borrowings 32,620 15,809 3.8 33,568
------ ------ ---
Total short-term borrowings $ 599,482 $ 555,193 5.4%
========== ========= ===
</TABLE>
CREDIT RISK MANAGEMENT
Asset quality is managed through a credit process that has as its basis
the separation of the credit administration function from the line lending
function. This process includes a system of loan committees to review and
approve loans, a system of credit quality review committees that monitor the
progress of action plans on loans requiring special attention and an independent
loan review function which reports to the Directors' Loan Review Committee.
Additionally, the Credit Administration Division works to ensure that the credit
process is carried out in accordance with credit policies. This process assists
in the early identification of problem or potential problem credits and assists
in determining the adequacy of the allowance for loan losses.
TABLE 16- ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
The following table summarizes the activity in the allowance for loan losses
over the past five years.
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses -
beginning balance $ 62,205 $ 58,719 $ 55,873 $ 62,032 $ 74,856
Charge-offs:
Commercial, financial and
agricultural 7,852 1,278 1,591 7,851 2,881
Real estate - construction 63 119 177 132 40
25
<PAGE>
Real estate - mortgage 1,957 2,786 1,723 1,691 1,846
Consumer 12,979 10,126 8,833 5,234 5,375
------ ------ ----- ----- -----
Total charge-offs 22,851 14,309 12,324 14,908 10,142
------ ------ ------ ------ ------
Recoveries:
Commercial, financial and
agricultural 1,360 3,232 2,217 5,163 5,164
Real estate - construction 131 71 272 621 1,398
Real estate - mortgage 1,629 2,459 1,403 2,393 2,077
Consumer 7,136 4,631 4,466 4,098 4,679
----- ----- ----- ----- -----
Total recoveries 10,256 10,393 8,358 12,275 13,318
------ ------ ----- ------ ------
Net charge-offs (recoveries) 12,595 3,916 3,966 2,633 (3,176)
Provision for loan losses 7,500 5,340 2,160 (4,750) (16,000)
Additions due to acquisitions 7,541 2,062 4,652 1,224 -
----- ----- ----- ----- -
Allowance for loan losses -
ending balance $ 64,651 $ 62,205 $ 58,719 $ 55,873 $ 62,032
========== =========== =========== =========== ===========
Total loans outstanding:
End of year $ 4,431,683 $ 3,979,877 $ 3,579,302 $ 2,859,398 $ 2,418,585
Average 4,291,612 $ 3,774,490 $ 3,273,408 $ 2,581,724 $ 2,293,416
========= =========== =========== =========== ===========
Ratios:
Allowance for loan losses
to end of year total loans 1.46% 1.56% 1.64% 1.95% 2.56%
Allowance for loan losses
to net charge-offs 513 1,588 1,480 2,122 NM
Allowance for loan losses
to nonperforming loans 305 364 262 219 204
Net charge-offs (recoveries) to
average total loans .29 .10 .12 .10 (.14)
Recoveries to prior year charge-offs 71.68 84.33 56.06 121.03 39.28
<FN>
NM - Not Meaningful
</FN>
</TABLE>
Provision and Allowance for Loan Losses
In conjunction with the credit process, the allowance for loan losses
(allowance) is maintained at a level that is considered sufficient to absorb
potential losses in the loan portfolio. The allowance is adjusted by the
provision for loan losses (provision) and is increased by recoveries of
previously charged-off loans and decreased by loan charge-offs. The provision is
the adjustment to expense necessary to maintain the allowance at an adequate
level. Various factors are taken into consideration in determining the amount of
the provision and the adequacy of the allowance. These factors include: 1)
management's analysis of current and future economic conditions and their
anticipated impact on specific borrowers; 2) the current level of classified and
criticized assets and the
26
<PAGE>
TABLE 17- ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in Thousands)
The following table presents, for analysis purposes only, the allocation of the
allowance by loan categories with respect to individual credits, historical
losses, foreseeable economic conditions and other factors pertaining to specific
industries.
<TABLE>
December 31,
Loan Loss Allocation 1997 1996 1995 1994 1993
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 16,672 $ 18,124 $ 13,824 $ 13,851 $ 15,683
Real estate - construction 1,642 2,050 2,146 1,475 2,330
Real estate - mortgage 13,105 12,090 12,741 10,372 9,285
Consumer 11,800 15,265 13,928 10,940 10,087
Unallocated 21,432 14,676 16,080 19,235 24,647
------ ------ ------ ------ ------
$ 64,651 $ 62,205 $ 58,719 $ 55,873 $ 62,032
======== ======== ======== ======== ========
Percentage of Loans Outstanding
Commercial, financial and agricultural 28.5% 27.8% 28.2% 32.4% 29.5%
Real estate - construction 4.7 4.3 3.5 3.2 2.9
Real estate - mortgage 45.1 45.2 45.1 40.3 43.5
Consumer 21.7 22.7 23.2 24.1 24.1
---- ---- ---- ---- ----
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
associated risk factors with each; 3) past due and nonperforming assets; 4) the
current level of the allowance in relation to total loans and to historical and
current loss levels; and 5) growth and composition of the loan portfolio.
As a result of management's assessment of the adequacy of the allowance
and loan growth in 1997, a $7.5 million provision was recorded compared to
provisions of $5.3 million and $2.2 million in 1996 and 1995, respectively.
Additions to the allowance of $7.5 million, $2.1 million, and $4.7 million
resulted from acquisitions in 1997, 1996 and 1995, respectively.
Net charge-offs remain low at .29% of average loans in 1997 compared to
.10% and .12% of average loans in 1996 and 1995, respectively. Net charge-offs
were $12.6 million for 1997 compared to $4.0 million for both 1996 and 1995. Net
charge-offs for 1997 included a charge of $6.7 million relating to a single
credit. The remaining increase in net charge-offs from 1996 and 1995 occurs in
the consumer loan portfolio.
The allowance at December 31, 1997 was $64.7 million, or 1.46% of total
loans compared to $62.2 million, or 1.56% of total loans at December 31, 1996
and $58.7 million, or 1.64% of total loans at December 31, 1995. While future
losses are difficult to predict, management believes that the current level of
the allowance is adequate to cover possible losses in the loan portfolio based
on the Company's allowance methodology.
Nonperforming Assets
Nonperforming assets consist of loans on which interest is no longer
accrued (nonaccrual), certain restructured loans where the interest rate or
other terms have been materially changed due to the financial condition of the
borrowers (restructured), and other real estate. A loan is placed on nonaccrual
when management believes there is reasonable uncertainty about the full
collection of both principal and interest, or when the loan is contractually
past due ninety days or more, not well secured and not in process of collection.
The policy regarding nonperforming loans is to take appropriate, timely and
aggressive action when necessary to reach a timely resolution.
Nonperforming assets increased $4.0 million to $26.2 million at
year-end 1997 compared to year-end 1996. The increase is primarily attributable
to acquisitions. The December 31, 1997 total is comprised of $21.2 million of
nonaccrual loans and $5.0
27
<PAGE>
million of other real estate. The Company had restructured loans of $694
thousand at December 31, 1996 and none at December 31,
1997 and 1995.
An additional $561 thousand of outstanding loans were not considered
nonperforming at December 31, 1997, but the borrowers, in management's
assessment, are experiencing financial difficulties severe enough that serious
doubt exists as to the borrowers' continued ability to comply with the present
terms of these loans.
28
<PAGE>
TABLE 18 - NONPERFORMING ASSETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
The amounts of the Company's nonperforming assets at the indicated dates are
shown in the following table.
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 21,204 $ 16,385 $ 22,452 $ 25,556 $ 30,425
Restructured loans - 694 - - 54
-------- -------- -------- -------- --------
Nonperforming loans 21,204 17,079 22,452 25,556 30,479
Other real estate 4,955 5,044 6,485 6,689 13,256
----- ----- ----- ----- ------
Nonperforming assets $ 26,159 $ 22,123 $ 28,937 $ 32,245 $ 43,735
======== ======== ======== ======== ========
Accruing loans past due 90 days or more $ 13,723 $ 9,711 $ 4,767 $ 3,055 $ 2,935
======== ========= ======== ======== ========
Ratios:
Nonperforming assets to loans plus other real estate .59% .56% .81% 1.12% 1.80%
Nonperforming assets to total assets .38 .35 .48 .63 .89
</TABLE>
Interest income of approximately $1.8 million on nonaccrual loans would have
been recorded in 1997 if such loans had been in compliance with their original
terms. Interest income actually recorded on such loans in 1997 was $1.1 million.
CAPITAL AND DIVIDENDS
Dividends paid are substantially provided by dividends from the Bank.
The approval of the Comptroller of the Currency (OCC) is required if the total
of all dividends declared by a national bank in any calendar year exceeds the
total of its net profits for that year combined with its retained net profits of
the preceding two years. In 1998, the Bank has available for payment of
dividends to the Company, without approval of the Comptroller of the Currency,
$13.9 million plus its net profits for 1998.
The two sources of capital are internally generated capital and the
capital markets. Primary reliance historically has been on internally generated
capital. Net income for 1997, 1996 and 1995 added $92.3 million, $83.6 million
and $72.6 million, respectively, to capital. Capital was further increased by
$2.9 million, $5.8 million and $1.6 million in 1997, 1996 and 1995,
respectively, with the issuance of common stock as a result of the exercise of
executive stock options. Capital was decreased by dividends of $33.6 million,
$28.0 million and $23.1 million declared in 1997, 1996, and 1995, respectively.
Capital was also decreased by $8.4 million and $1.7 million, respectively, as a
result of the Company's acquisitions, net of repurchases of its common stock
during 1997 and 1996. As a result of the implementation of a repurchase program
related to certain acquisitions accounted for using the purchase accounting
method, the Company purchased 2.9 million shares, 1.6 million shares, and 2.6
million shares of its common stock during 1997, 1996 and 1995, respectively.
These shares were purchased for the purpose of offsetting the 7.9 million shares
issued in the acquisitions of LBO Bancorp, Inc., First Merchants Financial
Corporation, Bank of Gonzales Holding Company, Tuscaloosa Bancshares, Inc.,
Jefferson Guaranty Bancorp, Inc., NBC Financial Corporation and the Deposit
Guaranty National Bank minority interests over the past three years.
Capital includes the unrealized gains on securities available for sale,
net of deferred income taxes, which were $2.3 million at December 31, 1997
compared to $1.6 million and $19.1 million at December 31, 1996 and
1995, respectively. Average stockholders' equity to average assets for 1997 was
9.10% compared to 9.15% in 1996 and 8.94% in 1995.
Under the risk-based capital guidelines, the minimum ratio of total
capital to risk-weighted assets, (total capital), is 8%. At least half of the
total capital is to be comprised of tier I capital. Under these guidelines, the
Company's tier I capital and total capital
29
<PAGE>
ratios were 9.87% and 11.12%, respectively, at December 31, 1997 compared to
11.42% and 12.67%, respectively, at December 31, 1996 and 11.05% and 12.30%,
respectively, at December 31, 1995.
The Office of the Comptroller of the Currency (OCC) also has
established risk-based capital guidelines for national banks. The Company's
strategy related to risk-based capital is to maintain capital levels which will
be sufficient to qualify its banking subsidiaries as "well capitalized".
Maintaining capital ratios at the "well capitalized" level avoids certain
restrictions which, for example, could impact the Deposit Guaranty's FDIC
assessments, trust services and asset/liability management.
At December 31, 1997, the tier I and total capital ratios for the Bank
were well above the minimum 6% and 10% levels required to be categorized as a
"well capitalized" insured depository institution.
The Federal Reserve Board and the OCC have established minimum leverage
ratios for bank holding companies and national banks, respectively, requiring
such banking organizations to maintain tier 1 capital of at least 4% of the
quarterly average assets (net of the allowance for loan losses) less goodwill
and other nonqualifying intangible assets. FDICIA also established a minimum
leverage ratio requirement of 5% for "well capitalized" institutions. The
leverage ratios for December 31, 1997, 1996 and 1995 were 7.47%, 8.23% and
7.87%, respectively. The Company's banking subsidiaries have maintained a
leverage ratio well above the minimum required by the bank's regulators.
Capital adequacy is continuously monitored to ensure that appropriate
levels of capital are maintained to meet both current operating needs and
anticipated future requirements. The capital guidelines play a crucial role in a
banking organization's plans for business, asset allocations, acquisitions, and
expansion.
OTHER OPERATING INCOME
Growth in noninterest related sources of income is one of the
Company's key long-term strategies. This strategy is to develop innovative new
sources of noninterest related income and to reprice existing services and
products to maximize their profitability. Other operating income includes fees
for trust services, deposit service charges, mortgage loan servicing fees,
income from broker/dealer services and many other corporate and retail products.
During 1997, other operating income was $133.6 million compared to
$117.2 million in 1996, an increase of $16.4 million. Other operating income for
1996 included gains from the disposition of assets covered by lease financing
transactions of $2.7 million. Excluding this unusual item, other operating
income increased $19.1 million, or 16%, from 1996 to 1997. Approximately 31% of
the 1997 increase in other operating income was due to acquisitions. Securities
gains account for an additional 7% of the increase which mostly resulted from
securities called under the Company's covered call option writing program. The
remaining increase was due to a 6% increase in core fee revenue sources.
Service charges on deposit accounts historically represented one of the
primary sources of other operating income. Revenues in this area increased $6.6
million, or 18%, to $42.1 million in 1997 compared to 1996. Approximately $4.8
million of this increase was a result of acquisitions. The remaining increase
was primarily the result of continuing growth in business volumes of demand
deposit accounts. Fees for trust services increased 16%, to $19.1 million in
1997 from $16.4 million in 1996. This increase was the result of new trust
business and an increase in the value of assets under trust management as
acquisitions accounted for less than 2% of the increase.
Other service charges, commissions and fees increased $6.6 million, or
12%, from $56.6 million in 1996 to $63.3 million in 1997. Approximately $3.0
million of this increase was a result of fee income generated by the acquired
companies. The remainder of the increase resulted from increased income from
broker/dealer services, mortgage loan servicing and customer utilization of
other retail services.
Other income decreased $1.5 million to $7.0 million in 1997 as compared
to 1996 due to a gain of $2.7 million from the disposition of assets related to
lease financing transactions recorded in 1996. Excluding the unusual gain
recorded in 1997, other income increased $1.2 million or 21% due to an increase
in premiums received from the sale of student loans in the normal course of
business as such loans enter repayment status.
During 1996, other operating income was $117.2 million compared to
$92.0 million in 1995, an increase of $25.2 million. Excluding the $2.7 million
in gains from the disposition of assets covered by lease financing transactions
and the additional $6.3 million resulting from the adoption of a new accounting
pronouncement, other operating income increased $16.2 million, or 18%, from 1995
to 1996. Approximately $7.1 million of this increase was due to acquisitions.
The remaining increase was due to a 14% increase in core fee revenue sources
including deposit service charges, trust fees and due to $1.8 million in
premiums received on expired written call option contracts.
OTHER OPERATING EXPENSE
Enhancing operational efficiency without sacrificing service quality
continues to be a priority. A key measure used in the banking industry to assess
the level of noninterest expense is the efficiency ratio, which is defined as
noninterest expense divided by
30
<PAGE>
the sum of tax-equivalent net interest income plus noninterest income. The
Company excludes the effects of acquisition-related intangible amortization from
the efficiency ratio calculation as such charges, which require no further cash
outlay, have no effect on operational efficiency. The efficiency ratio measures
the level of expense required to generate one dollar of revenue. Improvement in
the efficiency ratio is measured by a reduction in the percentage reported. The
efficiency ratios for 1997, 1996, and 1995 were 60.92%, 61.50% and 62.83%,
respectively. In an effort to control expenses, a formal plan was adopted in
1996 to consolidate the Company's four independently chartered bank subsidiaries
under one charter. The benefits of consolidation include streamlining management
and consolidation of back-office operations. As 1997 was a year of transition,
the effects of such consolidation efforts will have a more pronounced effect on
enhancing efficiency in future periods.
Other operating expense increased $33.8 million, or 14%, to $271.0
million in 1997 compared to 1996. Approximately $24.1 million, or 71%, of the
increase can be attributed to acquisitions. Excluding acquisitions and
nonrecurring charges in both years, expenses grew at a 4% rate in 1997 from
1996.
Salaries and employee benefits, which account for 52% of other
operating expense, increased $10.1 million in 1997 compared to 1996. Salaries
and employee benefits for 1996 include a charge of $2.2 million for personnel
severance costs related to the consolidation plan. Excluding the effects of
acquisitions and the severance accrual, salaries and employee benefits increased
only $1.4 million, or 1% in 1997.
Combined net occupancy and equipment expense increased $5.9 million
over 1996, of which approximately $5.6 million was due to an increase in
depreciation, rentals and maintenance for branch banking facilities acquired
through acquisitions. The remaining increase was less than 1% of 1996 occupancy
and equipment expenses.
Service fees increased $1.2 million in 1997 compared to 1996 largely as
a result of acquisitions which account for approximately $1.0 million of the
increase. Service fees remained high in 1997 and 1996 as compared to prior years
due to professional and consulting fees incurred in an ongoing effort to enhance
products and their delivery to the customer, and to provide efficiencies within
the organization. This investment is expected to be returned through increased
operational efficiencies and enhanced revenue in future periods. The increase of
$1.8 million, or 17%, in communication expense is mostly due to the Company's
geographic expansion through acquisitions. In 1997, acquisitions added $1.1
million to this expense category. Advertising and public relations expense
increased $1.4 million, or 14%, due to the Company's broader market coverage
resulting from expansion in new markets.
Intangible amortization increased $4.7 million, or 67%, to $11.5
million in 1997 compared to 1996. This increase was due to amortization of
goodwill and core deposit premiums from acquisitions that were consummated in
1997 and 1996. Other expense increased $8.2 million, to $38.7 million in 1997
compared to $30.5 million in 1996. Factors contributing to the increase in other
expense include a $2.4 million increase in mortgage servicing rights
amortization, a $1.4 million increase in Louisiana bank shares taxes, mostly
caused by acquisitions, $1.2 million in additional software expenses and an
increase in other losses, mostly check forgeries and robberies, of approximately
$1.2 million.
In 1996, other operating expense increased $25.8 million, or 12%, to
$237.2 million compared to 1995. Other operating expense for 1995 included the
accrual of $3.5 million for the estimated cost of a proposed settlement of a
class action suit concerning collateral protection insurance which was settled
in 1996 without additional expense. Excluding acquisitions and nonrecurring
charges in both years, expenses grew at a 3% rate in 1996 verses 1995. Salaries
and employee benefits, which increased $18.1 million in 1996 compared to 1995,
included a charge of $2.2 million for severance costs related to the
consolidation plan. Net occupancy and equipment expense and service fees
increased largely as a result of acquisitions. The FDIC assessment decreased
$4.8 million from 1995 to 1996. This decrease was the result of the FDIC
reducing the premium rate on insured deposits.
INCOME TAXES
Income tax expense was $47.4 million in 1997, compared to $40.6 million
in 1996 and $35.0 million in 1995. The increase in tax expense between 1997 and
1996 was primarily the result of increased pretax earnings. The effective tax
rate was 34% for 1997 and 33% for 1996 and 1995. These effective tax rates are
lower than the statutory income tax rate primarily due to tax exempt interest
income received on certain loans and debt securities.
