<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 17, 1995
-----------------
Bank South Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 0-4554 58-1048216
- ------------------------------- ------------ ----------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
55 Marietta Street, Atlanta, Georgia 30303
- ---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(404)529-4111
----------------------------------------------------
(Registrant's telephone number, including area code)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BANK SOUTH CORPORATION
----------------------
Registrant
By: /s/ Ralph E. Hutchins, Jr.
---------------------------
Ralph E. Hutchins, Jr.
Chief Financial Officer
(Principal Financial Officer)
Date: October 10, 1995
----------------
<PAGE> 2
BANK SOUTH CORPORATION
FORM 8-K
Item 5. Other Events
On February 17, 1995, Bank South Corporation (the "Company") acquired Gwinnett
Bancshares, Inc. ("Gwinnett") pursuant to an Agreement and Plan of Merger
("Merger Agreement"), dated August 31, 1994. Under the terms of the Merger
Agreement, Gwinnett was merged with and into the Company, and each of the
2,104,535 shares of common stock outstanding at February 17, 1995, was
converted into 1.75 shares of common stock of the Company. The merger was
accounted for as a pooling of interests for accounting and financial reporting
purposes.
Restated consolidated financial statements, giving retroactive effect to
the February 17, 1995 acquisition of Gwinnett, as if Gwinnett had been
combined with the Company for the periods presented, are included herein. The
consolidated financial statements will become, in all material respects, the
historical financial statements.
On September 6, 1995, the Company announced that it had entered into an
agreement to merge with NationsBank Corporation subject to shareholder and
regulatory approval.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Bank South Corporation and its subsidiaries (the "Company") reported net income
of $78.7 million, or $1.36 per share, in 1994, an increase of 1.8 percent over
1993 net income of $77.3 million, or $1.52 per share. Net income for 1993
included an after-tax gain of $19.8 million or $0.42 per share in the fourth
quarter from the sale of the Company's Pensacola, Florida bank. Excluding the
effects of this gain, net income and earnings per share for 1994 increased 36.9
percent and 23.6 percent, respectively. The increase in net income from 1993 to
1994 was primarily due to acquisitions, increased service charges on deposits
and a lower loan loss provision.
The Company's return on average assets was 1.20 percent in 1994 compared to
1.47 percent for 1993. The return on average equity was 13.12 percent in 1994
compared to 17.57 percent in 1993, reflecting the full-year impact of new
equity issued in 1993.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENT PERCENT
CHANGE CHANGE
1994 1993 1992 1993 TO 1994 1992 TO 1993
--------------------------------------------------------------
Thousands of Dollars, except per share data
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income (taxable equivalent) $ 268,860 $ 221,341 $ 190,795 21% 16%
Net interest income 254,576 216,025 187,911 18 15
Provision for loan losses 7,597 20,393 32,513 (63) (37)
Non-interest income 119,534 148,886 126,419 (20) 18
Non-interest expense 272,365 245,700 240,818 11 2
Net income 78,745 77,264 32,461 2 138
PER COMMON SHARE
Net income $ 1.36 $ 1.52 $ 0.73 (10)% 107%
Cash dividends declared 0.48 0.24 - 100 -
Common book value 10.89 9.85 7.95 10 24
AT YEAR END
Loans, net of unearned income $3,933,283 $3,473,523 $2,939,574 13% 18%
Earning assets 6,564,442 5,493,839 4,427,126 19 24
Assets 7,246,010 6,085,720 5,012,211 19 21
Deposits 5,032,759 4,528,373 4,122,189 11 10
Shareholders' equity 634,232 536,417 379,398 18 41
AVERAGE BALANCE
Loans, net of unearned income $3,654,236 $3,013,021 $3,004,525 21% -%
Earning assets 5,922,261 4,728,023 4,519,798 25 5
Assets 6,577,192 5,261,981 5,059,107 25 4
Deposits 4,805,870 4,111,608 4,052,560 17 1
Shareholders' equity 600,168 439,811 331,530 36 33
Key performance ratios
Return on average assets 1.20% 1.47% 0.64% (18)% 130%
Return on average shareholders' equity 13.12 17.57 9.79 (25) 79
Net interest margin (taxable equivalent) 4.54 4.68 4.22 (3) 11
Non-interest expense/net revenue (taxable 70.13 66.36 75.92 6 (13)
equivalent)
</TABLE>
Note: The December 31, 1994, 1993 and 1992 amounts include the effect of
business combinations (see Notes 2 and 20 to the Consolidated Financial
Statements).
1
<PAGE> 4
Average shareholders' equity increased 36.5 percent in 1994 compared to 1993,
primarily due to retention of earnings and additional stock issuances under the
Dividend Reinvestment Plan, employee and director benefit plans and
acquisitions. Shareholders' equity at December 31, 1994 was $634.2 million, a
historical high. During 1994, the Company declared a total of $0.48 per share
in dividends, an increase of 100 percent over the $0.24 per share declared in
1993. Dividends were reinstated in the first quarter of 1993 and increased in
the first and third quarters of 1994.
Non-performing assets were $25.9 million at December 31, 1994, 43.1 percent
lower than the 1993 balance of $45.5 million. Non-performing assets at year end
1994 were at the lowest level since 1986. Non-performing assets as a percentage
of total loans, other real estate owned and other non-performing assets
declined to 0.66 percent at December 31, 1994 from 1.31 percent in 1993.
In 1994, the Company achieved or exceeded four out of five of the five-year
financial objectives established in 1991. The objectives and the actual
results are shown below.
FINANCIAL OBJECTIVES
<TABLE>
<CAPTION>
1992 1993 1994 1996
ACTUAL ACTUAL ACTUAL TARGETED RANGE
------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on assets 0.64% 1.47% 1.20% 1.10 - 1.35%
Return on equity 9.79 17.57 13.12 14.00 - 17.00
Average tangible equity/average assets
(leverage ratio) 6.66 8.42 8.10 6.50 - 7.50
Non-performing assets/total loans, OREO and
other non-performing assets 3.81 1.31 0.66 1.00 - 2.50
Net charge-offs/average loans 1.35 0.53 0.43 0.50 - 1.00
</TABLE>
The Company significantly strengthened its presence in metro Atlanta by
completing several acquisitions in late 1993, 1994 and 1995.
On December 2, 1993, the Company acquired the Barnett Banks of Atlanta and
Fayette County ("Barnett") and sold its Pensacola, Florida, subsidiary,
Citizens and Peoples National Bank, to Barnett Banks, Inc. At December 31,
1992, Barnett had assets of $789.0 million, which included $646.2 million of
loans and $699.0 million of deposits. This transaction was accounted for as a
purchase.
On March 11, 1994, the Company acquired the Merchant Bank Corporation in
Atlanta ("Merchant"). At December 31, 1993, Merchant had assets of $138.6
million, which included $73.9 million of loans and $124.6 million of deposits.
This transaction was accounted for as a pooling of interests.
On March 15, 1994, the Company acquired Chattahoochee Bancorp, Inc. in
Marietta, Georgia ("Chattahoochee"). At December 31, 1993, Chattahoochee had
assets of $258.5 million, which included $185.9 million of loans and $225.8
million of deposits. This transaction was accounted for as a purchase.
2
<PAGE> 5
SELECTED FINANCIAL DATA
TABLE 1
<TABLE>
<CAPTION>
1994 1993
---------------------------------------
Thousands of Dollars, except share data
<S> <C> <C>
FOR THE YEAR
Net interest income (taxable equivalent) $ 268,860 $ 221,341
Net interest income 254,576 216,025
Provision for loan losses 7,597 20,393
Non-interest income 119,534 148,886
Non-interest expense 272,365 245,700
Income tax expense (benefit) 15,403 21,859
Net income (loss) 78,745 77,264
PER COMMON SHARE
Net income (loss) $ 1.36 $ 1.52
Cash dividends declared 0.48 0.24
Common book value 10.89 9.85
Common stock price:
High 21.00 16.13
Low 14.75 11.25
Year end 17.75 15.25
Price/earnings multiple 13.05 10.10
Price/book value multiple 1.63 1.55
AT YEAR END
Loans, net of unearned income $ 3,933,283 $ 3,473,523
Earning assets 6,564,442 5,493,839
Assets 7,246,010 6,085,720
Deposits 5,032,759 4,528,373
Long-term debt 89,413 98,738
Shareholders' equity 634,232 536,417
Common shares outstanding 58,264,000 54,440,000
AVERAGE BALANCES
Loans, net of unearned income $ 3,654,236 $ 3,013,021
Earning assets 5,922,261 4,728,023
Assets 6,577,192 5,261,981
Deposits 4,805,870 4,111,608
Long-term debt 94,155 71,257
Shareholders' equity 600,168 439,811
Weighted average common shares and common share equivalents 57,944,299 50,988,823
outstanding
KEY PERFORMANCE RATIOS
Return on average assets 1.20% 1.47%
Return on average shareholders' equity 13.12 17.57
Net interest margin (taxable equivalent) 4.54 4.68
Non-interest expense/net revenue (taxable equivalent) 70.13 66.36
Shareholders' equity to total assets at year end 8.75 8.81
Average shareholders' equity to average assets 9.12 8.36
Dividend payout 35.29 15.89
</TABLE>
Note: The common stock price data represents actual sales prices without retail
markups, markdowns or commissions. The common stock is traded on NASDAQ.
The financial information above includes the effect of business
combinations (see Notes 2 and 20 to the Consolidated Financial
Statements).
* Not meaningful.
3
<PAGE> 6
<TABLE>
<CAPTION>
1992 1991 1990
------------------------------------------------------
Thousands of dollars, except share data
<S> <C> <C>
$ 190,795 $ 193,468 $ 219,913
187,911 182,549 202,650
32,513 77,751 100,781
126,419 97,491 88,284
240,818 269,440 205,519
8,538 (10,500) (7,792)
32,461 (56,651) (7,574)
$ 0.73 $ (1.39) $ (0.19)
- 0.26 0.51
7.95 7.05 8.67
12.88 8.25 12.50
5.63 5.00 5.50
11.75 5.63 6.25
16.10 - -
1.48 0.80 0.72
$ 2,939,574 $ 3,066,047 $ 3,596,438
4,427,126 4,396,461 4,993,641
5,012,211 4,998,371 5,742,443
4,122,189 4,129,980 4,531,413
60,367 63,317 64,703
379,398 290,506 352,339
47,722,303 41,196,458 40,639,073
$ 3,004,525 $ 3,335,177 $ 3,728,261
4,519,798 4,878,438 5,228,186
5,059,107 5,447,745 5,798,006
4,052,560 4,363,235 4,261,306
61,263 63,494 74,814
331,530 327,674 363,035
44,537,171 40,670,052 40,178,661
0.64% (1.04)% (0.13)%
9.79 (17.29) (2.09)
4.22 3.97 4.21
75.92 92.60 66.68
7.57 5.81 6.14
6.55 6.01 6.26
* * *
</TABLE>
4
<PAGE> 7
On April 22, 1994, the Company entered Douglas County through the purchase of
the Lithia Springs branch of the Southern Federal Savings Association of
Georgia ("Lithia Springs") in a cash transaction from the RTC. Lithia Springs
had approximately $10.7 million of deposits.
On July 22, 1994, the Company acquired Citizens Express Company in Gainesville,
Georgia ("Citizens"). At December 31, 1993, Citizens had assets of $98.9
million, which included $58.6 million of loans and $89.8 million of deposits.
This transaction was accounted for as a pooling of interests (see Note 2 to
Consolidated Financial Statements).
On February 17, 1995, the Company acquired Gwinnett Bancshares, Inc., in
Lawrenceville, Georgia ("Gwinnett"). At December 31, 1994, Gwinnett had assets
of $319.1 million, which included $164.2 million of loans and $283.4 million of
deposits. This transaction was accounted for as a pooling of interests (see
Note 20 to the Consolidated Financial Statements).
The Company has 153 banking offices, of which 50 are InStore banking locations,
primarily in Kroger stores throughout metro Atlanta. Average loan balances in
the InStore branches was $1.1 million per office during 1994, an increase of
30.5 percent compared to 1993. Average deposits in the InStore branches were
$9.1 million per office during 1994, an increase of 28.2 percent compared to
1993. The expansion of InStore banking locations with extended hours has
allowed the Company to provide convenient branch banking at a lower cost to the
Company.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Company, is the
difference between interest income on earning assets, primarily loans and
investment securities, and interest expense on interest-bearing liabilities,
primarily deposits, which fund the assets. The level of the Company's net
interest income is a result of the level of earning assets, combined with the
various interest rate spreads between the assets and the liabilities. Net
interest income, on a taxable equivalent basis ("t.e."), represented
approximately 69.1 percent of net revenue (the total of net interest income,
t.e., and non-interest income excluding securities gains and the pre-tax gain
on sale of bank subsidiary in 1993) in 1994, as compared to 66.6 percent in
1993 and 67.0 percent in 1992. Net interest income, t.e., was $268.9 million in
1994, compared to $221.3 million in 1993 and $190.8 million in 1992. The 21.5
percent increase in 1994 was the result of higher levels of average total loans
($641.2 million higher) and average investment securities held to maturity
($364.3 million higher).
The net interest margin (net interest income, t.e., divided by average total
earning assets) is a key performance measure for net interest income. The net
interest margin was 4.54 percent in 1994, a decrease from 4.68 percent in 1993
and an increase from 4.22 percent in 1992. The decrease in 1994 compared to
1993 was primarily due to competitive pricing on loans, narrower spreads on
investments and a rising interest rate environment. The increase in 1993
compared to 1992 was due to significant transaction account deposit growth, an
increase in net income from hedging activities, a decline in higher cost time
deposits and a decline in non-performing assets.
Average earning assets increased to $5.9 billion in 1994 from $4.7 billion in
1993, primarily the result of an increase in investment securities and consumer
loans.
5
<PAGE> 8
TAXABLE EQUIVALENT RATE/VOLUME VARIANCE ANALYSIS
TABLE 2
<TABLE>
<CAPTION>
1994 1993
COMPARED WITH 1993 INCREASE COMPARED WITH 1992 INCREASE
(DECREASE) DUE TO CHANGE IN: (DECREASE) DUE TO CHANGE IN:
------------------------------------ -----------------------------------
AVERAGE AVERAGE NET INCREASE AVERAGE AVERAGE NET INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
----------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, net of unearned income:
Taxable $ 53,277 $ (15,769) $ 37,508 $ 2,055 $(10,524) $ (8,469)
Tax-exempt 5,720 (5,740) (20) (756) (732) (1,488)
---------------------------------------------------------------------------
Total loans, net of unearned
income 58,997 (21,509) 37,488 1,299 (11,256) (9,957)
Investment securities held to
maturity:
Taxable 2,682 15,484 18,166 (14,639) (23,291) (37,930)
Tax-exempt 16,755 (99) 16,656 5,400 (18) 5,382
---------------------------------------------------------------------------
Total investment securities
held to maturity 19,437 15,385 34,822 (9,239) (23,309) (32,548)
Investment securities
available for sale (taxable) 28,668 (36,210) (7,542) 35,728 1,460 37,188
Trading account securities 3,114 79 3,193 2,352 (164) 2,188
Federal funds sold (45) 131 86 3 234 237
Securities purchased under
agreements to resell (353) 774 421 2,066 (180) 1,886
Interest-bearing deposits (8) 389 381 100 (362) (262)
Other short-term investments (135) 1,539 1,404 (6,173) (1,835) (8,008)
---------------------------------------------------------------------------
Total interest income 109,675 (39,422) 70,253 26,136 (35,412) (9,276)
INTEREST EXPENSE
Interest-bearing deposits:
NOW accounts 4,152 (374) 3,778 2,084 (2,598) (514)
Money market accounts 2,751 1,211 3,962 (890) (3,966) (4,856)
Savings accounts 2,475 (898) 1,577 (1,118) 900 (218)
Certificates of deposit
$100,000 or more 1,273 (895) 378 1,729 (886) 843
Other time deposits 2,931 (9,836) (6,905) (13,393) (17,717) (31,110)
---------------------------------------------------------------------------
Total interest-bearing deposits 13,582 (10,792) 2,790 (11,588) (24,267) (35,855)
Federal funds purchased 7,147 2,117 9,264 947 (1,009) (62)
Securities sold under
agreements to repurchase 618 6,211 6,829 (1,512) (2,306) (3,818)
Commercial paper 1,536 60 1,596 103 - 103
Other short-term borrowings 8,788 1,126 9,914 1,916 (30) 1,886
Long-term debt 1,392 (83) 1,309 597 (241) 356
---------------------------------------------------------------------------
Total interest expense 33,063 (1,361) 31,702 (9,537) (27,853) (37,390)
---------------------------------------------------------------------------
Change in net interest income $ 76,612 $ (38,061) $ 38,551 $ 35,673 $ (7,559) $ 28,114
===========================================================================
</TABLE>
Note: In computing changes in average volumes and rates, the average balances
of non-accrual loans are included in average loan balances. The changes
in fully taxable equivalent interest income on tax-exempt loans and
investments have been computed assuming a 35 percent tax rate for 1994
and 1993 and a 34 percent tax rate for 1992.