OUTLOOK
The Company's ability to sustain continued growth is largely dependent
upon the economies of the tri-state area of Mississippi, Louisiana and Arkansas
with Mississippi having the most significant influence with 71% of the Company's
total loans and Louisiana coming in second with 25% of the Company's loans.
During this decade, both Mississippi and Louisiana have seen rapid growth, most
of which has been led by expansion in the gaming industry in both states. During
this period, Mississippi's rate of growth had surpassed that of the southeast
region and the nation. Louisiana's economy also continued to grow at a healthy
pace after
31
<PAGE>
recovering from a recession during the 1980's. As a direct result of the
favorable economic conditions in the markets served, the Company prospered with
several years of steady, quality loan growth.
During 1997, favorable economic conditions continued in Mississippi
although the rate of growth showed signs of slowing as measured by sales tax and
corporate income tax collections. The slow down in growth is attributable to the
maturing of the gaming industry in Mississippi and the resulting decrease in
construction activity. The slow down in the Mississippi economy led to flat to
moderate loan demand throughout 1997 which is expected to continue in the near
future.
Louisiana, a state whose growth is closely linked to energy and
manufacturing, experienced moderate growth throughout 1997. Continuing growth is
expected over the next two years as a result of anticipated increases in
extraction jobs in the energy industry. Although the expected increase in
offshore drilling activity should have little direct effect on the Company, the
related growth in Louisiana's feeder industries such as retail services and
transportation should support continued, moderate growth in both loans and
deposits. Although the recent decline in oil prices may temper this growth, the
Company's outlook remains positive as improved extraction technology is expected
to overcome the effects of the price decline.
The Company's net interest margin has remained strong for the past
three years with a 13 basis point increase in 1997 over 1996. Favorable deposit
pricing has been the key factor in maintaining the net interest margin at its
current level as well as an improving earning asset mix. In 1998, loan volumes
are expected to continue to grow at a faster rate than deposits which is
expected to maintain the net interest margin close to its current level.
Loan quality indicators, although well within management's acceptable
ranges, have shown some deterioration from 1996. Although most of the current
year increase in the ratio of net charge-offs to average total loans is the
result of a single charge-off, there has been a slight rising trend of consumer
charge-offs and delinquencies that is expected to continue into 1998. Despite an
expected increase in delinquencies, loan quality indicators are expected to
remain well within an acceptable range.
The Company made great strides in increasing fee income in 1997 which
is expected to continue through 1998. The Company continues to explore
nontraditional ways to provide services to an expanding customer base as well as
ways to enhance the wide range of existing banking services offered. Continued
deregulation of the banking industry will open doors to new and innovative ways
to serve the Company's customer base. Expense control continues to be an area of
intense focus as the Company seeks ways to increase profitability and
shareholder value. Steps taken to consolidate the back office and the Company's
move to a one-charter organization are expected to reap dividends in 1998 by
improving operational efficiency with the changes remaining transparent to the
customer. Expenses are expected to remain flat with moderate increases in
revenue.
On December 8, 1997, the Company announced an agreement to be acquired
by First American Corporation. The merger is expected to be consummated in the
second quarter of 1998. Information regarding First American Corporation and its
economic outlook can be found in its Annual Report on Form 10-K.
DIVIDEND AND MARKET INFORMATION
The Company's common stock trades on the New York Stock Exchange under
the symbol "DEP". Prior to December 5, 1996, the Company's common stock traded
in the over-the-counter market under the NASDAQ symbol "DEPS" and was quoted on
NASDAQ's National Market System. The following table sets forth the range of the
high and low prices of the common stock, as reported by the New York Stock
Exchange and NASDAQ, respectively, and the dividends declared per share for the
periods indicated.
Dividends Prices
Per Share High Low
--------------------------------------------------
1997
First Quarter $ .20 $ 33.38 $ 29.63
Second Quarter .20 31.88 30.00
Third Quarter .20 33.38 31.88
Fourth Quarter .23 57.31 33.75
1996
First Quarter $ .165 $ 23.75 $ 21.50
Second Quarter .175 24.13 22.00
Third Quarter .175 24.50 22.00
Fourth Quarter .200 31.00 24.00
This table reflects a 2 for 1 stock split which was effective December 2, 1996.
32
<PAGE>
Until the expected consummation of the acquisition by First American Corporation
in the second quarter of 1998, it is the present intention of the Board of
Directors to continue the payment of cash dividends on the common stock on a
quarterly basis, dependent on expected future normalized earnings, the financial
condition of the Company, the assessment of future capital needs of the Company
and such other factors as the Board of Directors may deem relevant. As a bank
holding company, the Company's ability to pay dividends is to a great extent
dependent upon dividend payments it receives from its subsidiaries, which
dividend payments are subject to the limitations described in the notes to the
consolidated financial statements. On February 20, 1998 there were 7,118
stockholders of record of the Company's common stock.
YEAR 2000
The year 2000 computer issue is caused by computer programs being written using
two digits to identify the applicable year rather than four. Since most
application software only contains the two digits, many systems will identify
January 1, 2000 as January 1, 1900 which could result in material errors in
calculation of interest accruals on loan and deposit accounting systems as well
as problems with determination of loan due dates. The magnitude of the problem
extends beyond the computer environment as many business machines and other
office equipment also have date sensitive functions. In addition, there can be
no guarantee that the systems of other companies or counterparties on which the
Company relies will be remediated on a timely basis or that a failure to
remediate by another party would not have a material adverse effect on the
Company. The Company has been actively addressing operations concerns regarding
the coming millennium change since early 1996. A committee was formed to steer
the process of identifying the systems, equipment, vendors and customers that
may be affected by the year 2000. The committee has also been charged with
developing a plan to be in complete compliance by December 31, 1998, including
adequate testing. At December 31, 1997, all affected systems and equipment had
been identified and progress is well under way to bring these systems and
equipment into compliance. The Company has also initiated formal communications
with all of its significant vendors and counterparties to determine the extent
to which the Company may be affected by their failure to adequately address
their own year 2000 issues. Both external and internal costs incurred in
bringing existing systems into compliance are being expensed as incurred. Where
management has determined that replacement of existing systems is required, such
costs are being capitalized and will be amortized over the estimated useful life
of the system. Costs incurred during 1997 and 1996 were not material to the
Company's consolidated financial statements. On December 8, 1997, the Company
announced an agreement to be acquired by First American Corporation
headquartered in Nashville, Tennessee. The merger is expected to take place in
the second quarter of 1998. In connection with the merger, almost all of the
Company's subsidiary reporting systems are expected to be converted to those of
First American Corporation during the third quarter of 1998. Following the
announcement of the merger and in anticipation of the systems conversion,
efforts to bring existing systems into compliance were suspended, with the
exception of those systems that are not expected to be converted. Should the
merger not be consummated, upgrades of existing systems will be resumed. In this
event, the costs which will be expensed over the next two years to complete the
process of bringing the Company's systems and equipment into compliance with the
year 2000 issue are not expected to have a material effect on the financial
statements as the Company's systems are provided by and will be upgraded by
third party vendors and equipment upgrades will be minimal. Although the cost to
bring systems and equipment into compliance has not been and is not anticipated
to have a material effect on the Company's financial statements, failure to
comply could have a material adverse effect on the Company's business and
financial results. Additionally, the Company's credit risk associated with its
borrowers may increase as a result of their failure to adequately prepare for
the millennium change. As a result, the Company anticipates that increases in
problem loans and credit losses are possible in future years. At this time, it
is not possible to quantify such losses related to this issue.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements are listed below. The Company's
supplementary financial information is included in the table entitled "Summary
Quarterly Results" located in this Form 10-K at Part II Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report 29
Consolidated Statements of Condition - December 31, 1997 and 1996 30
Consolidated Statements of Earnings - Years Ended December 31, 1997,
33
<PAGE>
1996, and 1995 31
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended December 31, 1997, 1996, and 1995 32
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
1996, and 1995 33
Notes to Consolidated Financial Statements 34-53
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Deposit Guaranty Corp.:
We have audited the consolidated financial statements of
Deposit Guaranty Corp. and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Deposit Guaranty Corp. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
February 12, 1998
35
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
Deposit Guaranty Corp.
(In Thousands Except Share Data) December 31,
- -------------------------------- ------------
1997 1996
---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 418,137 $ 385,009
Interest-bearing bank balances 11,218 1,732
Federal funds sold and securities purchased under agreements to resell 59,590 47,640
Trading account securities 1,459 2,505
Securities available for sale 1,424,527 1,462,038
Investment securities (fair value: 1997-$181,266; 1996-$152,412) 174,952 145,087
Loans 4,431,683 3,979,877
Allowance for loan losses (64,651) (62,205)
--------------- --------------
Net loans 4,367,032 3,917,672
------------ ------------
Premises and equipment 171,190 148,327
Intangible assets 137,084 89,239
Other assets 174,538
183,648
Total assets $ 6,939,727 $ 6,382,897
=========== ===========
Liabilities
Deposits:
Noninterest-bearing $ 1,270,344 $ 1,160,914
Interest-bearing 4,103,618 3,864,835
------------ ------------
Total deposits 5,373,962 5,025,749
Federal funds purchased, securities sold under agreements to repurchase
and other short-term borrowings 642,812 543,029
Long-term liabilities 186,397 99,405
Other liabilities 101,318 133,448
------------- -------------
Total liabilities 6,304,489 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 - 40,830,231 shares; 1996 - 39,185,394 shares 22,355 21,491
Surplus 154,748 174,995
Retained earnings 455,872 383,211
Unrealized gain on securities available for sale, net of deferred income taxes 2,263 1,569
--------------- ---------------
Total stockholders' equity 635,238 581,266
------------- -------------
Total liabilities and stockholders' equity $ 6,939,727 $ 6,382,897
=========== ===========
</TABLE>
36
<PAGE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Deposit Guaranty Corp.
(In Thousands Except Share Data) Year Ended December 31,
- -------------------------------- -----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 372,016 $ 327,065 $ 287,742
Interest on investment securities:
Taxable 13,531 10,467 87,896
Exempt from Federal income tax 6 1 8,180
Interest on securities available for sale:
Taxable 87,186 72,576 10,095
Exempt from Federal income tax 10,048 11,383 967
Interest on trading account securities 221 416 354
Interest on Federal funds sold and securities purchased under agreements to resell 2,264 9,989 6,317
Interest on bank balances 193 325 1,153
------------ --------- ----------
Total interest income 485,465 432,222 402,704
---------- ---------- ----------
Interest expense
Interest on deposits 163,779 151,375 143,640
Interest on Federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings 28,780 27,222 29,792
Interest on long-term liabilities 8,310 4,091 -
------------ ------------ ----------
Total interest expense 200,869 182,688 173,432
---------- ---------- ----------
Net interest income 284,596 249,534 229,272
Provision for loan losses 7,500 5,340 2,160
------------ ------------ -----------
Net interest income after provision for loan losses 277,096 244,194 227,112
---------- ---------- ----------
Other operating income
Service charges on deposit accounts 42,143 35,584 32,084
Fees for trust services 19,084 16,413 14,793
Gains on securities transactions 2,086 118 919
Other service charges, commissions and fees 63,266 56,624 39,250
Other 7,024 8,506 4,943
----------- ------------ ------------
Total other operating income 133,603 117,245 91,989
---------- ---------- -----------
Other operating expense
Salaries and employee benefits 139,792 129,660 111,556
Net occupancy 19,523 16,073 13,838
Equipment 20,083 17,618 16,196
Service fees 17,428 16,237 12,735
Communication 12,430 10,607 9,100
FDIC assessment 689 94 4,906
Advertising and public relations 10,851 9,484 8,668
Intangible amortization 11,580 6,917 5,734
Other 38,671 30,518 28,719
----------- ----------- -----------
Total other operating expense 271,047 237,208 211,452
---------- ---------- ----------
Income before income taxes 139,652 124,231 107,649
Income tax expense 47,372 40,621 35,029
----------- ----------- -----------
Net income $ 92,280 $ 83,610 $ 72,620
========== ========== ==========
Net income per share:
Basic $ 2.25 $ 2.16 $ 1.89
Diluted 2.23 2.14 1.87
Weighted average shares outstanding:
37
<PAGE>
Basic 41,082,356 38,760,192 38,431,162
Diluted 41,413,294 39,006,669 38,780,032
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Deposit Guaranty Corp.
Unrealized
Gain on
Securities
Common Retained Available Treasury
(In Thousands Except Share Data) Stock Surplus Earnings For Sale Stock Total
- --------------------------------- ----- ------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 19,361 $ 154,726 $ 269,508 $ 1,973 $ (2,019) $ 443,549
Net income for 1995 - - 72,620 - - 72,620
Net change in unrealized gain on securities
available for sale, net of deferred income
tax of $10,447 - - - 17,117 - 17,117
Cash dividends declared ($ .605 per share) - - (23,075) - - (23,075)
Issuance of 6,114,582 shares of common stock
in acquisitions 3,348 64,094 8,580 - - 76,022
Purchase of 2,645,800 shares and retirement
of 2,785,800 shares of common stock (1,526) (49,253) - - 2,019 (48,760)
Issuance of 134,400 shares of common stock
under executive stock option plan 74 1,027 - - - 1,101
Tax benefit from exercise of stock options - 479 - - - 479
------------------------------------------------------------------------
Balance, December 31, 1995 21,257 171,073 327,633 19,090 - 539,053
Net income for 1996 - - 83,610 - - 83,610
Net change in unrealized gain on securities
available for sale, net of deferred income
tax of $10,656 - - - (17,521) - (17,521)
Cash dividends declared ($ .715 per share) - - (28,000) - - (28,000)
Issuance of 1,687,888 shares of common stock
in acquisitions 926 36,523 (32) - - 37,417
Purchase and retirement of 1,629,900 shares
of common stock (894) (38,206) - - - (39,100)
Issuance of 368,120 shares of common stock
under executive stock option plan 202 3,643 - - - 3,845
Tax benefit from exercise of stock options - 1,962 - - - 1,962
------------------------------------------------------------------------
Balance, December 31, 1996 21,491 174,995 383,211 1,569 - 581,266
Net income for 1997 - - 92,280 - - 92,280
Net change in unrealized gain on securities
available for sale, net of deferred income
tax of $375 - - - 694 - 694
Cash dividends declared ($ .830 per share) - - (33,558) - - (33,558)
Issuance of 4,410,470 shares of common stock
in acquisitions 2,378 68,220 13,939 - - 84,537
Purchase and retirement of 2,900,636 shares
of common stock (1,588) (91,337) - - - (92,925)
Issuance of 135,003 shares of common stock
under executive stock option plan 74 1,857 - - - 1,931
Tax benefit from exercise of stock options - 1,013 - - - 1,013
----------------------------------------------------------------------------
Balance, December 31, 1997 $ 22,355 $ 154,748 $ 455,872 $ 2,263$ - $ 635,238
============================================================================
</TABLE>
38
<PAGE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Deposit Guaranty Corp.
(In Thousands) Year Ended December 31,
1997 1996 1995
--------------------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 92,280 $ 83,610 $ 72,620
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 7,500 5,340 2,160
Provision for losses on other real estate 736 165 154
Provision for depreciation and amortization 38,769 31,176 25,998
Provision for deferred income taxes 6,847 1,979 (3,259)
Amortization (accretion) of premium (discount) on investment securities, net 86 563 (23,339)
Accretion of discount on securities available for sale, net (2,641) (3,477) (666)
Deferred loan fees and costs (2,251) (2,677) (2,716)
Decrease in other liabilities (10,518) (7,034) (3,306)
Increase in other assets (4,300) (9,378) (11,940)
Net cash received from (paid for) loans held for resale 56,120 (19,796) (49,934)
Gains on securities available for sale transactions (323) (12) (919)
Gains on investment securities transactions (1,763) (106) -
Other, net (1,900) 6,269 (4,621)
---------------------------------
Net cash provided by operating activities 178,642 86,622 232
---------------------------------
Cash flows from investing activities
Net (increase) decrease in interest-bearing bank balances (9,423) (1,732) 135,298
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell 51,896 399,129 (209,410)
Proceeds from sales of securities available for sale 1,551,028 1,391,991 423,530
Proceeds from maturities and principal repayments of investment securities 65,956 46,077 816,065
Proceeds from maturities and principal repayments of securities available for sale 209,693 545,643 174,371
Purchases of investment securities (88,619) (52,104) (643,049)
Purchases of securities available for sale (1,600,939)(2,154,049) (492,674)
Net increase in loans (149,658) (284,040) (348,698)
Proceeds from sales of other real estate 3,384 4,591 3,578
Purchases of premises and equipment (25,607) (18,263) (18,551)
Proceeds from sales of premises and equipment 1,602 742 586
Payment for purchase of common stock of acquired companies and other acquisition costs (28,952) (3,593) (19,739)
Cash and due from banks of acquired companies 38,365 8,304 26,646
----------------------------------
Net cash provided (used) by investing activities 18,726 (117,304) (152,047)
----------------------------------
Cash flows from financing activities
Net increase (decrease) in deposits (217,902) 101,217 238,759
Net increase (decrease) in Federal funds purchased, securities sold
under agreements to repurchase, and other short-term borrowings 91,981 (66,851) 31,963
Repayment of line of credit to fund loans held for resale - - (32,955)
Proceeds from long-term liabilities 85,000 99,381 -
Proceeds from the exercise of common stock options 1,931 3,845 1,101
Purchases of common stock (92,925) (39,100) (48,760)
Cash dividends paid (32,325) (26,507) (21,355)
----------------------------------
Net cash provided (used) by financing activities (164,240) 71,985 168,753
----------------------------------
Increase in cash and due from banks 33,128 41,303 16,938
Cash and due from banks at beginning of year 385,009 343,706 326,768
----------------------------------
39
<PAGE>
Cash and due from banks at year end $ 418,137 $ 385,009 $ 343,706
================================
</TABLE>
Income taxes: The Company made income tax payments of $37.2 million, $38.6
million and $35.5 million during the years ended December 31, 1997, 1996 and
1995, respectively.
Interest: The Company paid $197.6 million, $183.3 million and $168.7 million in
interest on deposits and other borrowings during the years ended December 31,
1997, 1996 and 1995, respectively.
See accompanying notes to consolidated financial statements.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deposit Guaranty Corp.
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS
The Company and its subsidiaries are engaged in the general banking
business and activities closely related to banking. Banking services are
provided primarily to customers in Mississippi, Louisiana and Arkansas through
the Company's banking subsidiary. The Company is subject to the regulations of
certain federal agencies and undergoes periodic examinations by those regulatory
authorities.
On December 8, 1997, the Company announced an agreement to be acquired
by First American Corp. headquartered in Nashville, Tennessee. The merger is
expected to take place during the second quarter of 1998 in a tax free exchange
of common stock and is expected to be accounted for as a pooling of interests.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, the Company is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the dates of
the statements of condition and the reported amounts of revenues and expenses
for the years then ended. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowance for loan losses and real estate owned, the Company obtains independent
appraisals for significant properties.
The Company believes that the allowances for loan losses and real
estate owned are adequate. While the Company uses available information to
recognize losses on loans and real estate owned, future adjustments to the
allowances may be necessary based on changes in economic conditions.
ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements of the Company include Deposit
Guaranty Louisiana Corp. (DGLC) and G & W Life Insurance Co., wholly-owned
subsidiaries and Deposit Guaranty National Bank (DGNB), a wholly-owned
subsidiary of DGLC. All significant intercompany accounts and transactions have
been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers only cash and amounts due from banks to be cash
equivalents.
TRADING ACCOUNT SECURITIES
Trading account securities are reported at fair value. Realized and
unrealized gains or losses on trading account securities are reflected in other
operating income.
SECURITIES AVAILABLE FOR SALE
Securities available for sale prior to maturity are reported at fair
value with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of related deferred income
taxes. Premiums are amortized and discounts are accreted using the interest
method. The amortization of premiums and accretion of discounts on
mortgage-backed securities is periodically adjusted to reflect the actual
prepayment experience of the underlying mortgage loans. Gains or losses on the
sale of these securities, computed based on the carrying value of the specific
securities sold, are classified as gains on securities transactions in other
operating income.
INVESTMENT SECURITIES
Investment securities are securities which the Company has the positive
intent and ability to hold to maturity. Investment securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts using the
interest
41
<PAGE>
method. The amortization of premiums and discounts on mortgage-backed securities
is periodically adjusted to reflect the actual prepayment experience of the
underlying mortgage loans.
42
<PAGE>
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs.
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 other operating income. Realized and unrealized gains and
losses on trading positions are recognized in other operating income during the
period in which the gain or loss occurs. Interest income and expense arising
from trading instruments are included in other operating income.
RISK MANAGEMENT INSTRUMENTS: As part of its asset/liability management
activities, the Company may enter into interest rate futures, forwards, swaps
and 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. Adjustments on risk management
instruments carried at fair value are reflected in other operating income. Gains
and losses realized on futures and forward contracts qualifying as hedges are
deferred and amortized over the terms of the related assets or liabilities and
are included as adjustments to interest income or interest expense. Settlements
on interest rate swaps and 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
available for sale portfolio are carried at fair value with gains and losses,
net of applicable deferred income taxes, reported in stockholders' equity,
consistent with the reporting of unrealized gains and losses on such securities.
Premiums paid for interest rate floors qualifying for hedge accounting are
deferred and classified with the assets and liabilities hedged and are amortized
to interest income or expense over the life of the instrument.
INTEREST AND FEES ON LOANS
Interest on loans is recognized based on the interest method. The
recognition of interest is suspended on commercial loans when principal or
interest is past due ninety days or more and collateral is inadequate to cover
principal and interest or when, in the opinion of management, full collection is
unlikely. Interest on such loans is subsequently recognized only in the period
in which payments are received, and in certain situations, such payments are
applied to reduce principal when loans are unsecured or collateral values are
deficient. A nonaccrual loan is returned to accrual status provided all
principal and interest amounts are reasonably assured of repayment within a
reasonable period and the borrower has demonstrated sustained payment
performance. Nonrefundable loan fees and direct origination costs are deferred
and amortized over the life of the loan as an adjustment of the yield.
Commitment fees are deferred and recognized as noninterest income over the
commitment period.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered
adequate to provide for reasonably foreseeable potential losses on loans. The
allowance is based on management's evaluation of the loan portfolio considering
economic conditions, volume and composition of the loan portfolio, past
experience and other relevant factors.
Impaired and restructured loans are measured at the present value of
expected future cash flows, discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The difference
between the impaired loan's carrying value and the fair value is recognized as a
valuation adjustment and included in the allowance for loan losses.
OTHER REAL ESTATE OWNED
Other real estate owned includes assets that have been acquired in
satisfaction of debt. Other real estate owned is reported in other assets and is
recorded at the lower of cost or estimated fair value less estimated costs to
sell. Any valuation adjustments required prior to foreclosure are charged to the
allowance for loan losses. Subsequent to acquisition, losses on the periodic
revaluation of the property are charged to current period earnings as other
operating expense. Costs of operating
43
<PAGE>
and maintaining the properties, net of related income and gains (losses) on
their disposition, are charged to other operating expense as incurred.
Expenditures to complete or improve properties are capitalized if the
expenditures are expected to be recovered upon the ultimate sale of the
property.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost. Depreciation and
amortization are computed principally using the straight-line method over the
estimated useful lives of the assets. Any gain or loss resulting from
disposition is included in other operating income. Expenditures for maintenance
and repairs are charged to other operating expense and renewals and betterments
are capitalized.
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. The adoption of SFAS No. 121 did not have a material impact on the
consolidated financial statements.
INTANGIBLE ASSETS
Goodwill, representing the excess of the cost of acquisitions over the
fair value of the net assets acquired, is amortized using the straight-line
method over periods not exceeding 15 years. Core deposit intangibles represent
the net present value of the future economic benefits related to the use of
deposits assumed and are amortized on a straight-line basis generally over ten
years.
The Company reviews its intangible assets for possible impairment when
there is a significant event that may detrimentally impact the underlying basis
of the asset.
MORTGAGE SERVICING RIGHTS
Mortgage servicing rights, which represent the right to receive future
servicing income, are amortized over the period of, and in proportion to,
estimated net servicing income. At least annually, the Company evaluates the
carrying amount of its servicing rights for impairment by analyzing the
discounted cash flows of such assets under current market conditions.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the deferred tax
liability or asset is expected to be settled or realized.
NET INCOME PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share. Basic net income per share is based on net income
available to common shareholders divided by the weighted average number of
shares outstanding during each year. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the Company's earnings. The
dilutive effect of securities and contracts potentially convertible to common
stock is calculated using the treasury stock method. Prior periods have been
restated to conform to the new presentation.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
1997 presentation.
44
<PAGE>
RECENT PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (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
extinguishment of liabilities. SFAS No. 125 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. This statement provides consistent
accounting for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement, as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125," is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is
effective after December 31, 1997, for repurchase agreements, dollar-roll
agreements, securities lending, and similar transactions. The adoption of this
statement did not have a material impact on the consolidated 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 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 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 provide additional disclosures in the financial statements for
the year ended December 31, 1998.
NOTE 2 - ACQUISITIONS
Bank mergers and acquisitions completed by the Company during the three
years ended December 31, 1997, along with the related accounting treatment, are
as follows (dollars in millions):
<TABLE>
Common Cash Accounting
Financial Institution State Date Assets Shares Issued Paid Treatment
--------------------- ------ ----- ------- ------------- ---- ---------
<S> <C> <C> <C> <C> <C>
LBO Bancorp, Inc. LA Jan. 1995 $ 96 1,360,842 $ - Purchase
Citizens National Bancshares, Inc. LA May 1995 193 2,765,688 - Pooling
First Merchants Financial Corporation AR Aug. 1995 280 1,988,052 4 Purchase
Bank of Gonzales Holding Company LA Jun. 1996 126 1,267,346 - Purchase
Tuscaloosa Bancshares, Inc. LA Nov. 1996 41 420,542 - Purchase
Jefferson Guaranty Bancorp, Inc. LA Jan. 1997 299 1,759,688 10 Purchase
First Capital Bancorp, Inc. LA Mar.1997 186 1,568,467 - Pooling
NBC Financial Corporation LA July 1997 69 422,529 - Purchase
CitiSave Financial Corporation LA Aug. 1997 75 - 19 Purchase
</TABLE>
For those acquisitions accounted for as a purchase business
combination, the results of operations have been included in the financial
statements from the date of acquisition. The pro forma effect on prior earnings
of such acquisitions is not significant. For acquisitions accounted for as
pooling of interests, the results of operations have been included in the
financial statements from the beginning of the year acquired. Prior year
financial statements have not been restated as the changes would have been
immaterial.
45
<PAGE>
In addition to the mergers included in the table above, the Company
acquired a branch operation and two mortgage companies. On March 10, 1995, the
Company purchased the Coahoma County, Mississippi, operations of a local
Mississippi bank. This acquisition added assets of approximately $82 million.
On August 8, 1995, the acquisition of First Mortgage Corp. located in
Omaha, Nebraska, was completed for $15.8 million in a purchase business
combination. At the acquisition date, First Mortgage Corp. had a $1.1 billion
mortgage servicing portfolio and six production offices in Nebraska and
Oklahoma.
On June 29, 1996, the Company purchased for $3.6 million, 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 15 offices located throughout Texas and originated approximately
$240 million in mortgage loans in 1995.
On June 1, 1997, Deposit Guaranty issued 659,786 shares of its common
stock in exchange for the 2% interest in Deposit Guaranty National Bank owned by
minority shareholders. With this acquisition, the Company became the sole
shareholder of Deposit Guaranty National Bank.
On September 24, 1997, Deposit Guaranty entered into a definitive
agreement to acquire Victory Bancshares, Inc. located in Memphis, Tennessee. The
acquisition of Victory Bank, with approximately $115 million in assets, is
expected to be consummated during the first quarter of 1998. The number of
shares of Deposit Guaranty common stock to be exchanged for all of the
outstanding shares of Victory Bancshares will be between 745,650 and 808,435
based on the exchange ratio which will be calculated based on the average market
price of Deposit Guaranty common stock on the twenty consecutive trading days
prior to the effective date. The acquisition of Victory Bancshares is expected
to be accounted for as a pooling of interests.
NOTE 3 - NET INCOME PER SHARE
Net income and weighted average shares used to calculate basic net
income per share and diluted net income per share are presented below (in
thousands except per share data):
Net Number
1997 Income of Shares Per Share
- -----------------------------------------------------------------------------
Basic net income per share $ 92,280 41,082 $2.25
Effect of dilutive securities:
Forward purchase commitment - 18 -
Stock options - 313 -
- ---------------------------------------------------------------------------
Diluted net income per share $ 92,280 41,413 $2.23
======== ====== =====
1996
Basic net income per share $83,610 38,760 $2.16
Effect of dilutive securities:
Stock options - 246 -
- ---------------------------------------------------------------------------
Diluted net income per share $83,610 39,006 $2.14
======= ====== =====
1995
Basic net income per share $72,620 38,431 $1.89
Effect of dilutive securities:
Stock options - 349 -
- ---------------------------------------------------------------------------
Diluted net income per share $72,620 38,780 $1.87
======= ====== =====
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
On November 27, 1995, the Company transferred investment securities
with a carrying amount of $1.1 billion and a fair value of $1.2 billion to
securities available for sale, as allowed by the FASB's Special Report, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities."
46
<PAGE>
<TABLE>
<CAPTION>
The amortized cost and estimated fair value of securities available for
sale, and investment securities follow (in thousands):
December 31,
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities available for sale Cost Gains Losses Value
- ----------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
U.S. Treasury and other U.S. Government agencies $ 555,614 $ 1,170 $ (1,785) $ 554,999
Obligations of states and political subdivisions 179,021 3,877 (190) 182,708
Mortgage-backed securities 686,283 1,675 (1,138) 686,820
------- ----- ------- -------
$1,420,918 $ 6,722 $ (3,113) $ 1,424,527
========== ======= ========= ===========
1996
U.S. Treasury and other U.S. Government agencies $ 715,808 $ 2,994 $ (7,287) $ 711,515
Obligations of states and political subdivisions 175,977 6,092 (1,236) 180,833
Mortgage-backed securities 567,235 3,008 (1,982) 568,261
Other securities 1,424 5 - 1,429
---------------------------------------------------------------
$ 1,460,444 $ 12,099 $ (10,505) $ 1,462,038
=========== ======== ========== ===========
December 31,
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Investment securities Cost Gains Losses Value
- --------------------- ---------------------------------------------------------------
1997
U.S. Treasury and other U.S. Government agencies $ 9,369 $ - $ (59) $ 9,310
Obligations of states and political subdivisions 55 - - 55
Mortgage-backed securities 18,375 1,467 - 19,842
Other securities 147,153 4,907 (1) 152,059
------- ----- --- -------
$ 174,952 $ 6,374 $ (60) $ 181,266
========= ======= ====== =========
1996
U.S. Treasury and other U.S. Government agencies $ 9,379 $ - $ (110) $ 9,269
Obligations of states and political subdivisions 105 - - 105
Mortgage-backed securities 60,581 5,047 - 65,628
Other securities 75,022 2,423 (35) 77,410
------ ----- ---- ------
$ 145,087 $ 7,470 $ (145) $ 152,412
========= ======= ======= =========
</TABLE>
The amortized cost and estimated fair value of securities available for
sale and investment securities at December 31, 1997, by contractual maturity,
are shown below (in thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Estimated
Amortized Fair
Securities available for sale Cost Value
- ----------------------------- ---- -----
Due in one year or less $ 24,221 $ 24,272
Due after one year through five years 285,773 287,343
Due after five years through ten years 273,491 274,714
Due after ten years 151,150 151,378
------- -------
734,635 737,707
Mortgage-backed securities 686,283 686,820
------- -------
47
<PAGE>
$ 1,420,918 $ 1,424,527
=========== ===========
48
<PAGE>
Estimated
Amortized Fair
Investment securities Cost Value
- ---------------------- ---- -----
Due in one year or less $ 6,266 $ 6,290
Due after one year through five years 20,962 20,955
Due after five years through ten years 116,450 121,280
Due after ten years 12,899 12,899
------ ------
156,577 161,424
Mortgage-backed securities 18,375 19,842
------ ------
$ 174,952 $ 181,266
========= =========
Gross gains of $8.3 million, $10.8 million and $1.2 million and gross
losses of $7.9 million, $10.8 million and $338 thousand were realized on sales
of securities available for sale in 1997, 1996, and 1995, respectively. Included
in gross gains for 1997, 1996 and 1995 were $1.7 million, $107 thousand and $829
thousand, respectively related to premiums received for exercised written option
contracts on securities available for sale.
Securities available for sale and investment securities with a carrying
amount of $1,194.0 million (fair value $1,196.8 million) at December 31, 1997
were pledged to secure public and trust deposits, for repurchase agreements, and
for other purposes.
NOTE 5 - LOANS
The Company makes commercial, financial, agribusiness, real estate and
consumer loans to customers. Although the Company has a diversified loan
portfolio, a substantial portion of its loan portfolio is concentrated in the
states of Mississippi, Louisiana and Arkansas. Loans held for sale at December
31, 1997 and 1996 were $241.1 million and $295.1 million, respectively. The
valuation allowance on such loans at December 31, 1997 and 1996 was not
significant. The Company services mortgage loans, and at December 31, 1997, 1996
and 1995, the loan servicing portfolio approximated $3.8 billion, $3.8 billion
and $3.5 billion, respectively. The composition of the loan portfolio follows
(in thousands):
December 31,
1997 1996
----------------------------
Commercial, financial and agricultural $ 1,261,556 $ 1,104,648
Real estate - construction 207,322 170,711
Real estate - mortgage 2,001,094 1,800,031
Consumer 961,711 904,487
----------- -----------
Total loans $ 4,431,683 $ 3,979,877
=========== ===========
In the ordinary course of business, the Company makes loans to its
directors and principal officers of its subsidiaries, as well as other related
parties. In the opinion of management, such loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other parties. A summary of changes in
such loans during 1997 follows (in thousands):
Balance at January 1 $ 45,402
Additions 157,856
Reductions (including participations sold) (159,169)
----------
Balance at December 31 $ 44,089
==========
49
<PAGE>
Transactions in the allowance for loan losses follow (in thousands):
1997 1996 1995
---- ---- ----
Balance at January 1 $ 62,205 $ 58,719 $ 55,873
Additions due to acquisitions 7,541 2,062 4,652
Loans charged-off (22,851) (14,309) (12,324)
Recoveries on loans previously charged-off 10,256 10,393 8,358
------ ------ -----
Net charge-offs (12,595) (3,916) (3,966)
Provision for loan losses 7,500 5,340 2,160
----- ----- -----
Balance at December 31 $ 64,651 $ 62,205 $ 58,719
======== ======== ========
The Company's total recorded investment in impaired loans as of
December 31, 1997 and 1996 was $16.6 million and $11.7 million, respectively.
Included in the balance of impaired loans at December 31, 1997 and 1996 is $6.4
million and $4.0 million which have related allowances of $2.8 million and $782
thousand, respectively for estimated credit losses determined in accordance with
the provisions of SFAS No. 114. The remaining $10.2 million and $7.7 million of
the balance of impaired loans at December 31, 1997 and 1996, respectively do not
require an allowance under the provisions of SFAS No. 114 since the estimated
discounted future cash flows or the collateral value was considered sufficient
to cover any future deficiencies in loan payments. However, a general allowance
for loan losses is available to absorb losses on these loans. The average
recorded investment in impaired loans for the years ended December 31, 1997 and
1996 was $16.3 million and $14.5 million, respectively. All impaired loans are
on nonaccrual status and are subject to the nonaccrual method for interest
income recognition. There was no interest income recognized in 1997, 1996 and
1995 on loans identified as impaired.
Loans on a nonaccrual status amounted to approximately $21.2 million at
December 31, 1997 and $16.4 million at December 31, 1996. The effect on interest
income of nonaccrual loans was not material in 1997, 1996 or 1995. Restructured
loans were not significant in 1997 and 1996.
Other real estate owned was $5.0 million at December 31, 1997 and
December 31, 1996. Transactions in the allowance for losses on other real estate
follow (in thousands):
1997 1996 1995
---- ---- ----
Balance at January 1 $ 1,236 $ 1,730 $ 2,024
Additions due to acquisitions 209 197 -
Provision charged to expense 736 165 154
Losses charged to the allowance (608) (856) (448)
----- ----- ----
Balance at December 31 $ 1,573 $ 1,236 $ 1,730
======= ======= =======
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
December 31,
1997 1996
-----------------------
Land $ 34,030 $ 27,485
Buildings and leasehold improvements 196,831 177,087
Furniture and equipment 122,911 107,465
------- -------
353,772 312,037
Less: Accumulated depreciation and amortization (182,582) (163,710)
--------- --------
Premises and equipment, net $ 171,190 $ 148,327
========= =========
NOTE 7 - DEPOSITS
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000, was $481.9 million and $395.6 million at December 31,
1997 and 1996, respectively.
50
<PAGE>
51
<PAGE>
NOTE 8 - SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other short
term borrowings consist of term federal funds purchased and treasury tax and
loan deposits and generally are repaid within one to 120 days from the
transaction date.
Information concerning securities sold under agreements to repurchase is
summarized as follows (dollars in thousands):
1997 1996
---- ----
Average balance during the year $ 311,623 $ 280,876
Maximum month-end balance during the year 394,029 346,215
Balance at December 31 394,029 271,435
Average interest rate during the year 4.74% 4.65%
Securities underlying the repurchase agreements remain under the Company's
control.
NOTE 9 - LONG-TERM LIABILITIES
In April 1996, the Company issued $100 million in 7.25% Senior Notes due in
2006. These notes are not callable prior to maturity and no sinking fund
is required. Interest on the notes is paid semi-annually. During 1997, the
Company received $85 million in advances from the Federal Home Loan Bank. The
advances, which accrue interest at a variable rate of interest with an average
rate of 5.73% at December 31, 1997, mature in 2004. The advances are
collateralized by Federal Home Loan Bank stock and first mortgage real
estate loans. Interest on the advances is paid monthly. The table below
shows the components of long-term liabilities included in the Company's
statements of condition (in thousands):
<TABLE>
December 31, 1997 December 31, 1996
----------------- -----------------
Par Carrying Par Carrying
Value Amount Value Amount
<S> <C> <C> <C> <C>
Senior notes $ 100,000 $ 101,397 $ 100,000 $ 99,405
Federal Home Loan Bank advances 85,000 85,000 - -
------ ------ --------- ----------
Total $ 185,000 $ 186,397 $ 100,000 $ 99,405
========= ========= ========= ==========
</TABLE>
The Company maintains a $50 million line of credit at a commercial bank.