6
<PAGE> 9
COMPARATIVE AVERAGE BALANCES YIELDS AND RATES
TABLE 3
<TABLE>
<CAPTION>
AVERAGE 1994 INCOME OR YIELDS & RATES
BALANCES EXPENSE PERCENT
----------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
ASSETS
Loans, net of unearned income:
Taxable $3,591,172 $304,856 8.49%
Tax-exempt (taxable equivalent) 63,064 3,714 5.89
-----------------------------------------
Total loans (taxable equivalent) 3,654,236 308,570 8.44
Investment securities held to maturity:
Taxable 880,996 53,515 6.07
Tax-exempt (taxable equivalent) 406,729 22,288 5.48
-----------------------------------------
Total investment securities held to maturity (taxable 1,287,725 75,803 5.89
equivalent)
Investment securities available for sale 666,567 36,295 5.45
Trading account securities 135,190 6,455 4.77
Federal funds sold 12,263 585 4.77
Securities purchased under agreements to resell 60,336 3,192 5.29
Interest-bearing deposits 34,251 1,429 4.17
Other short-term investments (taxable equivalent) 71,693 3,768 5.26
-----------------------------------------
Total interest-earning assets 5,922,261 $436,097 7.36%
======================
Cash and due from banks 374,939
Less: Allowance for loan losses 91,120
Premises and equipment, net 106,179
Other assets 264,933
----------
Total assets $6,577,192
==========
LIABILITIES
Interest-bearing deposits:
NOW accounts $ 804,480 $ 19,974 2.48%
Money market accounts 614,531 17,522 2.85
Savings accounts 514,958 12,477 2.42
Certificates of deposits $100,000 or more 301,118 13,167 4.37
Other time deposits 1,447,077 68,029 4.70
-----------------------------------------
Total interest-bearing deposits 3,682,164 131,169 3.56
Short-term borrowings:
Federal funds purchased 298,375 12,924 4.33
Securities sold under agreements to repurchase 385,529 17,986 4.67
Commercial paper 40,033 1,699 4.24
Other short-term borrowings 246,420 11,985 4.86
-----------------------------------------
Total short-term borrowings 970,357 44,594 4.60
-----------------------------------------
Long-term debt 94,155 5,758 6.12
Total interest-bearing liabilities 4,746,676 $181,521 3.82%
--------- ======================
Demand deposits 1,123,706
Other liabilities 106,642
----------
Total liabilities 5,977,024
Shareholders' equity 600,168
----------
Total liabilities and shareholders' equity $6,577,192
==========
Interest rate spread 3.54%
Net interest margin $254,576 4.30
======================
</TABLE>
Note: In computing yields on earnings assets, the average balances
of non-accrual loans are included in the average loan balances,
and loan fees are included in interest income. Fully taxable
equivalent interest income on tax-exempt loans and investments
have been computing assuming a 35 percent tax rate for 1994 and
1993, and a 34 percent tax rate for 1992. Loan fees amounted to
$10,521,050 in 1994, $8,883,000 in 1993 and $10,685,000 in 1992.
7
<PAGE> 10
<TABLE>
<CAPTION>
AVERAGE 1993 INCOME OR YIELDS & RATES AVERAGE 1992 INCOME OR YIELDS & RATES
BALANCES EXPENSE PERCENT BALANCES EXPENSE PERCENT
- --------------------------------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C>
$2,944,720 $267,348 9.08% $2,923,531 $275,817 9.43%
68,301 3,734 5.47 80,994 5,222 6.45
- --------------------------------------------------------------------------------------------------
3,013,021 271,082 9.00 3,004,525 281,039 9.35
822,367 35,349 4.30 1,072,144 73,279 6.83
101,018 5,632 5.58 4,123 250 6.06
- --------------------------------------------------------------------------------------------------
923,385 40,981 4.44 1,076,267 73,529 6.83
521,304 43,837 8.41 93,810 6,649 7.09
69,972 3,262 4.66 18,620 1,074 5.77
13,750 499 3.63 13,574 262 1.93
75,706 2,771 3.66 16,834 885 5.26
34,530 1,048 3.04 32,289 1,310 4.06
76,355 2,364 3.10 263,879 10,372 3.93
- --------------------------------------------------------------------------------------------------
4,728,023 $365,844 7.74% 4,519,798 $375,120 8.30%
====================== ===========================
362,219 311,865
85,029 87,136
89,380 89,092
167,388 225,488
- ----------- ----------
$5,261,981 $5,059,107
=========== ==========
$ 637,198 $ 16,196 2.54% $ 584,718 $ 16,710 2.86%
516,418 13,560 2.63 543,786 18,416 3.39
406,342 10,900 2.68 307,828 11,118 3.61
258,666 12,789 4.94 220,556 11,946 5.42
1,395,203 74,934 5.37 1,616,943 106,044 6.56
- --------------------------------------------------------------------------------------------------
3,213,827 128,379 3.99 3,273,831 164,234 5.02
121,051 3,660 3.02 109,793 3,722 3.39
366,184 11,157 3.05 410,438 14,975 3.65
3,437 103 3.00 - - -
59,716 2,071 3.47 4,212 185 4.39
- --------------------------------------------------------------------------------------------------
550,388 16,991 3.09 524,443 18,882 3.60
- --------------------------------------------------------------------------------------------------
71,257 4,449 6.24 61,263 4,093 6.68
3,835,472 $149,819 3.91% 3,859,537 $187,209 4.85%
- ----------- ====================== --------- ===========================
897,781 778,729
88,917 89,311
- --------------------------------------------------------------
4,822,170 4,727,577
439,811 331,530
- ----------- ----------
$5,261,981 $5,059,107
=========== ==========
3.83% 3.45%
$216,025 4.57 $187,911 4.16
====================== ===========================
</TABLE>
8
<PAGE> 11
COMPOSITION OF LOAN PORTFOLIO
TABLE 4
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
AMOUNT PERCENT AMOUNT PERCENT
-----------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $1,048,187 27% $ 894,774 25%
Real estate construction 218,985 6 137,741 4
Commercial mortgages 598,376 15 579,652 17
1-4 family residential mortgages 672,515 17 574,548 16
Consumer 1,384,573 34 1,306,783 37
Lease financing 31,854 1 15,517 1
--------------------------------------------------------
Gross loans $3,954,490 100% $3,509,015 100%
========================================================
</TABLE>
Note: During 1992 loans were reclassified between real estate construction
and commercial mortgages.
COMPOSITION OF LOANS BY COLLATERAL TYPE
TABLE 5
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
AMOUNT PERCENT AMOUNT PERCENT
-----------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
Real estate $1,701,178 43% $1,512,031 43%
Vehicles 1,247,405 32 1,066,472 31
Unsecured 370,819 9 347,394 10
Accounts receivable and inventory 214,079 5 175,462 5
Miscellaneous 119,402 3 129,528 4
Negotiable collateral 113,185 3 106,132 3
Equipment 109,688 3 96,158 3
Government or banking guaranty 29,840 1 11,728 -
Other chattel paper 27,687 1 28,618 1
---------------------------------------------------------
Total loans, net of unearned income $3,933,283 100% $3,473,523 100%
=========================================================
</TABLE>
Note: Loans may be secured by real estate, however repayment may depend on
other cash sources. Commercial and residential mortgages are
primarily owner-occupied. Loan classification is based on the
collateral securing the loan, not the purpose of the loan.
Average total loans were $3.7 billion in 1994 and $3.0 billion in 1993, an
increase of 23.3 percent. Average total loans represents 61.7 percent, 63.7
percent and 66.5 percent of average earning assets in 1994, 1993 and 1992,
respectively. Average consumer loans, including 1-4 family residential
mortgage loans and lines of credit, increased 42.3 percent during 1994 compared
to 1993, reflecting the Company's successful marketing program to expand retail
consumer services and indirect automobile lending. Average commercial loans,
including commercial mortgages, real estate construction and lease financing,
increased 4.7 percent during 1994, compared to 1993. The renewed growth in
commercial loans reflects the rebound in the Atlanta economy and the completion
of problem loan resolution.
9
<PAGE> 12
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1991 1990
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ----------------------------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C>
$ 902,228 31% $1,032,436 34% $1,384,950 39%
86,709 3 314,016 10 410,592 11
665,126 23 513,807 17 481,476 13
521,489 18 546,153 18 653,495 18
755,184 25 643,186 20 653,960 18
13,956 - 21,721 1 27,748 1
- ----------------------------------------------------------------------------------------------
$2,944,692 100% $3,071,319 100% $3,612,221 100%
==============================================================================================
</TABLE>
10
<PAGE> 13
MATURITY DISTRIBUTION AND YIELDS OF INVESTMENT SECURITIES HELD TO MATURITY
TABLE 6
<TABLE>
<CAPTION>
DECEMBER 31, 1994 COST
FAIR YEAR-END DECEMBER 31
COST VALUE YIELD (1) 1993 1992
-------------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
U.S. TREASURY
One year or less $ 103,527 $ 103,157 5.51% $ 17,890 $ 19,544
Over one through five years 10,918 10,623 5.79 23,358 35,290
Over five through 10 years 99 99 7.64 484 819
-------------------------------------------------------------------
Total U.S. Treasury 114,544 113,879 5.53 41,732 55,653
U.S. GOVERNMENT AGENCY
One year or less 99 99 5.04 - 2,162
Over one through five years 4,644 4,415 5.74 - 24,969
Over five through 10 years (2) 5,242 5,110 7.45 23,807 13,054
Over 10 years (2) 990,514 951,834 6.48 405,582 230,159
-------------------------------------------------------------------
Total U.S. Government agency 1,000,499 961,458 6.48 429,389 270,344
MUNICIPAL SECURITIES
One year or less 829 827 9.10 1,584 -
Over one through five years 4,009 3,941 8.84 2,173 266
Over five through 10 years 31,193 29,573 8.13 9,909 3,648
Over 10 years (2) 507,518 467,135 8.71 277,587 11,709
-------------------------------------------------------------------
Total municipal securities 543,549 501,476 8.68 291,253 15,623
OTHER SECURITIES
One year or less 4,168 4,168 - 4,268 431
Over one through five years - - - 2,192 477
Over five through 10 years - - - 298 399
Over 10 years (2) 283,096 270,911 7.74 452 25,675
-------------------------------------------------------------------
Total other securities 287,264 275,079 7.74 7,210 26,982
-------------------------------------------------------------------
Total investment securities held to
maturity $ 1,945,856 $1,851,892 7.24% $769,584 $368,602
===================================================================
</TABLE>
(1) Weighted average yield computed on a fully taxable equivalent basis
assuming a tax rate of 35 percent.
(2) Includes mortgage-backed securities.
Note: The maturities used in this presentation are based on remaining
contractual maturities.
11
<PAGE> 14
Average investment securities held to maturity increased 39.5 percent in 1994.
Average investment securities held to maturity represented 21.7 percent and
19.5 percent of earning assets at December 31, 1994 and 1993, respectively.
This growth was primarily due to increased holdings in municipal bonds and
collaterized mortgage obligations. The primary reasons for the increase in
investment securities held to maturity were to leverage the Company's capital
base and take advantage of tax benefits derived from municipal securities. The
$1.9 billion investment securities held to maturity had an unrecognized loss of
approximately $94.0 million, or 4.9 percent of portfolio cost, at December 31,
1994.
Average investment securities available for sale increased 27.9 percent during
1994, representing 11.3 percent and 11.0 percent of earning assets in 1994 and
1993, respectively. At December 31, 1994, investment securities available for
sale were $495.2 million compared to $1.2 billion at December 31, 1993. The
investments available for sale were reduced in anticipation of a rising rate
environment and higher yielding reinvestment opportunities. Investment
securities available for sale had an $8.5 million or 1.7 percent of portfolio
cost after tax decline in market value, reflected as an unrealized loss, which
was recorded in equity at December 31, 1994.
The Company adopted Statement of Financial Accounting Standards Number 115
("FAS 115"), "Accounting For Certain Investments in Debt and Equity
Securities," as of December 31, 1993 (see Notes 1, 4 and 5 to the Consolidated
Financial Statements). Management designates securities at the time of purchase
as either investment securities held to maturity, investment securities
available for sale, or trading account securities. Management intends to hold
until maturity the securities in the investment securities held to maturity
portfolio. Securities classified as investment securities available for sale
are used primarily for liquidity management, whereas the trading portfolio
includes the Company's broker/dealer inventory and any short-term trading
positions.
MATURITY DISTRIBUTION AND YIELDS OF INVESTMENT SECURITIES AVAILABLE FOR SALE
TABLE 7
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
FAIR YEAR-END
COST VALUE YIELD (1) COST
-----------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C>
U.S. TREASURY
One year or less $ 17,487 $ 16,009 4.23% $ 4,457
Over one through five years 45,571 43,742 6.10 55,255
-----------------------------------------------------------------
Total U.S. Treasury 63,058 59,751 5.60 59,712
U.S. GOVERNMENT AGENCY
One year or less 15,010 14,613 6.09 13,030
Over one through five years (2) 23,237 22,276 6.06 283,879
Over five through 10 years (2) 152,904 149,126 4.83 166,614
Over 10 years (2) 166,140 162,065 6.09 549,509
-----------------------------------------------------------------
Total U.S. Government agency 357,291 348,080 5.55 1,013,032
OTHER SECURITIES
One year or less 392 391 6.00 -
Over one through five years 1,229 1,214 5.53 61,650
Over 10 years (2) 86,326 85,739 8.52 47,747
-----------------------------------------------------------------
Total other securities 87,947 87,344 8.46 109,397
-----------------------------------------------------------------
Total investment securities available
for sale $ 508,296 $495,175 6.07% $ 1,182,141
=================================================================
</TABLE>
(1) Weighted average yield computed on a fully taxable equivalent basis
assuming a tax rate of 35 percent.
(2) Includes mortgage-backed securities.
Note: The maturities used in this presentation are based on
remaining contractual maturities.
12
<PAGE> 15
Transaction account deposits, which include demand deposits, NOW, savings, and
money market accounts, increased substantially during the past two years.
Average transaction accounts were $3.0 billion in 1994 compared to $2.4 billion
in 1993 and $2.2 billion in 1992, an increase of 25.0 percent compared to 1993,
and 9.1 percent compared to 1992. The largest components of the increases in
both years were due to the demand deposit and savings account balances which
were largely attributable to the success of the Company's "Trade In Your Bank
III" marketing campaign and acquisitions.
Consumer and other time deposits grew 3.7 percent during 1994 compared to 1993
as the Company aggressively pursued longer term deposits in anticipation of
rising rates in 1994. Average core deposits, which includes transaction
accounts and consumer and other time, increased 16.9 percent during 1994
compared to 1993.
MATURITY SCHEDULE OF TIME DEPOSITS $100,000 OR MORE
TABLE 8
<TABLE>
<S> <C>
Certificates of deposit and other time deposits
$100,000 or more: DECEMBER 31, 1994
--------------------
Thousands of dollars
Three months or less $122,696
Over three through six months 48,042
Over six through 12 months 88,932
Over 12 months 180,804
--------
Total $440,474
========
</TABLE>
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses was $7.6 million in 1994, $20.4 million
in 1993 and $32.5 million in 1992. Due to the continued improvement in asset
quality, lower than expected losses, and a higher level of recoveries, a
reduced provision of $300,000 was recognized for the third and fourth quarters
of 1994. See "Asset Quality" for further discussion of the allowance for loan
losses.
13
<PAGE> 16
ALLOWANCE FOR LOAN LOSSES
TABLE 9
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993 1992 1991 1990
---------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 88,482 $ 78,713 $ 86,909 $ 93,267 $ 40,984
Loans charged-off:
Commercial, financial and agricultural (9,280) (5,498) (21,331) (57,278) (19,515)
Real estate construction (369) (453) (5,520) (6,126) (13,528)
Commercial mortgage (3,152) (6,609) (10,887) (11,096) (6,851)
1-4 Family residential mortgage (5,445) (6,849) (5,276) (7,057) (473)
Consumer (18,212) (6,425) (7,900) (8,903) (12,321)
Lease financing (54) (656) (511) (422) (2)
Other - - (267) - -
---------------------------------------------------------------
Total loans charged-off (36,512) (26,490) (51,692) (90,882) (52,690)
Recoveries on loans previously charged-
off:
Commercial, financial and agricultural 5,178 2,732 4,500 1,398 665
Real estate construction 2,215 135 134 397 168
Commercial mortgage 1,967 1,237 519 507 277
1-4 Family residential mortgage 3,210 1,900 1,043 566 38
Consumer 8,034 3,993 4,283 3,858 3,166
Lease financing 269 438 504 47 -
---------------------------------------------------------------
Total loan recoveries 20,873 10,435 10,983 6,773 4,314
---------------------------------------------------------------
Net loans charged-off (15,639) (16,055) (40,709) (84,109) (48,376)
Net increase as a result of business
combinations 2,496 5,431 - - -
Provision for loan losses charged to expense 7,597 20,393 32,513 77,751 100,659
---------------------------------------------------------------
Balance at end of year $ 82,936 $ 88,482 $ 78,713 $ 86,909 $ 93,267
===============================================================
Total loans (net of unearned income) at
end of year $3,933,283 $3,473,523 $2,939,574 $3,066,047 $3,596,438
Average loans outstanding during the year 3,654,236 3,013,021 3,004,525 3,335,177 3,728,261
Allowance for loan losses to loans
outstanding at end of year 2.11% 2.55% 2.68% 2.83% 2.59%
Net loans charged-off to average loans
outstanding during the year 0.43 0.53 1.35 2.52 1.30
</TABLE>
14
<PAGE> 17
NON-INTEREST INCOME
Non-interest income of $119.5 million in 1994 included $0.9 million of pre-tax
securities losses. Non-interest income of $148.9 million in 1993 included a
pre-tax gain of $32.3 million on the sale of the bank subsidiary and $5.5
million in pre-tax securities gains. Excluding these items, non-interest income
increased 8.4 percent in 1994 compared to 1993.
The growth in non-interest income, excluding securities gains and the gain on
the sale of the bank subsidiary, was a result of the Company's continuing
efforts to build stable sources of fee income, which include service charges on
deposits and revenues from electronic banking. This growth is being
accomplished through the building of customer market share, the aggressive
marketing of existing products, the innovative development of new products and
the expansion of the Company's locations and hours, TeleServices, ATM network
and other interactive delivery channels.
The primary contributor to non-interest income growth in both 1994 and 1993 was
the continued growth in service charges on deposits. Service charges on deposit
accounts were $65.3 million in 1994, an increase of 19.2 percent compared to
1993. The increases in deposit service charge income were primarily due to the
Company's increase in retail transaction account volume. In 1994, service
charges on deposits represented 54.5 percent of non-interest income, excluding
securities gains and the gain on sale of the bank subsidiary, increasing from
49.4 percent in 1993 and 45.8 percent in 1992. Service charges on deposits
represented 16.8 percent of net revenue (net interest income, t.e. plus
non-interest income, excluding securities gains and the gain on sale of the
bank subsidiary in 1993), compared to 16.5 percent in 1993 and 15.1 percent in
1992.