The line of credit, which is for general corporate purposes, bears interest at
an adjustable rate based on LIBOR and expires in May 1998. There is no
commitment fee or compensating balance arrangement relating to this line of
credit and there was no balance outstanding at December 31, 1997 or 1996.
NOTE 10 - LEASES
Operating leases (primarily for branch bank space) expire at various
dates. Most of these leases may be renewed beyond their present expiration
dates. Future minimum payments under noncancelable operating leases with initial
or remaining terms of one year or more at December 31, 1997, follow (in
thousands):
1998 $ 3,146
1999 2,500
2000 2,156
2001 843
2002 796
Thereafter 3,650
-----
Total minimum lease payments $ 13,091
========
52
<PAGE>
At December 31, 1997, the Company leases office space to others with
expirations at various dates through 2005. These leases have an average term of
approximately three years and require total minimum rentals of approximately
$19.1 million. Most of these leases may be renewed beyond their present
expiration dates.
Rental expense of $10.5 million, $7.1 million, and $5.8 million in
1997, 1996 and 1995 respectively, included amounts for short-term cancelable
leases and minimum rentals under operating leases.
NOTE 11 - INCOME TAXES
<TABLE>
<CAPTION>
Total income tax expense was allocated as follows (in thousands):
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $ 47,372 $ 40,621 $ 35,029
Other noncurrent intangible assets, for recognition of acquired tax
benefits that previously were included in the valuation allowance - - (2,949)
Other noncurrent intangible assets, for recognition of acquired tax
benefits relating to a prior purchase business combination - - (181)
Stockholders' equity, for compensation expense for tax purposes in
excess of amount recognized for financial reporting purposes (1,013) (1,962) (479)
Stockholders' equity, for gains on securities available for sale for
financial reporting purposes 375 (10,656) 10,447
-------- --------- ------
$ 46,734 $ 28,003 $ 41,867
======== ========= ========
</TABLE>
The current and deferred components of income tax expense follow (in
thousands):
1997 1996 1995
---- ---- ----
Current
Federal $ 38,250 $ 36,900 $ 36,020
State 1,600 1,742 2,268
Deferred
Federal 6,903 1,835 (2,673)
State 619 144 (586)
--- --- ----
$ 47,372 $ 40,621 $ 35,029
======== ======== ========
The differences between the income tax expense shown on the
consolidated statements of earnings and the amounts computed by applying the
Federal income tax rate of 35% to income before income taxes follow (in
thousands):
1997 1996 1995
---- ---- ----
Amount computed at statutory tax rates $ 48,878 $ 43,481 $ 37,677
Increases (decreases):
Cash surrender value of life insurance (1,680) (1,461) (1,834)
Tax exempt interest income (4,189) (4,840) (3,951)
Amortization of intangible assets 2,508 1,406 926
State income taxes, net 1,443 1,226 1,093
Other, net 412 809 1,118
--- --- -----
$ 47,372 $ 40,621 $ 35,029
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset follow (in thousands):
December 31,
1997 1996
--------------------------
Deferred tax assets
Allowance for loan losses $ 24,909 $ 23,815
Other real estate owned 947 700
53
<PAGE>
Deferred compensation 12,396 11,503
Investment tax credit carryforwards 1,548 2,398
Other 7,297 5,718
----- -----
Total gross deferred tax asset $ 47,097 $ 44,134
-------- --------
(Continued)
December 31,
1997 1996
--------------------------
Deferred tax liabiliti-
Bank premises and equipment $ 7,314 $ 4,505
Pension plan 5,592 4,931
Leveraged leases - 225
Core deposit intangibles 12,175 8,472
Mortgage servicing rights 10,031 7,989
Unrealized gain on securities available for 1,345 970
sale
Other 2,787 1,574
----- -----
Total gross deferred tax liability 39,244 28,666
------ ------
Net deferred tax asset $ 7,853 $ 15,468
========= =========
There was no valuation allowance for the gross deferred tax asset as of
December 31, 1997, 1996 and 1995. The net change in the total valuation
allowance for the year ended December 31, 1995 was a decrease of $3.0 million.
This decrease is due to management's belief that it is now more likely than not
that DGLC will be able to utilize the entire portion of the investment tax
credit carryforwards.
At December 31, 1997, the Company had investment tax credit
carryforwards for federal income tax purposes of approximately $1.6 million
which are available to reduce DGLC's future federal income taxes, if any,
through 2001.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and anticipated future taxable income over the periods which the deferred
tax assets are realizable, management believes it is more likely than not the
Company will realize the benefits of these deferred tax assets.
Income taxes resulting from securities transactions were $731 thousand,
$41 thousand, and $322 thousand in 1997, 1996 and 1995, respectively.
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company has the following employee benefit plans:
- A defined benefit pension plan based upon age, length of employment and
hours of service covering substantially all employees; - A retirement
savings plan covering substantially all employees; - Deferred compensation
and stock plans covering certain key executives, directors, and advisory
directors; - Incentive stock plan covering certain key executives; and -
Employee stock purchase plan available to all full-time employees who have
attained legal majority and have one year of continuous service.
Employee benefit expense (benefit) related to these plans follows (in
thousands):
1997 1996 1995
---- ---- ----
Pension plan $ (817) $ (436) $ (17)
Retirement savings plan 3,411 2,902 2,693
54
<PAGE>
Deferred compensation plan 3,964 3,695 3,253
Other plans 868 793 393
--- --- ---
$ 7,426 $ 6,954 $ 6,322
======= ======= =======
Benefits under the defined benefit pension plan are based on years of
service and the employee's compensation during the last five years of
employment. The Company's funding policy is to contribute an amount which will
satisfy the minimum funding requirements of ERISA and will not exceed the
maximum tax-deductible amount allowed by the IRS. The annual contribution is
determined by an enrolled actuary and incorporates benefits earned to date and
in the future.
55
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the plan's funded status and amount
recognized in the Company's consolidated statements of condition (in thousands):
December 31,
1997 1996
----------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $97,016
in 1997 and $88,855 in 1996. $ 99,182 $ 90,622
---------- ----------
Projected benefit obligation for service rendered to date $ 115,038 $ 104,546
Plan assets at fair value, primarily corporate securities 171,978 134,853
------- -------
Plan assets in excess of projected benefit obligation 56,940 30,307
Unrecognized net gain from past experience different from that assumed (42,617) (16,818)
Prior service cost not yet recognized in net periodic pension cost 1,629 1,807
Unrecognized net asset, net of amortization over a fifteen-year period (1,853) (2,192)
------- ------
Prepaid pension cost $ 14,099 $ 13,104
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Net pension benefit included the following components (in thousands):
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 4,375 $ 3,656 $ 2,781
Interest cost on projected benefit obligation 7,681 6,954 6,318
Actual return on plan assets (38,910) (10,734) (8,571)
Net amortization and deferral 26,037 (312) (545)
-------- ----- -----
Net periodic pension benefit $ (817) $ (436) $ (17)
========== ========= =========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.25% in 1997 and 1996.
The rate of increase in future compensation was 5.0% in 1997 and 1996 and the
expected long-term rate of return on plan assets was 9.0% in 1997 and 1996.
Under the retirement savings plan, the Company automatically
contributes an amount equal to 2% of each participant's base salary to the plan.
A participant, in addition, may elect to contribute up to 15% of base salary to
the plan. The Company contributes an additional amount to the plan equal to 50%
of the participant's contribution up to 5% of base salary.
Participants of the deferred compensation plan can defer a portion of
their compensation for payment after retirement or termination of employment.
Life insurance contracts have been purchased which may be used to fund payments
under the plan.
The incentive stock plan includes the granting of incentive stock
options, nonqualified stock options, stock appreciation rights, and restricted
stock awards. Stock options are granted at a price equal to the market value of
the stock at the date of grant and are exercisable for a period not to exceed
ten years from the date of grant. The maximum number of shares subject to the
plan is 1.91 million.
The Company accounts for the incentive stock plan under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation cost
for the plan been determined consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts (in thousands except per share data):
1997 1996 1995
---- ---- ----
Net income
As reported $ 92,280 $ 83,610 $ 72,620
Pro forma 91,565 82,482 71,364
Basic net income per share
As reported $ 2.25 $ 2.16 $ 1.89
Pro forma 2.23 2.13 1.86
Diluted net income per share
56
<PAGE>
As reported $ 2.23 $ 2.14 $ 1.87
Pro forma 2.21 2.11 1.84
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
In the above pro forma disclosures, the fair value of each grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 1997, 1996 and
1995, respectively: risk-free investment rate of 6.87%, 6.34% and 6.28%,
expected dividend yield of 2.58%, 2.55% and 2.55%, expected life of seven years,
and expected volatility of 22.40%, 21.58%, and 19.99%.
The following table summarizes the Company's option activity (in
thousands):
1997 1996 1995
---- ---- ----
Options outstanding at beginning of year 678 886 848
Options issued and assumed 131 160 180
Options exercised and expired (135) (368) (142)
----- ----- ----
Options outstanding at end of year 674 678 886
=== === ===
All options are nonqualified stock options. The exercise prices of the
options are $31.00, $23.63, and $17.75 per share for options issued in 1997,
1996 and 1995, respectively. The weighted average exercise price of all options
outstanding at December 31, 1997 is $18.54.
Participants in the employee stock purchase plan may contribute up to
5% of their base salary. The Company's contribution to each participant's
account is 25% of the participant's contribution. Common stock of the Company is
purchased for the plan on the open market.
The Company also provides certain health care and life insurance
benefits for retired employees. For those employees who have retired and active
employees eligible to retire as of January 1, 1993, the Company shares in the
cost of these benefits. Employees eligible to retire are those age 55 with 10
years of service. The Company pays 50% of the cost of these benefits for the
retiree and covered spouse until the retiree becomes Medicare eligible (age 65).
After the retiree attains age 65, the retiree pays the full cost of these
benefits. Active employees not eligible to retire before January 1, 1993, pay
the full cost of coverage for these benefits at retirement. The plan is
unfunded.
The following table sets forth the amount recognized in the Company's
consolidated statements of condition (in thousands):
December 31,
1997 1996
------------------
Accumulated postretirement benefit obligation
Retired participants $ 879 $ 1,235
Fully eligible active plan participants 581 342
Other active plan participants 397 209
--- ---
1,857 1,786
Unrecognized net gain from past experience different from
that assumed and from changes in actuarial assumptions 321 409
--- ---
Accrued postretirement benefit cost $ 2,178 $ 2,195
======= =======
<TABLE>
<CAPTION>
Net periodic postretirement benefit cost included the following
components (in thousands):
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 33 $ 27 $ 20
Interest costs on projected benefit obligation 128 112 136
Net amortization and deferral (14) (52) (29)
---- ---- ---
Net periodic postretirement benefit cost $ 147 $ 87 $ 127
====== ====== =====
</TABLE>
57
<PAGE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% in 1997 and 1996. The assumed health care cost
trend rate used in measuring the accumulated postretirement benefit obligation
was 9.8% in 1997 and 10.6% in 1996, graded down to 9.0% in 1998 and graded down
each year to an ultimate rate of 5% in 2008. If the health care cost trend rate
assumptions were increased by 1%, the accumulated postretirement benefit
obligation as of December 31, 1997, would be increased by 1%. The effect of this
change on the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1997 would be an increase of 1%.
NOTE 13 - EQUITY RESTRICTIONS
DGNB is subject to certain regulations controlling national banks that
restrict the amount of dividends that may be distributed and the amount of loans
that may be made by the bank to the parent.
Dividends paid by the Company are substantially provided from dividends
received from DGNB. The approval of the Comptroller of the Currency is required
if the total of all dividends declared by a national bank in any calendar year
exceeds the total of its net profits, as defined, for that year combined with
its retained net profits of the preceding two years. DGNB has available for
payment of dividends in 1998, without regulatory approval, $13.9 million plus
its net profits for 1998.
NOTE 14 - REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, or discretionary actions by
regulators that, if undertaken, could have a direct and material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined). The
minimum required ratios of Total and Tier 1 capital to risk-weighted assets and
Tier 1 capital to average assets are 8.0%, 4.0% and 4.0%. respectively.
Management believes that the Company meets all capital adequacy requirements to
which it is subject at December 31, 1997.
At December 31, 1997, the most recent notification from the Office of
the Comptroller of the Currency categorized the Company's subsidiary bank, DGNB,
as well capitalized under the regulatory framework for prompt corrective action.
During 1997, the Company's other subsidiary banks were merged into DGNB. To be
categorized as well capitalized, the Company's subsidiary bank must maintain
Total risk-based, Tier I risk-based, and Tier I leverage ratios of 10.0%, 6.0%
and 5.0% respectively. There are no conditions or events since that notification
that management believes have changed the bank's category.
The Company's and its significant banking subsidiaries' actual capital
amounts and ratios are presented in the following table (dollars in thousands):
<TABLE>
December 31, 1997 December 31, 1996
----------------- -----------------
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets)
Consolidated $ 557,620 11.12% $ 554,254 12.67%
Deposit Guaranty National Bank 614,070 12.34 430,478 13.32
Commercial National Bank N/A N/A 109,072 12.79
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated 494,896 9.87 499,489 11.42
Deposit Guaranty National Bank 551,829 11.09 390,267 12.07
Commercial National Bank N/A N/A 98,345 11.54
Tier 1 Capital (to Average Assets)
58
<PAGE>
Consolidated 494,896 7.47 499,489 8.23
Deposit Guaranty National Bank 551,829 8.37 390,267 8.96
Commercial National Bank N/A N/A 98,345 9.05
</TABLE>
The Company is required to maintain cash on hand or noninterest-bearing
balances with the Federal Reserve Bank to meet reserve requirements. Such
reserve requirements are based on a percentage of the volume of certain
deposits. The average required balances with the Federal Reserve Bank for the
year ended December 31, 1997, was approximately $2 million.
NOTE 15 - OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENCIES
In the normal course of business the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby and
commercial letters of credit, securities lent, futures and forward contracts,
interest rate contracts and options. Those instruments involve, to varying
degrees, elements of credit and/or interest rate risk in excess of the amounts
recognized in the consolidated financial statements. The contract or notional
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby and commercial letters of credit is represented by the contractual
notional amount of those instruments. The Company uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. For futures, forward contracts, interest rate contracts, and
options, the contract or notional amounts do not represent exposure to credit
loss. Credit risk for those instruments is controlled by limits and monitoring
procedures.
COMMITMENTS
At December 31, 1997, the financial instruments with contract amounts
representing credit risk and those with notional or contract amounts exceeding
the amount of credit risk are listed in the following table (in thousands):
<TABLE>
Contract
Amount
<S> <C>
Financial instruments with contract amounts representing credit risk:
Commitments to extend credit $1,235,542
Standby letters of credit 96,003
Commercial letters of credit 3,617
Financial instruments with notional or contract amounts exceeding the amount of
credit risk:
Commitments to purchase securities 20,080
Commitments to sell securities 19,880
</TABLE>
Commitments to extend credit are agreements to lend money with fixed
expiration dates or other termination clauses. The Company periodically
reassesses the customers' creditworthiness through ongoing credit reviews. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Collateral is obtained based on the Company's assessment of the customer's
creditworthiness.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk and collateralization policy involved in issuing standby letters of credit
is essentially the same as that involved in extending loans to customers.
The Company issues commercial letters of credit which are short-term
commitments used to finance commercial contracts for the shipment of goods.
Under these instruments, the Company substitutes its own creditworthiness for
that of the customer by committing to pay a third party under certain
contractual conditions. These instruments are collateralized by the goods being
shipped.
59
<PAGE>
Securities lending involves transactions in which two parties
simultaneously lend securities of varying grades to each other, agreeing to
return these same securities at a future date. Collateral guidelines require the
lender of the relative lesser grade securities to deliver, through a tri-party
custodian, securities exceeding 102% of the market value of the securities
received by such lender. In order to reduce market risk, the securities, both
lent and received, are marked-to-market daily by the custodian. The process can
be terminated daily, so there is no term exposure. Furthermore, since this is a
securities loan, the Company retains ownership of such securities under this
program.
Commitments to purchase and sell securities, futures and forward
contracts are contracts for delayed delivery of securities, foreign currencies
or money market instruments in which the seller agrees to make delivery of a
specified instrument at a specified future date, at a specified price or yield.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts and from movements in interest rate and securities values.
60
<PAGE>
DERIVATIVES
Risk management derivative instruments are used to manage the Company's
exposure to interest rate and market risk. Exposure to market risk is managed in
accordance with risk limits set by senior management. All positions are netted
for risk-management purposes. Credit risk is minimized by using only
exchange-traded futures and options, utilizing a position netting strategy, and
requiring that all positions be fully collateralized.
The notional or contract amounts on risk management derivative
instruments normally exceed the amount of credit risk to the Company. The
positions of the Company in these instruments at December 31, 1997 is summarized
in the following table (in thousands):
Contract or
Notional
Amount
- --------------------------------------------------
Interest rate swap agreements $ 156,225
Interest rate floors 300,000
Forward contracts 139,195
Interest rate swap agreements are entered into by the Company primarily
to manage interest rate exposure. These are contractual agreements between
counterparties to exchange interest streams based on notional principal amounts
over a set period of time. Interest rate swap agreements normally involve the
exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. The notional or principal amount
does not represent an amount at risk, but is used only as a basis for
determining the actual cash flows related to the interest rate contracts. Market
risk, due to potential fluctuations in interest rates, is inherent in swap
agreements. At December 31, 1997, the Company had no aggregate estimated cost of
replacement ( the cost of replacing an existing contract if the counterparty
defaults) for the interest rate swap contracts. All interest rate swap
counterparties have collateral arrangements with the Company.
Interest-rate caps with three-year maturities were purchased during
1994 in anticipation of further increases in interest rates, and were assigned
to certificates of deposit with maturities of three months or less. The interest
rate caps allowed the Company to limit its exposure to unfavorable interest
fluctuations over and above a "capped" rate. A premium was paid for this
protection. The risk assumed by the Company was limited to the amount of the
premium and not the notional amount of the interest rate cap. At December 31,
1997, the Company did not have any outstanding interest rate caps.
Interest-rate floors with five-year maturities were purchased during
1995 in anticipation of decreases in interest rates, and were assigned to
commercial loans. The interest-rate floors allow the Company to limit its
exposure to unfavorable interest fluctuations below a particular rate. A premium
is paid for this protection. The risk assumed by the Company is limited to the
amount of the premium and not the notional amount of the interest-rate floor. At
December 31, 1997, the unamortized portion of the interest-rate floor was $1.9
million.
Futures and forward contracts are contracts for the delayed delivery of
securities in which the seller agrees to make delivery of a specified instrument
at a specified future date, at a specified price or yield. Risks arise from the
possible inability of the counterparties to meet the terms of their contracts
and from movements in interest rates and securities values. The Company intends
to offset or close out open positions prior to settlement; therefore, the total
contract amounts of futures and forward contracts represent the extent of the
Company's involvement. The Company is subject only to the change in value of the
instruments. Future contracts settle in cash daily, therefore there is minimal
risk to the Company.
The Company was a party to a small number of foreign exchange spot and
forward transactions during 1997. These contracts generally involve the exchange
of United States currency for a foreign currency. Spot foreign-exchange
transactions normally settle within two business days, and forward transactions
can settle up to a year in the future. At December 31, 1997, the Company had no
foreign exchange contracts outstanding.
Option contracts allow the holder of the option to purchase or sell a
financial instrument from the seller or writer of the option at a specified
price within a specified period of time. The Company has written call options on
securities held in the available for sale securities portfolio during the year.