Electronic banking income increased 30.6 percent and 35.7 percent in 1994 and
1993, respectively. These increases were primarily due to increases in ATM and
debit card income.
Trust income was $10.0 million in 1994, compared to $10.3 million in 1993 and
$10.5 million in 1992. Trust fees declined in 1994 primarily due to strategic
business decisions to exit or redefine certain lines of business, primarily
corporate trust, which will allow the Company to focus on more profitable
services.
Partially offsetting these increases in non-interest income were declines in
mortgage revenue and public finance income, both of which were negatively
impacted by rapidly rising interest rates in 1994.
SUMMARY OF NON-INTEREST INCOME
TABLE 10
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
--------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
Service charges and fees on deposit accounts $ 65,345 $ 54,875 $ 43,078 $41,273 $37,399
Electronic banking 17,345 13,284 9,789 10,044 8,600
Mortgage banking activities 4,058 4,338 4,984 4,866 3,989
Other service charges and fees 10,769 10,976 6,035 5,556 5,413
Trust income 9,990 10,323 10,485 9,505 8,486
Securities (losses) gains (868) 5,541 32,382 8,462 3,766
Capital markets activity 5,660 6,193 5,398 4,967 5,065
Gain on sale of subsidiary - 32,288 - - -
Other income 7,235 11,068 14,268 12,818 15,762
--------------------------------------------------------------
Total non-interest income $119,534 $148,886 $126,419 $97,491 $88,480
==============================================================
</TABLE>
15
<PAGE> 18
NON-INTEREST EXPENSE
Non-interest expense in 1994 was $272.4 million, an increase of 10.9 percent,
compared to a 2.0 percent increase in 1993. Salaries and benefits, which
represents the largest component of non-interest expense (48.0 percent),
increased $10.5 million, or 8.7 percent. This increase was primarily due to an
increase in salaries, overtime and contract labor relating to increased deposit
account volume, acquisition conversion activity and expanded hours. Total
employees increased from 3,044 at December 31, 1993, to 3,458 at December 31,
1994, primarily due to the acquisitions, increases in the number of branches
and expanded branch hours.
SUMMARY OF NON-INTEREST EXPENSE
TABLE 11
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
----------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
Salaries and wages $102,090 $ 87,223 $ 88,343 $ 89,374 $ 82,061
Employee benefits 28,716 33,133 13,917 18,477 13,569
---------------------------------------------------------------
Total salaries and employee benefits 130,806 120,356 102,260 107,851 95,630
Equipment 16,839 13,630 12,563 12,491 12,262
Occupancy 18,615 17,628 18,048 18,330 17,744
Other real estate owned 1,152 2,518 15,384 46,717 4,235
Electronic banking 7,191 4,963 3,762 4,204 4,134
Postage and freight 6,773 5,457 5,149 5,115 4,716
Stationery and supplies 5,559 4,739 4,142 3,797 3,719
Marketing and business development 12,444 11,447 8,128 7,720 7,485
Professional fees 10,250 12,369 12,842 13,619 7,780
Insurance and taxes 14,088 14,565 13,031 13,119 8,447
Intangible amortization 12,363 5,758 11,394 3,885 3,147
Other expense 36,285 32,270 34,115 32,592 36,220
---------------------------------------------------------------
Total non-interest expense $272,365 $245,700 $240,818 $269,440 $205,519
===============================================================
</TABLE>
Equipment expense in 1994 increased $3.2 million or 23.5 percent compared to
1993. This was primarily due to the increase in equipment related to
acquisitions.
Other real estate owned expense decreased $1.4 million, or 54.2 percent in
1994, and 83.6 percent in 1993 compared to 1992. The decline directly relates
to the 30.2 percent and 86.3 percent decline in other real estate owned in 1994
and 1993, respectively. The reduction of other real estate owned and the
improved asset quality is also the primary reason for the decrease in
professional fees of $2.1 million in 1994.
Marketing expense increased 8.7 percent in 1994 and 40.8 percent in 1993,
related largely to the "Trade In Your Bank" campaigns in 1994 and 1993.
16
<PAGE> 19
Amortization of intangible assets increased $6.6 million, or 114.7 percent in
1994, due to the goodwill and deposit base amortization related to the Barnett,
Chattahoochee and Lithia Springs branch acquisitions.
In 1993, non-interest expense included $14.0 million related primarily to
branch closings and consolidations in conjunction with recent acquisition
activity, costs associated with the sale of the Company's bank subsidiary, the
establishment of legal reserves, and above-target incentive and profit-sharing
accruals.
Management continues to emphasize the importance of expense management and
productivity throughout the Company. The goal of management has been to manage
the expense structure of the Company through strong budgetary controls and
expense policies. However, significant increases in customers and transaction
volumes during 1994 and 1993 required expanded levels of resources, both in
terms of personnel and technology.
INCOME TAXES
Income tax expense was $15.4 million in 1994, or 16.4 percent of pre-tax
income, compared to $21.5 million, or 21.8 percent, in 1993 and $8.5 million,
or 20.9 percent in 1992. The decrease in the effective tax rate from 1993 to
1994 is primarily attributable to the Company's investment in tax-exempt
securities. Statement of Financial Accounting Standards Number 109 (OFAS 109O),
"Accounting for Income Taxes," which was adopted in January 1993, changed the
Company's method of accounting for income taxes from the deferred method to an
asset and liability approach requiring recognition of deferred tax assets and
liabilities based upon the differences between the financial statement and tax
bases of assets and liabilities and available tax carryforwards. At December
31, 1994, the net deferred tax asset was $16.5 million, net of a valuation
allowance of $11.1 million compared to $18.9 million, net of a valuation
allowance of $27.7 million at December 31, 1993.
The Company reduced its valuation allowance by $12.4 million in 1994 and $10.0
million in 1993. These reductions resulted in a corresponding reduction in the
Company's income tax expense. The reductions in the valuation allowance related
primarily to tax attributes that were utilized during 1993 and 1994. A
substantial portion of the Georgia state deferred tax valuation allowance of
$10.3 million at December 31, 1994, will reverse and thereby reduce state
income tax expense in future years as Georgia state taxable income is
generated. As it is utilized, approximately $1.7 million of the valuation
allowance will reduce goodwill rather than income tax expense. Management
evaluates the need for a valuation reserve on a quarterly basis. Note 18 to the
Consolidated Financial Statements provides a complete reconciliation of the
statutory rate to the effective rate and further discussion of FAS 109.
17
<PAGE> 20
BALANCE SHEET MANAGEMENT
ASSET QUALITY
Non-performing assets were $25.9 million at December 31, 1994, compared to
$45.5 million at December 31, 1993. Non-performing assets as a percent of
total loans, other real estate owned and other non-performing assets was 0.66
percent and 1.31 percent at December 31, 1994, and 1993, respectively. The
decline in non-performing assets resulted from management's continued focus on
the resolution of problem loans and the disposal of foreclosed real estate.
Non-performing assets at December 31, 1994 included $22.3 million of
non-accrual and renegotiated loans, of which $13.2 million, or 59.2 percent,
were current as to both principal and interest. Non-accrual and renegotiated
loans were $38.1 million at December 31, 1993. Also included in non-performing
assets was other real estate owned, including in-substance foreclosures,
totaling $3.7 million at December 31, 1994 and $5.0 million at
December 31, 1993.
Loans identified by management as potential problem assets (classified and
criticized loans) declined to 3.2 percent of total loans at December 31, 1994,
from 4.1 percent of total loans at December 31, 1993.
Loans charged-off during 1994 were $36.5 million compared to $26.5 million
during 1993. Further detail of loan charge-offs and recoveries is presented in
Table 9, "Allowance for Loan Losses."
The adequacy of the allowance for loan losses is regularly evaluated based on a
review of all significant loans, with emphasis on non-accrual, past-due, or
other loans that management has identified as potential problem loans. In
addition, consideration is given to economic conditions and concentrations,
including industry and geographic, when evaluating the allowance for loan
losses. Management does not believe that significant concentration of credit
risk exists in the portfolio.
NON-PERFORMING ASSETS
TABLE 12
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992 1991 1990
----------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C>
Non-accrual loans $ 22,266 $ 36,880 $ 78,343 $160,271 $144,000
Renegotiated or restructured loans - 1,235 8,979 7,721 2,572
Other real estate owned 3,678 4,985 22,988 50,027 86,925
Other non-performing assets - 2,417 2,646 3,646 -
---------------------------------------------------------------
Total non-performing assets $ 25,944 $ 45,517 $ 112,956 $221,665 $233,497
===============================================================
Loans 90 days or more past due on accrual
status $ 1,428 $ 1,846 $ 5,420 $ 13,159 $ 28,206
Potential problem loans 124,656 141,230 241,505 430,239 573,664
Potential problem loans to total loans 3.17% 4.07% 8.22% 14.03% 15.95%
Non-performing assets to total loans,
other real estate owned and other non-
performing assets 0.66 1.31 3.81 7.11 6.34
Loans 90 days or more past due on accrual
status to total loans, other real estate
owned and other non-performing assets 0.04 0.05 0.18 0.43 0.77
Non-performing assets and loans 90 days or
more past due on accrual status to total
loans, other real estate owned and other
non-performing assets 0.69 1.36 4.00 7.54 7.11
</TABLE>
18
<PAGE> 21
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
TABLE 13
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
AMOUNT PERCENT AMOUNT PERCENT
------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C>
Allowance for loan loss balance applicable to:
Commercial, financial and agricultural $ 9,057 11% $10,921 12%
Real estate construction 1,608 2 2,160 2
Commercial mortgages 6,470 8 9,218 10
1-4 family residential mortgages 4,047 5 4,714 5
Consumer 12,112 14 17,130 20
Lease financing 111 - 60 1
Unallocated 49,531 60 44,279 50
----------------------------------------------------
Total $82,936 100% $88,482 100%
====================================================
</TABLE>
The provision for loan losses, which is a charge to earnings in the current
period, replenishes the allowance for loan losses and maintains it at a level
management has determined to be adequate to provide for losses inherent in the
loan portfolio (see Note 1 to the Consolidated Financial Statements for a
discussion on methodology used to determine the adequacy of the allowance).
The allowance for loan losses was $82.9 million at December 31, 1994, compared
to $88.5 million at December 31, 1993. The allowance for loan losses as a
percent of total loans was 2.1 percent at December 31, 1994 and 2.5 percent at
December 31, 1993. The allowance for loan losses as a percent of non-performing
loans was 372.5 percent at December 31, 1994 and 232.2 percent at December 31,
1993. Table 13, "Allocation of the Allowance for Loan Losses," presents
specific reserves by loan type and the general portion of the Company's total
allowance for loan losses. In management's opinion, the allowance for loan
losses was adequate at December 31, 1994.
Statement of Financial Accounting Standards Number 114 ("FAS 114"), "Accounting
by Creditors for Impairment of a Loan," was issued in May 1993 and amended in
October 1994 by Statement of Financial Accounting Standards Number 118 ("FAS
118"), "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." These statements are effective for fiscal years beginning
after December 15, 1994 and require that creditors account for impairment of a
loan by specifying how allowances for credit losses related to certain loans
should be determined. The impact of the adoption of FAS 114 and FAS 118 is
expected to be immaterial to the Company's results of operations and financial
position. The Company will adopt these standards as of January 1, 1995.
FOREGONE INTEREST ON NON-ACCRUAL AND RESTRUCTURED LOANS
TABLE 14
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992 1991 1990
------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
Interest income that would have been
accrued at original terms $2,907 $3,887 $8,028 $16,919 $18,219
Interest recognized on books 390 456 1,703 8,372 9,254
------------------------------------------------------------
Foregone interest $2,517 $3,431 $6,325 $ 8,547 $ 8,965
============================================================
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1991 1990
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---------------------------------------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
$13,581 17% $26,207 30% $31,617 34%
3,456 4 9,460 11 9,307 10
23,348 30 11,049 13 21,727 23
6,289 8 5,248 6 5,597 6
14,764 19 4,835 5 2,107 2
1,026 1 1,565 2 497 1
16,249 21 28,545 33 22,415 24
- --------------------------------------------------------------------------------------
$78,713 100% $86,909 100% $93,267 100%
======================================================================================
</TABLE>
SUPPLEMENTAL MATURITY SCHEDULE OF SELECTED LOANS
TABLE 15
Supplemental maturity schedule of selected loans as of December 31, 1994:
<TABLE>
<CAPTION>
OVER ONE
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
--------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $626,818 $269,160 $152,209 $1,048,187
Real estate construction 147,604 50,008 21,372 218,984
--------------------------------------------------
Total $774,422 $319,168 $173,581 $1,267,171
==================================================
</TABLE>
<TABLE>
<CAPTION>
OVER ONE THROUGH
FIVE YEARS OVER FIVE YEARS
---------------------------------------
Thousands of Dollars
<S> <C> <C>
Fixed interest rate $156,392 $ 86,790
Variable interest rate 162,776 86,791
---------------------------
Total $319,168 $173,581
===========================
</TABLE>
Note: Demand loans and overdrafts are reported as due in one year or less.
Loan maturity is based upon scheduled principal payments.
20
<PAGE> 23
CAPITAL AND DIVIDENDS
In 1994, the Company continued to strengthen its capital position. At December
31, 1994, shareholders' equity of $634.2 million was at the highest level in
the Company's history, representing a $97.8 million, or 18.2 percent, increase
over shareholders' equity at December 31, 1993. Shareholders' equity as a
percent of total assets was 8.8 percent at December 31, 1994 and 1993. The
Dividend Reinvestment and Stock Purchase Plan provided $1.6 million of
additional capital during 1994 and $59.4 million during 1993. The decrease was
primarily the result of discontinuing the five percent discount provision of
the plan, effective November 1, 1993. This discount was eliminated since the
Company had achieved all capital goals.
During 1994, 2.8 million shares of common stock were issued in connection with
the acquisition of Chattahoochee Bancorp, Inc. This transaction increased
equity by $46.4 million. During the fourth quarter of 1993, 1.7 million shares
of common stock were issued in connection with the acquisition of the Atlanta
banking franchise of Barnett Banks, Inc. This transaction increased
shareholders' equity by $23.3 million. During the first quarter of 1992, the
Company announced the issuance of five million shares of common stock in
Europe. The transaction was closed on April 9, 1992. This transaction provided
an additional $39.4 million of equity.
At December 31, 1994, the Company's Tier 1 capital ratio was 11.00 percent, the
Total risk-based capital ratio was 12.70 percent and the Leverage ratio was
8.10 percent. These ratios are in excess of regulatory requirements. Bank
South, N.A., the Company's bank subsidiary is considered "well capitalized" by
banking regulators.
Capital planning is an integral part of the Company's overall planning process.
Capital adequacy is regularly monitored and reviewed to ensure that appropriate
levels of capital are maintained to meet both current operating needs and
anticipated future requirements. Further discussion of capital, including
restrictions on the payment of dividends, can be found in Note 13 to the
Consolidated Financial Statements.
In 1994, the Company's Board of Directors declared dividends of $0.48 per share
for an increased dividend payout of 35.3 percent compared to 15.9 percent in
1993. The current level of dividend payout is expected to be maintained, within
a target range of 25 percent to 35 percent, in a manner commensurate with
earnings growth and capital requirements. It is the Company's belief that its
shareholders seek a consistent long-term return on their investment, including
a stable pattern of earnings growth coupled with a steadily increasing cash
dividend.
LIQUIDITY
Liquidity represents the ability to provide funding for lending and investment
activities, as well as to cover deposit withdrawals and pay debt and operating
obligations. These funds can be obtained by converting assets to cash,
attracting new deposits, or borrowing funds. Many factors impact the Company's
ability to meet liquidity needs, including variations in the markets served by
the branch office network, asset/liability mix, reputation and credit standings
in the market, and general economic conditions. Maintaining an adequate level
of liquidity is a critical balance sheet management objective. At December 31,
1994, the Company's balance sheet was highly liquid. The Company's core
deposits as a percent of loans were 118.7 percent in 1994 compared to 123.8
percent in 1993 and 124.8 percent in 1992. Short-term liquid assets as a
percent of volatile short-term liabilities were 328.55 percent in 1994, 653.95
percent in 1993 and 399.85 percent in 1992. Balance sheet liquidity in 1994 and
1993 was enhanced by significant core deposit growth and new equity raised
through the Dividend Reinvestment and Stock Purchase Plan. In addition, the
Company's access to debt markets was improved in 1994 by upgrades in debt
ratings, continued improvement in asset quality, an increased level of capital,
and increased profitability.
21
<PAGE> 24
INTEREST RATE SENSITIVITY AND ASSET LIABILITY MANAGEMENT
Interest rate sensitivity refers to the responsiveness of interest-earning
assets and interest-bearing liabilities to changes in market interest rates. To
lessen the impact of rate movements, the balance sheet is structured such that
differences in repricing opportunities between assets and liabilities are
minimized.
Interest rate risk management, an important component of the overall risk
management program of the Company, includes monitoring of the balance sheet
composition and its associated sensitivity to interest rate changes. Interest
rate sensitivity is monitored on a monthly basis by simulating net interest
income under varying interest rate scenarios. The simulation model utilizes
maturity and repricing data on loans, investments, derivative financial
instruments, deposits and other interest-bearing liabilities to predict future
levels of net interest income. The model measures net interest income, t.e., at
risk as the difference between net interest income under rising and falling
rate environments and net interest income, t.e., in an unchanged rate
environment. The Company's policy is to actively manage the balance sheet so
that net interest income simulated over a 12-month period under 100, 200 and
300 basis point changes in rates does not vary adversely from net interest
income produced in an unchanged rate environment by more than 2 percent, 5
percent and 8 percent, respectively. At December 31, 1994, the decrease in net
interest income under 100, 200 and 300 basis point increases in rates would
have been 1.6 percent, 3.7 percent and 6.3 percent, respectively. A measure of
longer-term interest rate risk is the market value of portfolio equity, which
is the present value of asset cash flows less the present value of liability
cash flows, adjusted for off-balance activity. At December 31, 1994, the
Company was liability sensitive. The sensitivity of the market value of
portfolio equity to changes in interest rates is measured in comparison to
established policy guidelines. At December 31, 1994, the Company was in
compliance with its market value of portfolio equity policies.