Options which have been written do not expose the Company to credit risk. At
December 31, 1997, the Company had no option contracts outstanding.
LITIGATION
61
<PAGE>
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 16 - STOCK SPLIT
The Company declared a two-for-one stock split effective December 2,
1996. All shares outstanding and per share amounts are calculated assuming the
split occurred at the beginning of the earliest period presented.
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Because no market exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions significantly affect the estimates and as
such, the derived fair value may not be indicative of the value negotiated in an
actual sale and may not be comparable for the Company versus other financial
institutions.
In addition, the fair value estimates are based on existing
on-and-off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, the Company has
significant fee generation businesses that are not considered financial
instruments and their value has not been incorporated into the fair value
estimates. Significant assets that are not considered financial assets include
trust services, mortgage banking operations, brokerage network, deferred tax
assets, bank premises and equipment, core deposit intangibles and goodwill. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
Fair value estimates, methods, and assumptions are set forth below.
CASH AND SHORT-TERM INVESTMENTS: The carrying amount is a reasonable
estimate of fair value for cash, interest-bearing bank balances, federal funds
sold and securities purchased under agreements to resell due to the maturity of
those instruments being less than six months.
TRADING ACCOUNT SECURITIES: The carrying amount of trading account
securities is fair value which is based on quoted market prices, where
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES: Fair values
for securities available for sale and investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS: The fair values are estimated for portfolios of loans with
similar characteristics. Loans are segregated by type such as commercial taxable
and nontaxable, residential mortgage and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value of performing adjustable-rate loans is the carrying
value adjusted for the discounted value of the expected future loan losses. The
fair value of performing fixed-rate loans is calculated by discounting cash
flows based on estimated scheduled maturities reduced by expected future loan
losses. The discount rate is estimated using the rate currently offered for
similar loans with similar maturities. The fair value of residential mortgage
loans is based on quoted market prices.
62
<PAGE>
The fair value of nonperforming loans is calculated by discounting
expected cash flows as projected based on historical cash flows of such
nonperforming loans adjusted for expected loan losses. The discount rate is
estimated using the rates currently offered for acceptable credit quality loans
with similar maturities.
DEPOSITS: The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits and savings accounts, is equal to the amount
payable on demand, which is also their carrying amount. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar maturities.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings
approximate their fair values due to the short maturity of those instruments.
LONG-TERM DEBT: The fair value of the Company's long-term debt is
estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
COMMITMENTS: The fair value of commercial commitments to extend credit
and letters of credit is the remaining unamortized amount of the prepaid fee
charged to enter into the agreement or the discounted cash flows of estimated
fees that will be charged over the life of the agreement taking into account the
remaining terms of the agreements and counterparties' credit standing. The fair
value of residential mortgage lending commitments is based on quoted market
prices considering expected funding, the contractual interest rates and current
market rates.
DERIVATIVES: Interest rate swaps, interest rate caps, interest rate
floors, futures, forwards, and option contracts are the primary derivative
financial instruments used by the Company. The fair values of interest rate swap
agreements, interest rate caps, interest rate floors, futures, forwards, and
option contracts are obtained from market quotes. These values represent the
estimated amount the Company would receive or pay to terminate the contracts or
agreements, taking into account current interest rates and, when appropriate,
the current creditworthiness of the counterparties.
<TABLE>
<CAPTION>
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and short-term investments $ 488,945 $ 488,945 $ 434,381 $ 434,381
Trading account securities 1,459 1,459 2,505 2,505
Securities available for sale 1,424,527 1,424,527 1,462,038 1,462,038
Investment securities 174,952 181,266 145,087 152,412
Loans 4,367,032 4,390,859 3,917,672 3,919,005
Financial Liabilities
Deposits 5,373,962 5,380,493 5,025,749 5,042,909
Short-term borrowings 642,812 642,812 543,029 543,029
Long-term liabilities 186,397 189,544 99,405 100,659
Commitments
Commitments to extend credit (3,839) (8,696) (1,514) (6,576)
Letters of credit - (273) - (1,222)
Commitments to purchase securities - 32 - (894)
Commitments to sell securities - - - (18)
Risk Management Derivatives
Interest rate swap agreements (53) (2,677) 198 1,607
Forward contracts - (5,741) - 377
Interest rate caps - - 751 7
Interest rate floors 1,883 1,604 2,669 2,814
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
NOTE 18 - DEPOSIT GUARANTY CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF CONDITION
(in Thousands)
December 31,
1997 1996
----------------------------
<S> <C> <C>
Assets
Cash on deposit with bank subsidiary $ 2,604 $ 47,196
Interest-bearing bank balance with unaffiliated bank 7,600 -
Securities purchased from bank subsidiary under agreements to resell 21,500 -
Investment in subsidiaries:
Bank subsidiaries 705,709 637,423
Nonbank subsidiaries 8,090 7,742
Cash dividends receivable from bank subsidiaries 11,500 8,376
Other assets 27,103 27,651
--------- ---------
Total assets $ 784,106 $ 728,388
========= =========
Liabilities
Cash dividends payable $ 9,389 $ 8,156
Long-term liabilities 101,397 99,405
Other liabilities 38,082 39,561
------ -----------
Total liabilities 148,868 147,122
------- ----------
Stockholders' equity 635,238 581,266
------- ----------
Total liabilities and stockholders' equity $ 784,106 $ 728,388
========= =========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
(in Thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Income
Cash dividends from bank subsidiaries $ 143,858 $ 30,620 $ 24,334
Consultant and management fees from subsidiaries 35,902 34,289 28,114
Interest from subsidiaries 466 1,963 557
Other 784 167 108
--- ---------- ----------
Total income 181,010 67,039 53,113
------- -------- --------
Expenses
Interest 7,804 4,693 437
Salaries and employee benefits 23,368 25,597 21,118
Other 18,003 18,213 13,968
------ -------- --------
Total expenses 49,175 48,503 35,523
------ -------- --------
Income before income taxes and equity in undistributed income
(dividends in excess of income) of subsidiaries 131,835 18,536 17,590
Income tax benefit 6,519 5,211 4,513
----- ---------- ---------
Income before equity in undistributed income (dividends in excess of
income) of subsidiaries 138,354 23,747 22,103
Equity in undistributed income (dividends in excess of income) of subsidiaries:
Bank subsidiaries (46,422) 59,337 49,691
Nonbank subsidiaries 348 526 826
--- --------- --------
Net income $ 92,280 $ 83,610 $ 72,620
======== ======== ========
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(in Thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 92,280 $ 83,610 $ 72,620
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation and amortization 2,175 3,344 2,9862
Increase (decrease) in other liabilities (1,479) 11,723 5,557
Increase in other assets (504) (9,129) (3,424)
Dividends in excess of income (equity in undistributed income)
of subsidiaries 46,074 (59,863) (50,517)
------ ----------- ----------
Net cash provided by operating activities 138,546 29,685 27,222
------- --------- ----------
Cash flows from investing activities
Net increase in interest bearing balances with non affiliated bank (7,600) - -
Net decrease (increase) in securities purchased from bank subsidiary
under agreements to resell (21,500) - 13,466
Net decrease in notes receivable from nonbank subsidiary - 2,990 750
Payments for investments in and advances to subsidiaries (28,952) (174) (9,294)
Purchases of premises and equipment (3,961) (2,071) (1,086)
Proceeds from sales of premises and equipment 156 301 11
--- --- --
Net cash provided (used) by investing activities (61,857) 1,046 3,847
-------- ---------- ---------
Cash flows from financing activities
Increase (decrease) in short-term borrowings - (27,600) 27,600
Proceeds from long-term liabilities - 99,381 -
Proceeds from early termination of swap contract on long-term liabilities 2,038 - -
Proceeds from exercise of common stock options 1,931 3,845 997
Purchases of common stock (92,925) (39,100) (32,382)
Cash dividends paid (32,325) (26,507) (21,355)
-------- ---------- --------
Net cash provided (used) by financing activities (121,281) 10,019 (25,140)
--------- --------- --------
Net increase (decrease) in cash (44,592) 40,750 5,929
Cash at beginning of year 47,196 6,446 517
------ ---------- ----------
Cash at end of year $ 2,604 $ 47,196 $ 6,446
=========== ======== ========
</TABLE>
66
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Board of Directors of the Company is divided into three (3) classes
- - four (4) Class A Directors, five (5) Class B Directors and four (4) Class C
Directors.
The following table provides certain information about directors of the
Company. The column "Directorships Held in Other Companies" indicates other
directorships held in any company with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934 or subject to the
requirements of Section 15(d) of that Act or any company registered as an
investment company under the Investment Company Act of 1940.
<TABLE>
Directorships
Positions & Offices With Company Or Director of Held in Other
Directors Principal Occupations and Employment Company Age Companies
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard H. Bremer President, CSW Energy Services; President 1994 to present 49
(Class A) and Chief Executive Officer, Southwestern
Electric Power Co. September, 1990 to
May 1996
Howard L. McMillan, Jr. President and Chief Operating Officer of the 1984 to present 59
(Class A) Company
Richard D. McRae, Jr. President, McRae Investments (private 1992 to present 50
(Class A) investment company); President and
Chief Operating Officer, Proffitt's, Inc.
(retail department stores) April, 1994
to September, 1994; President and Chief
Executive Officer, McRae's, Inc. 1988 to
April, 1994
John N. Palmer Chairman and Chief Executive Officer, 1985 to April, 63 Mobile Telecommuni-
(Class A) Mobile Telecommunications Technologies 1986; April, cation Technologies
Corp. (telecommunications) 1987 to present Corp.; Entergy
Corporation; East
Group Properties
Haley R. Barbour Partner, Barbour Griffith and Rogers, Wash., 1985-1986; 50 Mobile Telecom-
(Class B) D.C. (law firm); Chairman, Policy Impact 1997 to present munications Tech-
Communications, Washington, D.C. (public nologies Corp.;
relations firm); Vice Chairman, International Mississippi Chemical
Equity Advisors, Washington, D.C.; Corporation
(counseling & lobbying firm); Managing
Director, National Environmental Strategics,
Washington, D.C. (environmental consulting
firm); Chairman, Republican National
Committee January, 1993 to January, 1997;
Partner, Barbour and Rogers, predecessor law
firm to Barbour Griffith and Rogers
William R. James President of Pruet Production Co., 1997 to present 48
(Class B) Chesley Pruet Drilling Co., Rapad
67
<PAGE>
Oilfield Services, Rapad Petroleum
Distributors, Inc. and Pruet Energy Corp.
A managing partner, Pruet Oil Company
Directorships
Positions & Offices With Company Or Director of Held in Other
Directors Principal Occupations and Employment Company Age Companies
- ------------------------------------------------------------------------------------------------------------------------------------
Booker T. Jones President, Chief Executive Officer, 1997 to present 54
(Class B) MINACT, Inc. (Jackson, MS based
management training firm)
E.B. Robinson, Jr. Chairman of the Board and Chief 1981 to present 56
(Class B) Executive Officer of the Company
J. Kelley Williams Chairman and Chief Executive Officer, 1975 to present 63 ChemFirst, Inc.
(Class B) ChemFirst, Inc. (industrial and agricultural
specialty chemicals, chemical industry
products and services)
Sharon S. Greener Chairman of the Board of Stribling 1997 to present 54
(Class C) Equipment, Inc. (John Deere industrial
equipment dealership) and Empire Truck
Sales, Inc. (Freightliner heavy truck
dealership)
Warren A. Hood, Jr. Chairman of the Board, Hood Industries, 1990 to present 46
(Class C) Inc. (manufacturing of building and
forest products)
Charles L. Irby Chairman of the Board and President, 1989 to present 43
(Class C) Irby Construction Company (power and
telecommunications contractor);
Vice President, Stuart C. Irby Co. (wholesale
electrical supplier)
W.R. Newman, III President, J.A. Bentley Lumber Company; 1972 to present 58
(Class C) Vice President, 1989 to 1990 and
Director, 1989 to present, Pacific
Coast Paging, Inc. (paging and answering
service, southern California); President
and Director, ManuTech, Inc. 1988 to 1990
(manufacturer of gas logs)
</TABLE>
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock. Executive officers and directors are required by
Securities and Exchange Commission Regulations to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company and
written representations that no other reports were required, during the fiscal
year ended December 31, 1997, all section
68
<PAGE>
16(a) filing requirements applicable to the Company's executive officers and
directors were compiled with, except Haley Barbour who filed his Form 3 late and
Mr. Lenoir who reported late on an amended Form 4 a December, 1996 acquisition
by gift to a trust in which he has a pecuniary interest.
Additional information concerning executive officers of the Company is
located on page 4 of this Form 10-K under Part I Item 1., Business.
Item 11. Executive Compensation
Shown below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the years ended
1997, 1996 and 1995 of the CEO and the Company's four (4) most highly
compensated officers other than the CEO (collectively, the "Named Executive
Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Base Compensation Awards(1) All Other
Other Annual Options Compensa-
Name and Principal Position Year Salary($) Bonus($) Compensation($) (Shares) tion($)(2)
- --------------------------- ---- --------- -------- --------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
E.B. Robinson, Jr. 1997 $ 399,128 285,243 - 25,000 $ 89,347
Chairman of the Board & Chief 1996 395,980 349,340 - 22,000 86,158
Executive Officer of the Company 1995 380,899 406,918 - 34,000 70,485
Howard L. McMillan, Jr. 1997 253,935 151,232 - 12,000 66,190
President & Chief Operating 1996 253,935 185,216 - 10,400 53,449
Officer of the Company 1995 253,309 244,195 - 16,200 38,582
Steven C. Walker 1997 219,956 113,189 - 10,000 33,779
Executive Vice President 1996 220,093 145,920 - 9,000 28,135
1995 219,906 194,329 - 34,000 19,936
James S. Lenoir 1997 165,928 90,631 - 5,000 28,612
Executive Vice President & Chief 1996 160,570 105,656 - 4,400 24,530
Credit Officer of the Company 1995 160,570 141,063 - 7,000 15,194
Arlen L. McDonald 1997 157,402 78,851 - 5,000 24,030
Executive Vice President & Chief 1996 156,383 103,838 - 4,400 21,158
Financial Officer of the Company 1995 149,883 130,981 - 7,000 15,290
</TABLE>
(1) Although the Company's incentive plan permits grants of Incentive
Stock Options, Restricted Stock Awards and SARs, no grants of these incentives
have been made. All stock options are post-1996 stock split equivalents.
(2) "All Other Compensation" consists of:
69
<PAGE>
Above Market
Company Earnings
Contribution On Deferred
Name To the 401k Plan Compensation Total
-----------------------------------------------------
Robinson $ 5,687 $ 83,660 $ 89,347
McMillan 6,644 59,546 66,190
Walker 7,309 26,470 33,779
Lenoir 3,181 25,431 28,612
McDonald 5,858 18,172 24,030
Option Grants
Shown below is information on grants of stock options pursuant to the
Company's incentive plan during 1997 to the Named Executive Officers. No SAR's
were granted under that plan in 1997.
70
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable Value
% of Total at Assumed Annual Rates of Stock
Options Granted Exercise Price Appreciation for Option
Options Granted to Employees in Price (2) Expiration Term (3)
-----------------------------
Name in 1997 (#)(1) 1997 ($ Per Share) Date 5.0%($) 10.0%($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E.B. Robinson, Jr. 25,000 19.1% $ 31.00 April 15, 2007 $ 487,393 $ 547,507
Howard L. McMillan, Jr. 12,000 9.2 31.00 April 15, 2007 233,949 262,804
Steven C. Walker 10,000 7.6 31.00 April 15, 2007 194,957 219,003
James S. Lenoir 5,000 3.8 31.00 April 15, 2007 97,479 109,501
Arlen L. McDonald 5,000 3.8 31.00 April 15, 2007 97,479 109,501
</TABLE>
(1) All stock options were exercisable six (6) months after the date
of the grant.
(2) The exercise price was equal to the closing price on the NYSE on
the date of the grant.
(3) The valuation of the stock grants at five percent (5%) and ten
percent (10%) appreciation rates are solely to comply with
Securities and Exchange Commission ("SEC") Regulations and are
not intended to imply future value of Company Stock.
<TABLE>
<CAPTION>
OPTIONS EXERCISED IN 1997 AND YEAR END OPTION VALUE
Number of
Securities Underlying
Shares Acquired on Unexercised Options Value of Unexercised
Exercise Value At Year End (#) (1) In the Money Options
Name In 1997 (#) Realized ($) Exercisable/Unexercisable At Year End ($) (2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E.B. Robinson, Jr. - - 149,000/0 $ 5,641,125
Howard L. McMillan, Jr. - - 38,600/0 1,290,125
Steven C. Walker 21,000 $ 365,750 60,000/0 2,189,250
James S. Lenoir - - 40,400/0 1,627,675
Arlen L. McDonald 7,000 99,750 9,400/0 275,675
</TABLE>
(1) All stock options granted prior to 1993 were exercisable upon the
grant of the option. All stock options granted in 1993, 1994, 1995, 1996, and
1997 are exercisable six (6) months after the date of grant.
(2) Based on the closing price on the New York Stock Exchange
($56.875) on December 31, 1997.
71
<PAGE>
Retirement Income Plan
Under its Retirement Income Plan, the Company offers retirement income
benefits to employees of the Company and its subsidiaries who are twenty-one
(21) years of age, have been employed for one (1) year and have completed one
thousand (1,000) hours of service. Benefits payable under the plan are based
upon the five (5) year average base salary of the participant, which does not
include payments under any benefit program or bonuses, and the participant's
credited years of service. Base salary in 1996 for the individuals named in the
Summary Compensation Table was as follows: E.B. Robinson, Jr. ($399,128); Howard
L. McMillan, Jr. ($253,935); Steven C. Walker ($219,956); James S. Lenoir
($165,928); and Arlen L. McDonald ($157,402). Normal retirement age under the
plan is sixty-two (62), but participants may elect an early or a postponed
retirement date, in which case benefits are adjusted. Contributions to the plan
made by the Company or its subsidiaries are determined actuarially.
The following table indicates the estimated annual benefits payable to
persons in specified classifications upon retirement at age sixty-two (62),
assuming the highest salary earning years are during the five (5) years prior to
retirement. Amounts shown are not subject to offset for social security or other
items. Amounts shown are computed on a life-only option basis.
Five Years
Average Base Credited Years of Service
Salary 15 20 25 30 35 40
- ---------------------------------------------------------------------------
$50,000 $ 9,938 $ 13,250 $ 16,563 $ 19,875 $ 23,188 $ 26,113
75,000 16,200 21,600 27,000 32,400 37,800 42,188
100,000 22,463 29,950 37,438 44,925 52,413 58,263
150,000 34,988 46,650 58,313 69,975 81,638 90,413
200,000 37,493 49,990 62,488 74,985 87,483 96,843
300,000 37,493 49,990 62,488 74,985 87,483 96,843
400,000 37,493 49,990 62,488 74,985 87,483 96,843
500,000 37,493 49,990 62,488 74,985 87,483 96,843
Credited years of service upon retirement for the individuals named
above are anticipated to be as follows: E.B. Robinson, Jr. (36); Howard L.
McMillan, Jr. (37); Steven C. Walker (25); James S. Lenoir (40); and Arlen L.
McDonald (42).