It is the Company's policy to utilize derivative financial instruments,
primarily interest rate swap and interest rate cap agreements, to reduce its
exposure to interest rate fluctuations. Income streams from underlying assets
and liabilities are offset with income received or paid on interest rate swaps
and caps. Consequently, the overall impact of rate movements on net interest
income for the interest rate swap and cap portfolio must be evaluated in
conjunction with the impact of rate movements on the underlying assets which
the swaps are hedging.
Interest rate swap and cap agreements are used to modify the repricing
characteristics of interest-earning assets and interest-bearing liabilities.
These agreements generally involve the receipt of fixed-rate interest payments
in exchange for floating-rate interest payments over the life of the agreement
without an exchange of the underlying notional amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense or interest income related to the underlying
hedged item. The related amount payable to, or receivable from, counterparties
is included in other liabilities or assets. The fair value changes in the
interest rate swap and cap agreements are recognized in accordance with the
accounting for the underlying hedged item (see Note 1 to the Consolidated
Financial Statements).
Interest rate swap and cap agreements are stated in terms of a notional amount,
which represents a value used to compute the amount of interest to be received
or paid under the agreement. The Company's risk of loss relates to the ability
of the counterparties to make the interest payments required under the terms of
the agreements. Counterparties must meet rigorous credit standards and be
approved by the Company's Capital Markets Credit Committee before entering into
interest rate swap and cap agreements. Counterparties to the contract must
provide collateral sufficient to protect the other party from significant
exposure to loss. At December 31, 1994, the Company had sufficient collateral
to cover any loss exposure.
22
<PAGE> 25
The notional balance for interest rate swaps and caps at December 31, 1994 was
$2.1 billion and $1.5 billion, respectively. At December 31, 1993, the Company
had $1.5 billion in interest rate swaps and no interest rate caps. The net
unrealized market value loss on total derivative financial instruments at
December 31, 1994 was approximately $90.4 million, or 2.4 percent of total
notional balance for total derivative financial instruments compared to a net
unrealized market value gain at December 31, 1993 of approximately $25.9
million, or 1.6 percent. The Company terminated $430.0 million in interest rate
swaps in 1994 resulting in $1.0 million in gains. The termination of these
interest rate swaps was due to the sale of the underlying assets and in the
course of the Company's asset and liability management process. The Company has
$1.9 billion of interest rate swaps whose maturities extend when interest rates
rise as a means of constructing more effective hedges (see Note 14 to the
Consolidated Financial Statements).
DERIVATIVE FINANCIAL INSTRUMENTS
TABLE 16
<TABLE>
<CAPTION>
PAY FIXED NOTIONAL RECEIVE FIXED
AMOUNT NOTIONAL AMOUNT TOTAL
--------------------------------------------------------
Thousands of Dollars
<S> <C> <C> <C>
Interest rate swaps
Beginning balance, January 1, 1994 $ 115,000 $1,372,273 $1,487,273
Additions 350,000 1,275,000 1,625,000
Amortization - (606,762) (606,762)
Terminations (315,000) (115,000) (430,000)
--------------------------------------------------
Ending balance, December 31, 1994 $ 150,000 $1,925,511 $2,075,511
==================================================
</TABLE>
<TABLE>
<CAPTION>
RECEIVE FIXED
NOTIONAL AMOUNT
---------------
Thousands of
Dollars
<S> <C>
Interest rate caps
Beginning balance, January 1, 1994 $1,547,000
Additions -
----------
Ending balance, December 31, 1994 $1,547,000
==========
</TABLE>
23
<PAGE> 26
SELECTED QUARTERLY DATA
TABLE 17
<TABLE>
<CAPTION>
1994 1993
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
----------------------------------------------------------------------------------------------
Thousands of dollars, except per share data
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the quarter
Interest income
(taxable equivalent) $124,876 $115,628 $105,971 $103,906 $97,532 $93,005 $91,567 $89,056
Interest income 120,284 111,690 102,884 101,239 95,464 91,573 90,625 88,182
Interest expense 57,132 47,920 39,009 37,460 39,613 37,313 36,010 36,883
----------------------------------------------------------------------------------------------
Net interest income 63,152 63,770 63,875 63,779 55,851 54,260 54,615 51,299
Provision for loan 300 300 2,300 4,697 3,271 4,975 5,783 6,364
losses
Net interest income
after provision for
loan losses 62,852 63,470 61,575 59,082 52,580 49,285 48,832 44,935
Securities gains (2,557) (162) 2,180 (329) (319) 961 1,054 3,845
(losses)
Gain on sale of - - - - 32,288 - - -
subsidiary
Other non-interest 31,838 30,540 29,712 28,312 28,344 28,651 28,808 25,254
income
Other real estate 896 (103) 319 40 1,102 369 953 94
owned
Other non-interest
expense 72,168 69,885 66,257 62,903 71,982 58,215 56,664 56,321
----------------------------------------------------------------------------------------------
Income before income
taxes 19,069 24,066 26,891 24,122 39,809 20,313 21,077 17,619
Income tax expense 4,007 2,335 4,248 4,813 10,019 3,810 5,278 2,447
----------------------------------------------------------------------------------------------
Net income $15,062 $21,731 $22,643 $19,309 $29,790 $16,503 $15,799 $15,172
==============================================================================================
Per common share
Net income $ 0.26 $ 0.37 $ 0.39 $ 0.35 $ 0.55 $ 0.32 $ 0.32 $ 0.31
Cash dividends 0.13 0.13 0.11 0.11 0.08 0.08 0.04 0.04
declared
Common book value 10.77 10.66 10.42 10.61 9.98 9.11 8.71 8.33
Common stock price:
High 18.50 21.00 20.38 19.13 15.88 16.13 14.00 14.75
Low 16.38 18.38 17.25 14.75 13.13 11.25 11.25 11.63
Quarter-end 17.75 18.50 18.00 18.25 15.25 15.50 12.88 13.63
</TABLE>
Notes: The common stock price data represents actual sales prices without
retail markups or commissions.
The balances shown above have been restated for business combinations accounted
for under the pooling of interests method (see Notes 2 and 20 to the
Consolidated Financial Statements).
A provision for loan losses of $300,000 was recorded in the third and fourth
quarters of 1994 compared to $3.3 million and $5.0 million in the respective
periods of 1993. This reduced provision was the result of larger-than-expected
recoveries and the significant improvement in asset quality.
Income tax expense declined 60 percent for the fourth quarter of 1994 compared
to the same period of 1993 due to the effects of the sale of the bank
subsidiary in fourth quarter 1993 with a tax effect of $12.5 million.