Director Compensation
Non-officer directors receive an annual retainer fee of $3,000, a $500
fee for each board meeting attended and a $400 fee for attendance at each
meeting of any committees on which they serve. Committee Chairmen receive an
additional $200 fee for each committee meeting attended as Chairman of such
committee. Each non-officer director also receives an annual retainer fee of
$3,000 and $300 for each board meeting attended as director of Deposit Guaranty
National Bank.
First American Directorships; Advisory Boards. Pursuant to the pending
Merger Agreement with First American Corporation, the First American Board will
be expanded by five members, and the First American Board will fill the
vacancies created by such expansion with such current members of the Company's
Board as will be mutually agreed upon by First American and the Company. As of
the date of this Form 10-K, the First American Board has not selected any of
such individuals for positions. The Merger Agreement also provides that,
following the Effective Time of the merger, First American will cause each
member of the Company's Board who is not elected to serve on the First American
Board (as described above), and each member of the Board of Directors of Deposit
Guaranty National Bank to be appointed to or elected to serve on (or to continue
to serve on) one of the Advisory Boards. All members of the Advisory Boards will
be entitled to serve on the Advisory Boards for minimum of thirty-six months
following the Effective Time, and will be paid specified retainers and meeting
fees in respect of their service on the Advisory Boards.
Pursuant to the Company's Directors Deferred Income Plan, the Company
permits non-officer directors to elect annually to defer up to one hundred
percent (100%) of fees to be earned during the following year. The minimum
deferral amount per year is one thousand dollars ($1,000). Generally amounts
deferred are payable with interest to the participant in accordance with the
participant's agreement with the Company, or upon termination of employment,
disability or retirement, or to the participant's beneficiaries if the
participant dies. The interest rate, adjusted annually varies depending on
several factors, including the event which results in the distribution of the
deferred amounts and the age of the participant at the time of deferral. The
interest rates for pre-retirement benefits, post-retirement payments and
disability benefits are based upon a percentage of the 12-month average of the
Moody's Average Corporate Yield, published monthly by Moody's Investor Service.
Post retirement benefits are paid in ten (10) annual installments.
72
<PAGE>
The termination benefit consists of a lump sum benefit equal to the
participant's deferral with interest thereon at the effective rate of ten
(10) year U.S. Treasury Obligations on January 1 of the year of deferral
compounded annually from the first day of the plan year in which the deferral
was made. If a participant's service as a director terminates for any reason
during a period of two (2) years after a change in control of the
Company, prior to the participant meeting the requirements for receiving post
retirement benefits, the person will be entitled to termination benefits, but
at the same rates used in the calculation for post- retirement payments.
First American has agreed to assume and to perform all of the Company's
obligations under the Deferred Income Plans, and has further agreed not to
terminate or amend the Deferred Income Plans in any manner adverse to the
interests of the Deferred Income Plan participants. The Merger Agreement further
contemplates that the Deferred Income Plans may be amended prior to the
Effective Time of the merger to provide that there may be no amendment of the
Deferred Income Plans in any way which would impair the right of the Deferred
Income Plan participants to accrue interest at favorable rates or to elect to
receive early retirement benefits pursuant to the existing provisions of
Deferred Income Plans.
Employment Contracts and Termination of Employment and Change of Control
Arrangements. In connection with the execution of the Merger Agreement, Mr.
Robinson has entered in to an employment agreement with First American which
will become effective if the First American merger is consummated.
Pursuant to the agreement, Mr. Robinson will be employed by First American as
Vice Chairman and Chief Operating Officer, President of First American
National Bank, and as a member of First American's Policy Team. Mr. Robinson
will also serve on the First American Board and on the First American
Board's executive committee during the term of the agreement. The term of
the agreement commences on the Effective Time and continues until the last
day of the calendar month in which Mr. Robinson's 62nd birthday occurs.
Mr. Robinson's salary will be no less than $600,000 per year during the
term of the agreement, or, if greater, 80% of the base salary paid to the chief
executive officer of First American. Mr. Robinson will also be eligible to
receive an annual incentive bonus, targeted at 50% of his base salary, with a
maximum potential bonus award equal to 100% of base salary. In no event will the
base salary and bonus paid to Mr. Robinson be less than 80% of the sum of the
annual base salary and bonus paid to the chief executive officer of First
American with respect to the same year. As of the Effective Time, Mr. Robinson
will be granted 45,000 restricted shares of First American Common Stock, and an
option to acquire 90,000 shares of First American Common Stock, which option
will have an exercise price equal to the fair market value of First American
Common Stock as of the date of grant. The restrictions on the restricted stock
will lapse, and the options will vest and become exercisable, in each case, in
three equal installments, on each of the first three anniversaries of the date
of grant (subject to acceleration upon a change of control of First American).
The options generally have a ten-year term from the date of grant. In addition,
Mr. Robinson will receive an annual stock incentive grant during the term of the
agreement with a value equal to 166% of his base salary.
Mr. Robinson will also be paid an annual retirement benefit commencing
at age 62, which benefit will be equal to 60% of Mr. Robinson's final average
pay (as defined in the agreement), less benefits payable under certain other
retirement plans and arrangements of the Company. The agreement also provides
for a retirement benefit to be paid to Mr. Robinson's spouse, should she survive
him.
The agreement further provides that, upon any termination of Mr.
Robinson's employment with First American other than for cause or by reason of
death or disability, or if Mr. Robinson terminates his employment for good
reason (as defined in the merger agreement) he is generally entitled to payment
of any unpaid salary, a pro rata bonus, immediate vesting of the option and
restricted stock granted pursuant to the agreement, continuation of medical and
welfare benefits through the date on which the term of the agreement otherwise
would have ended, and additional service credit for purposes of the calculation
of retirement benefits. In addition, Mr. Robinson will be entitled to a lump sum
payment equal to the product of (i) the number of months from the date of
termination until the end of the calendar month in which Mr. Robinson's 62nd
birthday occurs divided by 12, and (ii) the sum of Mr. Robinson's existing base
salary and highest bonus earned in the three years prior to the Effective Time.
If payments received by Mr. Robinson are subject to an excise tax under Section
4999 of the Code, Mr. Robinson will be entitled to receive an additional amount
necessary to make him whole with respect to such excise tax, unless such
payments (excluding additional amounts payable due to the excise tax) do not
exceed 110% of the greatest amount which could be paid without giving rise to
the excise tax, in which case no additional payments will be made with respect
to the excise tax, and the payments otherwise due Mr. Robinson will be reduced
in an amount necessary to prevent the application of the excise tax.
The agreement also provides that Mr. Robinson is entitled to
participate in the employee benefit plans, practices and policies which are
applicable to peer executives of First American, including change in control
severance agreements which are to be entered into prior to or as of the
Effective Time. The agreement, once effective, supersedes any other employment,
severance or change in control agreement between Mr. Robinson and the Company.
73
<PAGE>
In connection with the execution of the Merger Agreement, Mr. McMillan
has also entered in to an employment agreement with First American which will
become effective if the First American merger is consummated. Pursuant to the
agreement, Mr. McMillan will be employed by First American as Chairman of the
Company's operations within First American. The term of the agreement commences
on the Effective Time and continues until the third anniversary thereof.
Mr. McMillan's salary will be no less than $350,000 per year during the
term of the agreement. Mr. McMillan will also be eligible to receive an annual
incentive bonus, targeted at 50% of his base salary, with a maximum potential
bonus award equal to 100% of base salary. As of the Effective Time, Mr. McMillan
will also be granted 15,000 restricted shares of First American Common Stock,
and an option to acquire 30,000 shares of First American Common Stock, which
option shall have an exercise price equal to the fair market value of the First
American Common Stock as of the date of grant. The restrictions on the
restricted stock will lapse, and the options shall vest and become exercisable,
in each case, in three equal installments, on each of the first three
anniversaries of the date of grant (subject to acceleration upon a change of
control of First American). The options generally have a ten-year term from the
date of grant. In addition, Mr. McMillan will receive an annual stock incentive
grant during the term of the agreement with a value equal to 100% of his base
salary.
Mr. McMillan will also be paid an annual retirement benefit commencing
at age 62, which benefit shall be equal to 50% of Mr. McMillan's final average
pay (as defined in the agreement), less benefits payable under certain other
retirement plans and arrangements of the Company. The agreement also provides
for a retirement benefit to be paid to Mr. McMillan's spouse, should she survive
him.
The agreement further provides that, upon any termination of Mr.
McMillan's employment with First American other than for cause or by reason of
death or disability, or if Mr. McMillan terminates his employment for good
reason (as defined in the merger agreement) he is generally entitled to a lump
sum payment of any unpaid salary, a pro rata bonus, immediate vesting of the
option and restricted stock granted pursuant to the agreement, continuation of
medical and welfare benefits through the date on which the term of the agreement
otherwise would have ended, and additional service credits for purposes of the
calculation of retirement benefits. In addition, Mr. McMillan will be entitled
to a payment equal to the product of (i) the number of months from the date of
termination until the end of the term divided by 12, and (ii) the sum of Mr.
McMillan's existing base salary and highest bonus earned in the three years
prior to the Effective Time. If payments received by Mr. McMillan are subject to
an excise tax under Section 4999 of the Code, Mr. McMillan will be entitled to
receive an additional amount necessary to make him whole with respect to such
excise tax, unless such payments (excluding additional amounts payable due to
the excise tax) do not exceed 110% of the greatest amount which could be paid
without giving rise to the excise tax, in which case no additional payments will
be made with respect to the excise tax, and the payments otherwise due Mr.
McMillan will be reduced in an amount necessary to prevent the application of
the excise tax.
The agreement also provides that Mr. McMillan is entitled to
participate in the employee benefit plans, practices and policies which are
applicable to peer executives of First American, including change in control
severance arrangements which are to be entered into prior to or as of the
Effective Time. The agreement, once effective, supersedes any other employment,
severance or change in control agreement between Mr. McMillan and the Company.
Change in Control Termination Agreements. The Company has entered into
Change of Control Termination Agreements (the "Change of Control Agreements")
with Messrs. Robinson, McMillan, Steven C. Walker, Arlen L. McDonald, Thomas M.
Hontzas, James S. Lenoir, W. Stan Pratt and W. Parks Johnson (each a "Covered
Executive") with an original term commencing on January 1, 1997 through December
31, 1997. The term of each of the Change of Control Agreements was automatically
extended pursuant to its terms on November 1, 1997 for an additional one-year
period. In addition, each Change of Control Agreement provides that, upon a
change of control of the Company (which occurred upon the signing of the Merger
Agreement), each such agreement will continue in effect for a period of 36
months following the month the change of control occurs.
The Change of Control Agreements provide that, if, during the term of
the agreement, the employment of a Covered Executive is terminated by the
Company without cause following a change in control, or if the Covered Executive
terminates his employment with the Company for good reason (as defined in the
Change of Control Agreement) following a change of control, the Covered
Executive will be entitled to receive a severance payment generally equal to two
times (three times for Messrs. Robinson, McMillan and Walker) the Covered
Executive's base salary, two times (three times for Messrs. Robinson, McMillan
and Walker) his average annual bonus for the last three years, immediate payment
of deferred compensation (other than compensation deferred pursuant to the
Company's Executive Deferred Income Plan), and to the continuation of medical
insurance benefits for two years (three years for Messrs. Robinson, McMillan and
Walker) following termination of employment (or until the Covered Executive
otherwise secures equivalent coverage). Pursuant to the Change of Control
Agreements, all the Company's Employee Stock Options held by the Covered
Executive will become exercisable in accordance with the terms of the Deposit
Guaranty Stock Based Long-Term Incentive Plan II, in the event of such a
termination. Payments made to each Covered Executive (other than Mr. Robinson)
pursuant to a Change of Control Agreement (and other payments made to a Covered
Executive) are subject to reduction in order to prevent the application of the
excise tax under Section 4999 of the Code to such payments. Under Mr. Robinson's
Change of Control Agreement,
74
<PAGE>
Mr. Robinson is entitled to receive an additional payment in an amount
sufficient for Mr. Robinson to be made whole notwithstanding the imposition of
the excise tax. Pursuant to the Merger Agreement as of the Effective Time, First
American has agreed to assume and honor, or to cause an appropriate subsidiary
to assume an honor, the Change of Control Agreements, among other employment,
severance and other compensation agreements entered into between the Company and
directors, officers and employees thereof. Following the Effective Time, Messrs.
Robinson and McMillan will not be entitled to receive benefits under their
respective Change of Control Agreements.
Item 12. Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
The following table shows the persons that are the beneficial owners of
more than five percent (5%) of the Company's Common Stock:
Name and Address Amount and Nature Percentage of
of Beneficial Owner of Beneficial Ownership Class
- -------------------------------------------------------------------------------
<S> <C> <C>
Deposit Guaranty National Bank 2,640,600 6.40%
P.O. Box 1200
Jackson, MS 39205
Charles L. Irby and Affiliated Interests 2,084,172 5.05%
815 S. State Street
Jackson, MS 39207
</TABLE>
(1) This information is as of December 31, 1997. On that date, in its
capacity as trustee, the Bank had sole voting power with respect to 2,482,835
shares of Company Common Stock and shared voting power with respect to 60,620
shares of Company Common Stock. In addition, it had sole investment power with
respect to 2,366,529 shares of Company Common Stock and shared investment power
with respect to 112,474 shares of Company Common Stock. E.B. Robinson, Jr.,
Howard L. McMillan, Jr., William R. James, Arlen L. McDonald and Richard D.
McRae, Jr. are members of the Asset Management Services Committee of Deposit
Guaranty National Bank and in such capacity share voting or investment power
with other members of this committee with respect to certain shares of Company
Common Stock held by Deposit Guaranty National Bank as trustee. The other member
of the Asset Management Services Committee is Thomas M. Hontzas, Executive Vice
President of the Company.
(2) This information is as of February 20, 1998. Includes 8,400 shares
held by Charles L. Irby and 2,011,272 shares held by Irby Construction Company
to which Charles L. Irby has sole voting and investment power. Also includes
64,500 shares held by the Elizabeth M. Irby Foundation to which Charles L. Irby
has shared voting and investment power.
The following table shows the number of shares of the Company's Common
Stock beneficially owned by each director, the CEO and the Company's four (4)
most highly compensated officers other than the CEO (collectively the "Named
Executive Officers") and by all directors, nominees and executive officers as a
group, as of February 20, 1998. Except as otherwise indicated, each director has
sole voting and investment power with respect to the shares shown in the table.
The amounts shown in the table do not include beneficial ownership of certain
shares held by Deposit Guaranty National Bank as trustee, with respect to which
E.B. Robinson, Jr., Howard L. McMillan, Jr., Arlen L. McDonald, William R.
James, Richard D. McRae and certain other officers which may be deemed to have
shared voting or investment power as described above, except that shares with
respect to which directors or officers have beneficial ownership in their
individual capacities as participants in the Company's Employee Stock Purchase
Plan are included.
75
<PAGE>
Directors, and Named Amount and Nature of Percentage
Executive Officers Beneficial Ownership of Class
- -------------------------------------------------------------------
Haley R. Barbour 49,648 1 *
Richard H. Bremer 1,000 *
Sharon S. Greener 33,896 *
Warren A. Hood, Jr. 40,000 *
Charles L. Irby 2,084,172 2 5.05%
W.R. James 68,67 3 *
B.T. Jones 400 *
James S. Lenoir 105,553 4 *
Arlen L. McDonald 12,638 5 *
Howard L. McMillan, Jr. 146,568 6 *
Richard D. McRae, Jr. 178,688 7 *
W.R. Newman, III 56,436 8 *
John N. Palmer 67,064 *
E.B. Robinson, Jr. 318,427 9 *
Steven C. Walker 61,230 10 *
J. Kelley Williams 12,264 *
21 Directors and Executive
Officers as a Group 3,397,925 11 8.24%
* Less than 1 percent
1Mr. Barbour has shared voting and investment power with respect to 3,352 shares
with his wife and 1,352 shares held by his wife.
2Mr. Charles L. Irby shares voting and investment power with respect to 64,500
shares held by the Elizabeth M. Irby Foundation.
3Mr. James has shared voting and investment power with respect to 10,000 shares
which are held by Pruet Production Co. of which he is President.
4The amount shown includes 40,400 shares which Mr. Lenoir has the right to
acquire through exercise of options granted under the Company's incentive plan.
5Mr. McDonald has shared voting and investment power with respect to 400 shares
held by his wife. The amount shown includes 9,400 shares which Mr. McDonald has
the right to acquire through exercise of options granted under the Company's
incentive plan.
6Mr. McMillan has shared voting and investment power with respect to 39,071
shares held by his wife or jointly with his wife. The amount shown includes
38,600 shares which Mr. McMillan has the right to acquire through exercise of
options granted under the Company's incentive plan.
7Mr. McRae has shared voting and investment power with respect to 151,080 shares
which are held by McRae Foundation, Inc. and 16,000 shares which are held by
TWORDC Foundation.
8Mr. Newman shares voting and investment power with respect to 29,632 shares
held by his wife.
9Mr. Robinson has shared voting power with respect to 48,129 shares held by
family members. The amount shown also includes 149,000 shares which Mr. Robinson
has the right to acquire through exercise of options granted under the Company's
incentive plan.
10The amount shown includes 60,000 shares which Mr. Walker has the right to
acquire through exercise of options.
76
<PAGE>
11The amount includes 428,352 shares which executive officers have the right to
acquire through exercise of options granted under the Company's incentive plan.
Item 13. Certain Relationships and Related Transactions
Other Transactions With Management
Through its subsidiary bank, the Company makes loans to its directors
and principal officers of its subsidiaries, and to associates of these directors
and principal officers. All such loans were made in the ordinary course of
business, and at the time the loans were made, were on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and did not involve more than
normal risk of collectibility or present other unfavorable features.
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report
<S> <C> <C>
(a)(1). Independent Auditors' Report 29
Consolidated Statements of Condition - December 31, 1997 and 1996 30
Consolidated Statements of Earnings - Years Ended December 31, 1997, 1996, and 1995 31
Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31,
1997, 1996, and 1995 32
Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996, and 1995 33
Notes to Consolidated Financial Statements 34-53
(2). Financial Statement Schedules normally required on Form 10-K are
omitted since they are not applicable
(3). Exhibit index is on page 65 of this Form 10-K and exhibits are filed herewith
(b) Reports on Form 8-K since September 30, 1997
Report filed on December 15, 1997
Other Events: Deposit Guaranty Corp. entered into an agreement to
merge with and into First American Corporation. Under the
Agreement, each share of Deposit Guaranty common stock will
be converted into 1.17 shares of First American Corporation
common stock.
Report filed on February 5, 1998
Financial Statements, ProForma Financial Information and
Exhibits: Deposit Guaranty reports record earnings and
files statements of financial highlights.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of Jackson,
Mississippi, on March 26, 1998.
DEPOSIT GUARANTY CORP.
BY: /s/ E. B. Robinson, Jr.
-------------------------------
E. B. Robinson, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
77
<PAGE>
78
<PAGE>
Name Title Date
/s/ E. B. Robinson, Jr. Chairman of the Board March 26, 1998
- ----------------------------
E. B. Robinson, Jr. and Director
Principal Executive Officer
/s/ Howard L. McMillan, Jr. President and Director March 24, 1998
- ---------------------------
Howard L. McMillan, Jr.
/s/ Arlen L. McDonald Executive Vice President March 24, 1998
- ----------------------------
Arlen L. McDonald
Principal Financial Officer
/s/ Stephen E. Barker Controller March 25, 1998
- ----------------------------
Stephen E. Barker
Principal Accounting Officer
/s/ Richard H. Bremer Director March 27, 1998
- ----------------------------
Richard H. Bremer
/s/ Haley R. Barbour Director March 27, 1998
- ----------------------------
Haley R. Barbour
/s/ Sharon S. Greener Director March 25, 1998
- ----------------------------
Sharon S. Greener
/s/ Warren A. Hood, Jr. Director March 25, 1998
- ----------------------------
Warren A. Hood, Jr.
/s/ Charles L. Irby Director March 26, 1998
- ----------------------------
Charles L. Irby
/s/ William R. James Director March 25, 1998
- ----------------------------
William R. James
/s/ Booker T. Jones Director March 27, 1998
- ----------------------------
Booker T. Jones
/s/ Richard D. McRae, Jr. Director March 25, 1998
- ----------------------------
Richard D. McRae, Jr.
/s/ W. R. Newman, III Director March 24, 1998
- ----------------------------
W. R. Newman, III
/s/ John N. Palmer Director March 26, 1998
- ----------------------------
John N. Palmer
/s/ J. Kelley Williams Director March 24, 1998
- ----------------------------
J. Kelley Williams
79
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Exhibit Number
- ---------
<S> <C> <C>
Agreement and Plan of 2 This document was previously filed as Exhibit 1 to the
Merger, dated as of Company's Current Report on Form 8-K filed December 15,
December 7, 1997 by 1997 and is hereby specifically incorporated by reference
and between First American herein.
Corporation and Deposit
Guaranty Corp.
Articles of Incorporaiton 3(I) This document was previously filed as Exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 and is here by specifically
incorporated by reference herein.
Bylaws 3(II) Filed herewith
Material Contracts 10
(1) Executive Variable Pay The written description of the Executive Variable Pay Plan
included under the caption "Executive Compensation" in the
definitive Proxy Statement of the Company, dated March 24,
1992, filed with the Commission pursuant to Rule 14a-6 and is
hereby specifically incorporated by reference herein.
(2) Deferred Income Plan The original plan and an amendment to the plan were
and Amendment I previously filed as Exhibit 10 to the Company's Annual Report on
(3) Stock-Based, Long-Term This document was previously filed as Exhibit 10 to the
Incentive Plan Company's Annual Report on Form 10-K (file number
(4) Stock-Based, Long-Term This document was previously filed as Exhibit "A" to
the Incentive Plan II definitive Proxy Statement of the Company dated March
29, 1993,
(5) Employment Contracts This document was previously filed as Exhibit 10 to the Company's
Annual Report on Form 10-K (file number 0-4518) for the fiscal
year ended December 31, 1996 and is hereby incorporated by
reference herein. The amendment to this document is filed herewith.
--------------
Statement Re: Computation of 11 Filed herewith
Per Share Earnings
Subsidiaries of the Company 21 Filed herewith
Independent Auditors' Consent 23 Filed herewith
80
<PAGE>
Financial Data Schedule 27 Filed herewith
</TABLE>
81
DEPOSIT GUARANTY CORP.
BYLAWS
As Amended
August 19, 1997
<PAGE>
TABLE OF CONTENTS
DEPOSIT GUARANTY CORP.
BYLAWS
PAGE
NO.
ARTICLE I. OFFICES
Section 1. Principal Office 1
Section 2. Registered Office 1
ARTICLE II. SHAREHOLDERS
Section 1. Annual Meeting 1
Section 2. Special Meetings 1
Section 3. Place of Meeting 2
Section 4. Notice of Meeting 2
Section 5. Closing of Transfer Books or 2
Fixing of Record Date
Section 6. Voting Lists 3
Section 7. Quorum 3
Section 8. Proxies 3
Section 9. Voting of Shares 4
Section 10. Voting of Shares by Certain Holders 4
Section 11. Cumulative Voting 4
Section 12. Shares Held by Nominees 5
Section 13. Corporation's Acceptance of Votes 5
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers 5
Section 2. Number, Tenure and Qualifications 5
Section 3. Regular Meetings 6
Section 4. Special Meetings 6
Section 5. Quorum and Voting 7
Section 6. Manner of Acting 7
Section 7. Action Without a Meeting 7
Section 8. Vacancies 7
Section 9. Compensation 7
Section 10. Presumption of Assent 7
Section 11. Executive and Other Committees 8
Section 12. Participation by Telephonic or 8
Other Means
Section 13. Voting of Shares in Other Corporations 8
Section 14. Honorary Director 8
ARTICLE IV. OFFICERS
Section 1. Appointment and Number 8
Section 2. Tenure of Office 9
Section 3. Nature of Employment & Termination of Officers 9
Section 4. Vacancies 9
Section 5. Chairman of the Board 9
Section 6. President 9
<PAGE>
Corp. Bylaws
Table of Contents
Page Two
Section 7. Vice President 9
Section 8. Secretary 10
Section 9. Chief Financial Officer 10
Section 10. Assistant Secretaries and 10
Assistant Treasurers
Section 11. Salaries 10
Section 12. Bonds 10
ARTICLE V. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares 10
Section 2. Transfer of Shares 11
ARTICLE VI. FISCAL YEAR 11
ARTICLE VII. DISTRIBUTION 11
ARTICLE VIII. CORPORATE SEAL 11
ARTICLE IX. WAIVER OF NOTICE 11
ARTICLE X. AMENDMENTS 12
ARTICLE XI. EMERGENCY BYLAWS 12
ARTICLE XII. MISCELLANEOUS PROVISIONS 13
Section 1. Execution of Instruments 13
Section 2. Capital Expenditures 13
<PAGE>
DEPOSIT GUARANTY CORP.
BYLAWS
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation in
the State of Mississippi shall be located in the City of Jackson, County of
Hinds County. The Corporation may have such other offices, either within or
without the State of Mississippi, as the Board of Directors may designate or as
the business of the corporation may require from time to time.
Section 2. Registered Office. The registered office of the Corporation
required by the Mississippi Business Corporation Act to be maintained in the
State of Mississippi may be, but need not be, identical with the principal
office in the State of Mississippi, and the address of the registered office may
be changed from time to time by the Board of Directors
as provided by law.
ARTICLE II
Shareholders
Section 1. Annual Meeting. The annual meeting of shareholders shall be
held on the third Tuesday in the month of April in each year at such time and
place as may be determined by the Directors, for the purpose of electing
Directors and for the transaction of such other business as may properly come
before the meeting. If the date fixed for the annual meeting shall be a legal
holiday in the State of Mississippi, such meeting shall be held on the next
succeeding business day.
If the election of Directors shall not be held on the day designated
herein for any annual meeting of the shareholders, or at any adjournment
thereof, the Board of Directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the Board of Directors, by the Chairman of the Board of Directors or by the
President. Unless the Articles of Incorporation provide otherwise, special
meetings of the shareholders shall be called by the Chairman if the holders of
at least ten percent (10%) of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting sign, date and deliver
to the Corporation's Secretary one or more written demands for the meeting
describing the purpose or purposes for which it is to be held. If not otherwise
fixed under applicable law, the record date for determining shareholders
entitled to demand a special meeting is the date the first shareholder signs the
demand. Business transacted at all special meetings shall be confined to such
business as is properly brought before the meeting in accordance with the Bylaws
and as is stated in the notice.
To be properly brought before a meeting, business must be specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board and (a) properly brought before the meeting by or at the direction
of the Board or (b) properly brought before the meeting by a shareholder. In
addition to any other applicable requirements, for business to be properly
brought before a meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received by
the Secretary of the Corporation, not less than sixty (60) days nor more than
seventy-five (75) days prior to the meeting if the meeting is an annual meeting,
and not less than forty (40) nor more than sixty (60) days prior to the meeting
if the meeting is a special meeting; provided, however, that in the event that
less than sixty (60) days' notice or prior public disclosure of the date of the
annual meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Two
the fifteenth (15th) day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and record
address of the shareholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by the shareholder,
and (iv) any material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at any meeting except in accordance with the procedures set
forth in this Section 2, provided, however, that nothing in this Section 2 shall
be deemed to preclude discussion by any shareholder of any business properly
brought before an annual meeting.
The Chairman of a meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Mississippi for any annual meeting
or for any special meeting. A valid waiver of notice signed by all shareholders
entitled to notice may designate any place, either within or without the State
of Mississippi as the place for any annual meeting or for any special meeting.
Unless the notice of the meeting states otherwise, the meeting shall be held at
the Corporation's principal office.
Section 4. Notice of Meeting. The Corporation shall notify shareholders
entitled to vote at the meeting of the date, time and place of each annual and
special shareholders' meeting no fewer than ten (10) nor more than sixty (60)
days before the meeting date, either personally or by mail, by or at the
direction of the officer or persons calling the meeting. Unless applicable law
or the Articles of Incorporation require otherwise, the Corporation shall give
notice only to shareholders entitled to vote at the meeting. Notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid.
Unless applicable law or the Articles of Incorporation require
otherwise, notice of an annual meeting need not include a description of the
purpose or purposes for which the meeting is called. Notice of a special meeting
must include a description of the purpose or purposes for which the meeting is
called.
Unless these Bylaws require otherwise, if an annual or special
shareholders' meeting is adjourned to a different date, time or place, notice
need not be given of the new date, time or place if the new date, time or place
is announced at the meeting before adjournment. If a new record date for the
adjourned meeting is or must be fixed under applicable law or Article II,
Section 5 of these Bylaws, however, notice of the adjourned meeting must be
given under this section to persons who are shareholders as of the new record
date.
Section 5. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of a shareholders'
meeting, to demand a special meeting, to vote or to take any other action, the
Board of Directors of the Corporation may fix the record date, which may not be
more than seventy (70) days before the meeting or action requiring a
determination of shareholders. If not otherwise fixed by law or by the Board of
Directors, the record date for determining shareholders entitled to notice or
and to vote at an annual or special shareholders' meeting is the close of
business on the day before the first notice is delivered to shareholders. If the
Board of Directors does not fix the record date for determining shareholders
entitled to a distribution (other than the one involving a repurchase or
reacquisition of shares), it is the date the Board of Directors authorizes the
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Three
distribution. A determination of shareholders entitled to notice of or to vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date which it must do if the
meeting is adjourned to a date more than one hundred twenty (120) days after the
date fixed for the original meeting.
Section 6. Voting Lists. After fixing a record date for a meeting, the
Corporation shall prepare an alphabetical list of the names of all its
shareholders who are entitled to notice of a shareholders' meeting. The list
shall be arranged by voting group (and within each voting group by class or
series of shares) and show the address of and number of shares held by each
shareholder.
The shareholders' list shall be available for inspection by any
shareholder beginning two (2) business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting, at the
Corporation's principal office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, his agent or attorney
shall be entitled on written demand to inspect and, subject to the requirements
of applicable law, to copy the list during regular business hours and at his
expense, during the period it is available for inspection. The Corporation shall
make the shareholders' list available at the meeting, and any shareholder, his
agent or attorney is entitled to inspect the list at any time during the meeting
or any adjournment.
Section 7. Quorum. Unless the Articles of Incorporation or applicable
law impose other quorum requirements, a majority of the votes entitled to be
cast on the matter by a voting group, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter. If less than
a majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice except as may be required by Article II, Section 4 of these
Bylaws or by applicable law. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the Articles of Incorporation or applicable law provide
otherwise, a majority of votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter. Once
a share is represented for any purpose at a meeting, it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for that adjourned meeting.
Section 8. Proxies. A shareholder may appoint a proxy to vote or
otherwise act for him by signing an appointment form, either personally or by
his attorney-in-fact. An appointment of a proxy is effective when received by
the Secretary or other officer or agent authorized to tabulate votes of the
Corporation before or at the time of the meeting. No appointment shall be valid
after eleven (11) months from the date of its execution, unless a longer period
is expressly provided in the appointment form. An appointment of a proxy is
revocable by the shareholder unless the appointment form conspicuously states
that it is irrevocable and that the appointment is coupled with an interest.
Appointments coupled with an interest include the appointment of (1) a pledgee;
(2) a person who purchased or agreed to purchase the shares; (3) a creditor of a
corporation who extended it credit under terms requiring the appointment; (4) an
employee of a corporation whose employment contract requires the appointment; or
(5) a party to a voting agreement created under applicable law.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment. An appointment made
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Four
irrevocable because it is coupled with an interest is revoked when the interest
with which it is coupled is extinguished. A transferee for value of shares
subject to an irrevocable appointment may revoke the appointment if he did not
know of its existence when he acquired the shares and the existence of the
irrevocable appointment was not noted conspicuously on the certificate
representing the shares or on the information statement for shares without
certificates.
Subject to applicable law and to any express limitation on the proxy's
authority appearing on the face of the certificate, the Corporation is entitled
to accept the proxy's vote or other action as that of the shareholder making the
appointment.
Section 9. Voting of Shares. Subject to the provisions of Section 11 of
this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders. If a
quorum exists, action on a matter (other than the election of Directors) by a
voting group is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless the Articles of
Incorporation or applicable law require a greater number of affirmative votes.
Voting at all meetings may be oral, but any qualified voter may demand a vote by
ballot, and each such ballot shall state the name of the shareholder voting and
the number of shares voted by him; and if such ballot be cast by a proxy, it
shall also state the name of such proxy.
Section 10. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine.
Absent special circumstances, shares are not entitled to vote if they
are owned, directly or indirectly, by a corporation, domestic or foreign, and a
majority of the shares of that corporation entitled to vote for the directors of
that corporation are owned, directly or indirectly, by this Corporation. This
does not limit the power of this Corporation to vote any shares, including its
own shares, held by it in a fiduciary capacity.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name. Shares standing in
the name of a receiver may be voted by such receiver, and shares held by or
under the control of a receiver may be voted by such receiver without the
transfer thereof into his name if authority so to do be contained in an
appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation shall not be
voted, directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
Section 11. Cumulative Voting. Unless otherwise provided by law, at
each election of Directors every shareholder entitled to vote in the election
shall have the right to vote, in person or by proxy, the number of shares owned
by him for as many persons as there are Directors to be elected and for whose
election he has a right to vote, or to cumulate his votes by giving one (1)
candidate as many votes as the number of Directors to be elected multiplied by
the number of his shares shall equal, or by distributing such votes on the same
principal among any number of candidates.
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Five
Section 12. Shares Held by Nominees. The Corporation may establish a
procedure by which the beneficial owner of shares that are registered in the
name of a nominee is recognized by the Corporation as a shareholder. The extent
of this recognition may be determined in the procedure. The procedure may set
forth: (1) the types of nominees to which it applies; (2) the rights or
privileges that the Corporation recognizes in a beneficial owner; (3) the manner
in which the procedure is selected by the nominee; (4) the information that must
be provided when the procedure is selected; (5) the period for which selection
of the procedure is effective; and (6) other aspects of the rights and duties
created.
Section 13. Corporation's Acceptance of Votes. If the name signed on a
vote, consent, waiver or proxy appointment corresponds to the name of the
shareholder, the Corporation, if acting in good faith, is entitled to accept the
vote, consent, waiver or proxy appointment and give it effect as the act of the
shareholder.
If the name signed on a vote, consent, waiver or proxy appointment does
not correspond to the name of its shareholder, the Corporation, if acting in
good faith, is nevertheless entitled to accept the vote, consent, waiver or
proxy appointment and give it effect as the act of the shareholder if: (1) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (2) the name signed purports to be that of an
administrator, executor, guardian or conservator representing the shareholder
and, if the Corporation requests, evidence of fiduciary status acceptable to the
Corporation has been presented with respect to the vote, consent, waiver or
proxy appointment; (3) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation has been presented with
respect to the vote, consent, waiver or proxy appointment; (4) the name signed
purports to be that of a pledgee, beneficial owner or attorney-in-fact of the
shareholder and, if the Corporation requests, evidence acceptable to the
Corporation of the signatory's authority to sign for the shareholder has been
presented with respect to the vote, consent, waiver or proxy appointment; (5)
two (2) or more persons are the shareholders as co-tenants or fiduciaries and
the name signed purports to be the name of at least one (1) of the co-owners and
the person signing appears to be acting on behalf of all the co-owners.
The Corporation is entitled to reject a vote, consent, waiver or proxy
appointment if the Secretary or other officer or agent authorized to tabulate
votes, acting in good faith, has reasonable basis for doubt about the validity
of the signature on it or about the signatory's authority to sign for the
shareholder.
ARTICLE III
Board of Directors
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation
managed under the direction of, its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of Directors
of the Corporation shall not be more than twenty-five (25) nor less than nine
(9), the exact number of Directors to be determined from time to time by
resolution adopted by affirmative vote of a majority of the entire Board of
Directors. The number of Directors may be increased or decreased from time to
time by resolution adopted by affirmative vote of a majority of the entire Board
of Directors, but no decrease shall have the effect of shortening the term of
any incumbent Director. Each Director shall hold office until his successor
shall have been elect-
ed and qualified. Each Director must hold in his own right stock of the
Corporation, the aggregate par, book or market value of which is not less than
$1,000 as of the date of the Director's election. No person shall be elected
Director who is sixty-five (65) years of age or older on the first day of
January immediately preceding the election of Directors. No
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Six
Director shall be eligible for re-election who has more than 50% absences from
Board and Committee meetings, unexcused by the Board of Directors.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations of persons
for election to the Board of the Corporation at the annual meeting may be made
by or at the direction of the Board of Directors, by any nominating committee or
person appointed by the Board, or by any shareholder of the Corporation entitled
to vote for the election of Directors at the meeting who complies with the
notice procedures set forth in this Section 2.
Such nominations, other than those made by or at the direction of the Board,
shall be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive office of the Corporation not
less than sixty (60) days nor more than seventy-five (75) days prior to the
annual meeting; provided, however, that in the event that less than sixty
(60)days' notice or prior public disclosure of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the fifteenth (15th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such shareholder's
notice to the Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by such
person, (iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of Directors pursuant to
Rule 14A under the Securities Exchange Act of 1934, as amended, and (v) any
information relating to the person that is required to be disclosed in a notice
filed with the appropriate federal regulatory authority under the Change in Bank
Control Act by a person acquiring control of a bank (even if the person is not
required by the Change in Bank Control Act to file such a notice in the instant
case); and (b) as to the shareholder giving the notice (i) the name and record
address of shareholder, (ii) the class and number of shares of capital stock of
the Corporation which are beneficially owned by the shareholder, and (iii) any
information relating to the person that is required to be disclosed in a notice
filed with the appropriate federal regulatory authority under the Change in Bank
Control Act by a person acquiring control of a bank (even if the person is not
required by the Change in Bank Control Act to file such a notice in the instant
case). The Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as Director of the Corporation. No
person shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure or that the proposed nominee does not meet the
qualifications required of Directors by these Bylaws or by applicable law, and
if he should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 3. Regular Meetings. Unless the Articles of Incorporation or
these Bylaws provide otherwise, a regular meeting of the Board of Directors
shall be held without other notice than this Bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, for the holding of additional
regular meetings without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President, the Chairman of the Board
of Directors or by a majority of the Board of Directors. The notice of such
meeting shall include the date, time and place of the meeting. If no place for
the meeting has been designated in the notice, the
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Seven
meeting shall beheld at the principal office of the Corporation. Notice of any
special meeting shall be given at least three (3) hours previously thereto by
notice given personally to each Director at his business address, by telephone,
or by telegram, or at least two (2) days previously thereto by notice mailed to
each Director at his business address. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. Notice of
special meetings need not specify the business to be transacted at the meeting.
Any Director may waive notice of any meeting. The attendance of a
Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 5. Quorum and Voting. A majority of the number of Directors
fixed by Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such number necessary for a quorum is present at a meeting, a majority of
the Directors present may adjourn the meeting from time to time without further
notice.
Section 6. Manner of Acting. If a quorum is present when a vote is
taken, the affirmative vote of a majority of Directors present is the act of the
Board of Directors unless the Articles of Incorporation or Bylaws require the
vote of a greater number of Directors.
Section 7. Action Without a Meeting. Unless the Articles of
Incorporation or Bylaws provide otherwise, action required or permitted to be
taken at a Board of Directors' meeting may be taken without a meeting if the
action is taken by all members of the Board. The action must be evidenced by one
or more written consents describing the action taken, signed by each Director,
and included in the minutes or filed with the corporate records reflecting the
action taken. Action taken under this section is effective when the last
Director signed the consent, unless the consent specifies a different effective
date. Such a consent has the effect of a meeting vote and may be described as
such in any document.
Section 8. Vacancies. If a vacancy occurs on the Board of Directors,
including a vacancy resulting from an increase in the number of Directors, only
the shareholders may fill the vacancy. A Director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. A vacancy
that will occur at a specific later date (by reason of a resignation effective
at a later date or otherwise) may be filled before the vacancy occurs, but the
new Director may not take office until the vacancy occurs.
Section 9. Compensation. Unless the Articles of Incorporation or these
Bylaws provide otherwise, the Board of Directors may fix the compensation of
Directors. By resolution of the Board of Directors, each Director may be paid
his expenses, if any, of attendance at each meeting of the Board of Directors,
and may be paid a stated salary as a Director or a fixed sum for attendance at
each meeting of the Board of Directors or both. No such payment shall preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending meetings.
Section 10. Presumption of Assent. A Director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken shall be deemed to have assented to the action taken
unless: (1) he objects at the beginning of the meeting (or promptly upon his
arrival) to holding it or transacting business at the meeting; (2) his dissent
or abstention from the action taken is entered in the minutes of the meeting; or
(3) he delivers written notice of his dissent of abstention to the presiding
officer of the meeting before its adjournment or to the Corporation immediately
after the adjournment of the meeting. The right of dissent or abstention shall
not be available to a Director who votes in favor of the action taken.
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Eight
Section 11. Executive and Other Committees. The Board of Directors may
create one or more committees and appoint members of the Board of Directors to
serve on them. Each committee must have two (2) or more members, who serve at
the pleasure of the Board of Directors. The creation of a committee and
appointment of members to it must be approved by the greater of (1) a majority
of all the Directors in office when the action is taken or (2) the number of
Directors required by the Articles of Incorporation or Bylaws to take action. To
the extent specified by the Board of Directors or in the Articles of
Incorporation or Bylaws, each committee may exercise the authority of the Board
of Directors. A committee may not, however, authorize distributions; approve or
propose to shareholders action required by applicable law to be approved by
shareholders; fill vacancies on the Board of Directors or on any of its
committees; amend Articles of Incorporation pursuant to applicable law
authorizing amendment by the Board of Directors; adopt, amend or repeal Bylaws;
approve a plan of merger not requiring shareholder approval; authorize or
approve the reacquisition of shares, except according to a formula or method
prescribed by the Board of Directors; or authorize or approve the issuance or
sale or contract for sale of shares, or determine the designation and relative
rights, preferences and limitations of a class or series of shares, except that
the Board of Directors may authorize a committee (or a senior executive officer
of the Corporation) to do so within limits specifically prescribed by the Board
of Directors. Except as otherwise provided herein, provisions of these Bylaws
governing meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors apply to committees and
their members as well.
The Board shall annually appoint an Audit Committee, which may be joint
with subsidiaries of the Corporation, composed of not less than four Directors,
exclusive of any active officers, whose duties shall include causing an annual
audit to be made of the financial statements of the Corporation by independent
public accountants; reviewing with internal auditors and the accountants the
scope of audits, significant accounting policies and audit conclusions;
monitoring the adequacy of accounting, financial reporting and internal control
systems; discussing with management and nominating or terminating the
accountants; overseeing the internal audit function including the selection,
retention, evaluation and compensation of the chief internal auditor; and such
other duties as the Board may designate. The Audit Committee of the Corporation
may also serve as the Audit Committee of subsidiaries of the Corporation.
Special committees may be appointed by the Board of Directors from
among its members for such purposes as circumstances warrant. Any special
committee shall limit its activities to the accomplishment of the purposes for
which created and shall have no power to act except as is specifically conferred
upon it by resolution of the Board of Directors.
Section 12. Participation by Telephonic or Other Means. Unless the
Articles of Incorporation or these Bylaws provide otherwise, the Board of
Directors may permit any or all Directors to participate in a regular or special
meeting by, or conduct the meeting through the use of, any means of
communication by which all Directors participating may simultaneously hear each
other during the meeting. A Director participating in a meeting by
this means is deemed to be present in person at the meeting.
Section 13. Voting of Shares in Other Corporations. The Chairman, the
President, or such other officer or person as may be designated by resolution of
the Board of Directors may act for the Corporation in voting shares it owns of
any other corporation. The Board may determine the manner in which such shares
are to be voted or may delegate to its representative the authority to vote such
shares in the best interests of the Corporation.
Section 14. Honorary Director. A retired Chief Executive Officer of
the Corporation shall, upon said retirement, be eligible for election, annually,
as an Honorary Director of the Corporation, until the end of the calendar year
in which his seventieth (70th)
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Nine
birthday falls. Said honorary directorship shall expire at the end of the
calendar year in which the seventieth (70th) birthday falls.
ARTICLE IV
Officers
Section 1. Appointment and Number. The officers of the Corporation
shall be appointed by the Board of Directors at the first meeting of the Board
held after the annual meeting of the shareholders. The officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers (including Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents, Assistant Vice Presidents) as the Board, or in
the case of interim appointments below the level of Executive Vice President,
the Officer Review Committee, appointed by the Chairman of the Board, may deem
necessary. Interim appointments below the level of the Executive Vice President
may be approved by the Officer Review Committee. Any two or more offices may be
held by the same person.
Section 2. Tenure of Office. An officer shall hold his office at the
pleasure of the Board of Directors, unless he resigns, becomes disqualified, or
is terminated from employment in accordance with the provisions of Section 3 of
these bylaws. Any vacancy occurring in the office of the Chairman of the Board
shall be filled promptly by the Board of
Directors.
Section 3. Nature of Employment and Termination of Officers. Absent a
written agreement signed by the Chairman of the Board or President to the
contrary, all employment, including the employment of officers with the
Association, is at will. Appoint-
ment or election to an office does not change the nature of employment. The
employment of officers, like that of all other employees, may be terminated at
any time, for any reason, and without further obligation. The employment of
officers below the level of Executive Vice President may be terminated upon the
authority of the Officer Review Committee; the employment of all officers may be
terminated upon the authority of the Board.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The Board of Directors shall appoint
one of its members as Chairman. The Chairman shall be the Chief Executive
Officer of the Corporation, shall preside at all meetings of the Board, and in
general shall perform all duties incident to the office of Chairman and such
other duties as may prescribed from time to time by the Board of Directors. The
Chief Executive Officer shall have the power to vote all shares of stock owned
by the Corporation in another corporation.
Section 6. President. The President shall have such executive duties as
are prescribed by the Board of Directors. The President of the Corporation shall
be its Chief Operating Officer. He may sign, with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 7. Vice President. In the absence of the President or in the
event of his death, inability or refusal to act, any Vice President may be
designated by the Board to
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Ten
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any Vice
President elected by the Board of Directors shall perform such other duties as
from time to time may be assigned to him by the President or by the Board of
Directors.
Section 8. Secretary. The Secretary shall prepare and keep the minutes
of the shareholders' and Board of Directors' meetings in one or more books
provided for that purpose. He shall see that all notices are duly given in
accordance with the provisions of these Bylaws except where otherwise expressly
provided in these Bylaws or as required by law. He shall be the custodian of the
corporate records and of the seal of the Corporation, authenticate records of
the Corporation and in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 9. Chief Financial Officer. There shall be a Chief Financial
Officer of the Corporation who shall have charge and custody and be responsible
for all funds and securities of the Corporation and, in general, perform all of
the duties incident to such office and such other duties as from time to time
may be assigned to said officer by the Chairman, President, or by the Board of
Directors. If the Chief Financial Officer does not also serve as treasurer and
principal accounting officer of the Corporation, he shall supervise the carrying
out of the duties of those officers. If required by the Board of Directors, the
Chief Financial Officer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine.
Section 10. Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Board of Directors. Assistant Treasurers shall, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall
determine.
Section 11. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation. The Board of Directors may delegate to the Chairman the authority
to fix salaries for officers, other than himself, and employees of the
Corporation within the guidelines and limitations established by the Board of
Directors.
Section 12. Bonds. If required by the Board of Directors, any one or
more or all of the officers of the Corporation shall give bond for the faithful
discharge of his or their duties in such sum and with such surety or sureties as
the Board of Directors shall determine.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Shares shall be represented by
certificates. Certificates representing shares of the Corporation shall be in
such form as shall be determined by the Board of Directors. Each share
certificate shall state on its face: (1) the name of the Corporation and that
the Corporation is organized under the law of Mississippi; (2) the name of the
person to whom the share is issued; and (3) the number and class of shares and
the designation of the series, if any, the certificate represents. If the
Corporation is authorized to issue different classes of shares or different
series within a class, the designa-
tions, relative rights, preferences and limitations applicable to each class and
the variations in rights, preferences and limitations determined for each series
(and the authority of the Board of Directors to determine variations for future
series) must be summarized on the
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Eleven
front or back of each certificate or the Corporation must furnish the
shareholder this information on request in writing and without charge.
Such certificates shall be signed (either manually or in facsimile) by
the President or a Vice President and by the Secretary or an Assistant Secretary
or by such other officers designated in the Bylaws or by the Board of Directors
so to do, and sealed with the corporate seal or a facsimile thereof. If the
person who signed (either manually or in facsimile) a share certificate no
longer holds office when the certificate is issued, the certificate is
nevertheless valid.
All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in the
case of a lost, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation
or a duly appointed agent of the Corporation, and on surrender for cancellation
of the certificate for such shares.
ARTICLE VI
Fiscal Year
The fiscal year of the Corporation shall begin on the first day of
January and end on the thirty-first day of December in each year.
ARTICLE VII
Distributions
The Board of Directors may authorize and the Corporation may make
distributions to its shareholders, subject to restriction by the Articles of
Incorporation and applicable law.
ARTICLE VIII
Corporate Seal
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words "Corporate Seal."
ARTICLE IX
Waiver of Notice
Unless otherwise provided by law, a shareholder or Director of the
Corporation may waive any notice required by applicable law, the Articles of
Incorporation or these Bylaws,
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Twelve
before or after the date and time stated in the notice. Except as provided
below, the waiver must be in writing, be signed by the shareholder or Director
entitled to the notice, and delivered to the Corporation for inclusion in the
minutes or filing with the Corporate records.
A Director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the Director at the beginning of
the meeting (or promptly upon his arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting. A shareholder's attendance at a meeting (i)
waives objection to lack of notice or defective notice of the meeting unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting and (ii) waives objection to consideration
of a particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
ARTICLE X
Amendments
Unless the Articles of Incorporation, applicable law or a resolution of
the shareholders reserves this power exclusively to the shareholders in whole or
part, the Corporation's Board of Directors may amend or repeal these Bylaws and
adopt new Bylaws at any regular or special meeting of the Board of Directors.
ARTICLE XI
Emergency Bylaws
The emergency Bylaws provided in this article shall be operative during
any emergency in the conduct of the business of the Corporation, notwithstanding
any different provision in the preceding articles of the Bylaws or in the
Articles of Incorporation of the Corporation or in the Mississippi Business
Corporation Act. An emergency exists if a quorum of the Corporation's Directors
cannot readily be assembled because of some catastrophic event. To the extent
not inconsistent with the provisions of this article, the Bylaws provided in the
preceding articles shall remain in effect during such emergency and upon its
termination the emergency Bylaws shall cease to be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any officer or
Director of the Corporation. Notice of the meeting shall be given by the person
calling the meeting only to those Directors whom it is practicable to reach and
may be given in any practicable manner, including by publication and radio.
(b) At any such meeting of the Board of Directors, a quorum shall
consist of the Directors who are present at the meeting. Action by the Board of
Directors may be taken upon the affirmative vote of a majority of the Directors
present.
(c) The Board of Directors, either in anticipation of or during any
such emergency, may modify lines of succession to accommodate the incapacity of
any Director, officer, employee or agent.
(d) The Board of Directors, either in anticipation of or during any
such emergency, may relocate the principal offices or regional offices, or
authorize the officers to do so.
<PAGE>
Deposit Guaranty Corp. Bylaws
Page Thirteen
Corporate action taken in good faith during an emergency under this
section to further the ordinary business affairs of the Corporation binds the
Corporation and may not be used to impose liability on a Corporate Director,
officer, employee or agent.
These emergency Bylaws shall be subject to repeal of change by further
action of the Board of Directors or by action of the shareholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of these emergency Bylaws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 1. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, Bank bonds, undertakings, proxies and other instruments
or documents may be signed, executed, acknowledged, verified, delivered or
accepted in behalf of the Corporation by the Chairman of the Board, or the
President, or the Secretary, or any Executive Vice President, Senior Vice
President, Vice President, or above. Any such instruments may also be executed,
acknowledged, verified, delivered or accepted in behalf of the Corporation
in such other manner and by such other officers as the Board of Directors may
from time to time direct. The provisions of this Section 1 are supplementary to
any other provision of these Bylaws.
Section 2. Capital Expenditures. No officer or employee may cause to be
made directly or indirectly, any expenditure for capital expenditures,
professional service fees, equipment leases, and other nonrecurring expenses in
excess of $2,000,000, without prior approval of a majority of the Board of
Directors. The term "capital expenditure" shall include any interest in real
property, or improvements thereon, or personal property.
(Amended April 15, 1997)
Amendment No. 1 to Change of Control Termination Agreement
This Agreement entered into this day by and between Deposit Guaranty Corp.,
a Mississippi corporation, (the "Corporation") and ("Employee").
--------------
WITNESSETH:
WHEREAS, Parties are parties to a Change of Control Termination Agreement
dated May 31, 1996 (the "Agreement"); and
WHEREAS, Parties desire to amend certain provision thereof.
THEREFORE, in consideration of the premises the parties agree that the
Agreement shall be amended in the following respects, to wit:
Section 3 is amended by adding Subsection (vi) to read as follows:
(vi) Construction of terms. As used in this Section 3, the term
"Retirement" shall be limited to voluntary termination by Employee after
attaining retirement age as set forth in Corporation's qualified retirement
plan. If Employee's employment is terminated without Cause or for Good Reason
as defined in (ii) and (iii) above within 36 months following a change of
control, he shall be entitled to benefits provided in Subsection 4(iii) even if
he otherwise qualifies for retirement benefits.
In witness whereof, the parties have executed this Amendment this 17th day
of November, 1997.
Deposit Guaranty Corp.
By:/s/ E.B. Robinson, Jr.
-----------------------------
Title: Chairman and CEO
--------------------------------
Employee
Exhibit 11
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1997
Year Ended December 31, 1997
---------------------------------------
Basic Diluted
--------------- ---------------
Computation of weighted average
shares outstanding:
Common stock outstanding,
January 1, 1997 39,185,394 39,185,394
Common stock issued due to
exercise of mergers 3,918,506 3,918,506
Common stock issued due to
exercise of options 83,301 83,301
Assume conversion of stock
options - 330,938
Shares purchased by
the Company (2,104,845) (2,104,845)
------------- -------------
Weighted average shares
outstanding 41,082,356 41,413,294
============= =============
Computation of net income:
Net income $ 92,280,000 $ 92,280,000
============ ============
Computation of per share
earnings:
Net income divided by weighted
average shares outstanding $ 2.25 $ 2.23
================ =============
82
<PAGE>
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1996
Year Ended December 31, 1996
---------------------------------------
Basic Diluted
--------------- ---------------
Computation of weighted average
shares outstanding:
Common stock outstanding,
January 1, 1996 38,759,286 38,759,286
Common stock issued due to
mergers 710,689 710,689
Common stock issued due to
exercise of options 180,287 180,287
Assume conversion of stock
options - 246,477
Shares purchased by
the Company (890,070) (890,070)
--------------- -------------
Weighted average shares
outstanding 38,760,192 39,006,669
============= =============
Computation of net income:
Net income $ 83,610,000 $ 83,610,000
============ ============
Computation of per share
earnings:
Net income divided by weighted
average shares outstanding $ 2.16 $ 2.14
=============== =============
83
<PAGE>
Deposit Guaranty Corp.
Computation of Per Share Earnings
December 31, 1995
Year Ended December 31, 1995
---------------------------------------
Basic Diluted
--------------- ---------------
Computation of weighted average
shares outstanding:
Common stock outstanding,
January 1, 1995 35,156,104 35,156,104
Common stock issued due to
mergers 4,791,030 4,791,030
Common stock issued due to
exercise of options 60,752 60,752
Assume conversion of stock
options - 348,870
Shares purchased by
the Company (1,576,724) (1,576,724)
-------------- --------------
Weighted average shares
outstanding 38,431,162 38,780,032
============= =============
Computation of net income:
Net income $ 72,620,000 $ 72,620,000
============ ============
Computation of per share
earnings:
Net income divided by weighted
average shares outstanding $ 1.89 $ 1.87
============== ===============
84
Exhibit 21
DEPOSIT GUARANTY CORP.
LIST OF SUBSIDIARIES
The following is a list of all subsidiaries of the Company as of December 31,
1997, and the jurisdiction in which they were organized. Each subsidiary does
business under its own name.
NAME JURISDICTION WHERE ORGANIZED
Deposit Guaranty National Bank United States of America
Deposit Guaranty Mortgage Company of
Florida, Inc. (inactive) Florida
G & W Life Insurance Company Mississippi
Deposit Guaranty Louisiana Corp. Louisiana
CNC Acquisition Corp. (inactive) Louisiana
Deposit Guaranty Mortgage Company Mississippi
Maxiprop, Inc. Mississippi
First Mortgage Corp. Nebraska
Deposit Guaranty Investments, Inc. Mississippi
Deposit Guaranty Student Loans, Inc. Alabama
Deposit Guaranty Leasing Company Mississippi
Commercial National Investment Services, Inc. Louisiana
McAfee Mortgage & Investment Company Texas
DG Nebraska Corp. Nebraska
Deposit Guaranty Mortgage Services, Inc. Mississippi
ParkSouth Corporation Mississippi
665 Florida Street Corp. Louisiana
Roberts & Eastland (A Louisiana Partnership) Louisiana
Roberts, Eastland & Persac Insurance Agency, L.L.C. Louisiana
85
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Deposit Guaranty Corp.:
We consent to incorporation by reference in the registration statements (Nos.
33-38655, 33-7937 and 33-4912) on Form S-8 of Deposit Guaranty Corp. of our
report dated February 12, 1998, relating to the consolidated statements of
condition of Deposit Guaranty Corp. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the December 31, 1997
annual report on Form 10-K of Deposit Guaranty Corp.
Jackson, Mississippi KPMG Peat Marwick LLP
March 26, 1998
86
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