24
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Bank South Corporation
We have audited the accompanying consolidated balance sheets of Bank South
Corporation and subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bank South
Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
January 19, 1995,
except for the pooling of interests with Gwinnett
Bancshares, Inc. as to which the date is February 17, 1995
25
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
--------------------------------------
Thousands of dollars, except per share
data
<S> <C> <C>
ASSETS
Cash and due from banks:
Interest bearing deposits $ 64,048 $ 37,959
Non-interest bearing deposits and cash 359,473 363,189
--------------------------------------
Total cash and due from banks (Note 3) 423,521 401,148
--------------------------------------
Federal funds sold and securities purchased under agreements to
resell 50,649 9,170
Trading account securities 75,431 13,154
Investments securities available for sale (Note 4) 495,175 1,188,264
Investment securities held to maturity (fair value $1,851,892 at
December 31, 1994 and $765,423 at DecemberE31,E1993) (Note 5) 1,945,856 769,584
Loans 3,954,490 3,509,015
Less: Unearned income 21,207 35,492
Allowance for loan losses 82,936 88,482
--------------------------------------
Net loans (Note 6) 3,850,347 3,385,041
--------------------------------------
Premises and equipment, net (Note 7) 113,557 101,685
Customers' acceptance liability 770 1,733
Other real estate owned, net (Note 8) 3,678 5,269
Other assets 287,026 210,672
--------------------------------------
Total assets $7,246,010 $6,085,720
======================================
LIABILITIES
Non-interest bearing demand deposit accounts $1,203,258 $1,107,657
Interest-bearing deposits:
NOW accounts 785,795 781,556
Money market accounts 602,429 562,996
Savings account 484,913 460,974
Certificates of deposit $100,000 or more 364,584 228,365
Other time deposits 1,591,780 1,386,825
--------------------------------------
Total interest-bearing deposits 3,829,501 3,420,716
--------------------------------------
Total deposits (Note 9) 5,032,759 4,528,373
Short-term borrowings:
Federal funds purchased and securities sold under agreements
to repurchase 944,153 511,296
Commercial paper 49,773 21,616
Other short-term borrowings 375,998 255,283
--------------------------------------
Total short-term borrowings (Note 10) 1,369,924 788,195
--------------------------------------
Bank acceptances outstanding 770 1,733
Long-term debt (Note 11) 89,413 98,738
Other liabilities 118,912 132,264
--------------------------------------
Total liabilities 6,611,778 5,549,303
--------------------------------------
Shareholders' equity 1994 1993
-------------------------
Preferred stock:
Par value $ 25 $ 25
Shares authorized 5,000,000 5,000,000
Shares issued and outstanding - - - -
Common stock:
Par value $ 5 $ 5
Shares authorized 100,000,000 100,000,000
Shares issued and outstanding 58,264,282 54,440,999 291,319 272,198
Capital surplus 183,856 144,132
Retained earnings 167,582 116,108
Unrealized (loss) gain on investment
securities available for sale, net of tax (8,525) 3,979
--------------------------------------
Total shareholders' equity (Note 13) 634,232 536,417
--------------------------------------
Total liabilities and shareholders' equity $7,246,010 $6,085,720
======================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 29
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-----------------------------------------
Thousands of dollars, except per share
data
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $304,856 $267,348 $275,817
Tax-exempt 3,714 3,734 5,222
-----------------------------------------
Total interest and fees on loans (Note 6) 308,570 271,082 281,039
-----------------------------------------
Interest on investment securities held to maturity:
Taxable 53,515 35,349 73,279
Tax-exempt 22,288 5,632 250
-----------------------------------------
Total interest on investment securities held to maturity 75,803 40,981 73,529
-----------------------------------------
Interest and dividends on investment securities available for sale
(taxable) 36,295 43,837 6,649
Trading account securities 6,455 3,262 1,074
Federal funds sold and securities purchased under agreements to 3,777 3,270 1,147
resell
Interest-bearing deposits 1,429 1,048 1,310
Other short-term investments 3,768 2,364 10,372
-----------------------------------------
Total interest income 436,097 365,844 375,120
-----------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 19,974 16,196 16,710
Money market accounts 17,522 13,560 18,416
Savings accounts 12,477 10,900 11,118
Certificates of deposit $100,000 or more 13,167 12,789 11,946
Other time deposits 68,029 74,934 106,044
-----------------------------------------
Total interest on deposits (Note 9) 131,169 128,379 164,234
-----------------------------------------
Interest on short-term borrowings:
Federal funds purchased and securities sold under agreements to
repurchase 30,910 14,817 18,697
Other short-term borrowings 13,684 2,174 185
-----------------------------------------
Total interest on short-term borrowings (Note 10) 44,594 16,991 18,882
-----------------------------------------
Interest on long-term debt (Note 11) 5,758 4,449 4,093
-----------------------------------------
Total interest expense 181,521 149,819 187,209
-----------------------------------------
NET INTEREST INCOME 254,576 216,025 187,911
Less: Provision for loan losses (Note 6) 7,597 20,393 32,513
-----------------------------------------
Net interest income after provision for loan losses 246,979 195,632 155,398
-----------------------------------------
NON-INTEREST INCOME
Trust income 9,990 10,323 10,485
Service charges and fees on deposit accounts 65,345 54,875 43,078
Electronic banking 17,345 13,284 9,789
Mortgage banking activities 4,058 4,338 4,984
Other service charges and fees 10,769 10,976 6,035
Capital markets activities 5,660 6,193 5,398
Gain on sale of subsidiary (Note 2) - 32,288 -
Securities (losses) gains (Note 4) (868) 5,541 32,382
Other income 7,235 11,068 14,268
-----------------------------------------
119,534 148,886 126,419
-----------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 130,806 120,356 102,260
Occupancy 18,615 17,628 18,048
Equipment 16,839 13,630 12,563
Other real estate owned 1,152 2,518 15,384
Other expense 104,953 91,568 92,563
-----------------------------------------
Total non-interest expense 272,365 245,700 240,818
-----------------------------------------
Income before income taxes 94,148 98,818 40,999
Income tax expense (including tax expense of $(142), $1,226, and
$6,744 on securities (losses) gains for 1994, 1993 and 1992,
respectively 15,403 21,554 8,538
-----------------------------------------
NET INCOME $ 78,745 $ 77,264 $ 32,461
=========================================
Earnings per common share $ 1.36 $ 1.52 $ 0.73
=========================================
Weighted average common shares and common share equivalents
outstanding 57,944,299 50,988,823 44,537,171
=========================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 78,745 $ 77,264 $ 32,461
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for loan losses 7,597 20,393 32,513
Provision for losses on other real estate owned 1,046 3,760 13,913
Depreciation and amortization expense - premises and
equipment 12,611 9,423 9,071
Amortization expense - intangible and other assets 12,363 5,758 11,394
Deferred income tax expense (benefit) 9,036 (1,892) 2,517
Net amortization of investment security premiums and 4,624 2,831 861
discounts
Securities losses (gains) 868 (5,541) (32,522)
Net unrealized valuation gain on trading account (258) (373) (36)
securities
Net realized gain on sales of other assets (363) (4,172) (557)
Net (increase) decrease in trading account securities (62,019) 47,457 (50,548)
Net (increase) decrease in mortgage loans held for sale (26,278) (24,329) 7,998
Net (increase) decrease in interest receivable (14,392) 1,657 3,064
Net (increase) decrease in other assets (52,128) (6,397) 16,033
Net increase (decrease) in interest payable 8,085 (10,225) (650)
Net (decrease) increase in other liabilities (24,531) 45,144 27,650
Gain on sale of subsidiary - (32,288) -
-------------------------------------------
Total adjustments (123,739) 51,206 40,701
-------------------------------------------
Net cash (used in) provided by operating activities (44,994) 128,470 73,162
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell (28,069) 35,050 21,793
Net decrease in other short-term investments - 90 days or
less - - 143,763
Proceeds collected from matured other short-term investments
- 90 days or more - 1,240 169,660
Purchases of investment securities held to maturity (1,278,966) (1,596,437) -
Purchases of investment securities available for sale (3,799,828) (1,612,968) (50,236)
Proceeds from sales of investment securities available for
sale 4,258,376 2,154,718 2,059
Proceeds from calls, maturities and redemptions of investment
securities held to maturity 145,309 185,036 -
Proceeds from calls, maturities and redemptions of investment
securities available for sale 217,506 208,411 25,061
Purchase of investment securities held to maturity and
investment securities available for sale - - (1,435,206)
Proceeds from sales of investment securities held to maturity
and investment securities available for sale - - 816,138
Proceeds from calls, maturities and redemptions of investment
securities held to maturity and investment securities
available for sale - - 237,311
Net (increase) decrease in loans (302,423) (169,051) 29,600
Purchases of premises and equipment (26,687) (15,854) (5,217)
Proceeds from sale of premises and equipment 8,085 3,661 1,883
Proceeds from sale of other real estate owned 9,764 32,065 68,792
Proceeds from recoveries on loans previously charged-off 20,646 10,058 10,294
Business combinations, net of cash acquired 7,872 (9,798) -
-------------------------------------------
Net cash (used in) provided by investing activities (768,415) (773,869) 35,695
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 284,814 61,858 (4,290)
Net increase (decrease) in short-term borrowings 574,729 460,909 (93,488)
Repayments of long-term debt (9,184) (1,104) (2,900)
Proceeds from long-term debt - 40,000 -
Cash dividends paid (27,271) (12,189) (606)
Proceeds from employees and director stock purchases 10,861 5,303 1,229
Proceeds from foreign stock issuance - - 39,430
Net cost of common stock repurchases - - (2,705)
Proceeds from dividend reinvestment plan 1,563 59,389 19,083
-------------------------------------------
Net cash provided by (used in) financing activities 835,512 614,166 (44,247)
-------------------------------------------
Net increase (decrease) in cash and due from banks 22,103 (31,233) 64,610
Cash and due from banks at beginning of year 401,148 432,381 367,771
-------------------------------------------
Cash and due from banks at end of year $ 423,251 $ 401,148 $ 432,381
===========================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
--------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Income taxes paid $ 28,872 $ 16,483 $ 4,230
Income tax refunds received 1,246 1,258 16,664
Interest paid 173,402 160,075 188,102
Non-cash transactions:
Loans transferred to other real estate owned 6,755 3,970 37,494
Loans to facilitate the sale of other real estate owned 145 2,734 -
Investment securities held to maturity transferred to
investment securities available for sale - 1,180,924 1,350,458
</TABLE>
29
<PAGE> 32
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
(LOSS) GAIN ON
RETAINED INVESTMENT
EARNINGS SECURITIES
COMMON COMMON CAPITAL (ACCUMULATED AVAILABLE FOR
SHARES STOCK SURPLUS DEFICIT) SALE, NET OF TAX TOTAL
-----------------------------------------------------------------------------
Thousands of dollars and shares, except per share data
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992 41,197 $205,980 $64,584 $19,942 $ - $290,506
Net income - - - 32,461 - 32,461
Dividend reinvestment plan 1,825 9,127 9,956 - - 19,083
Foreign stock issuance 5,000 25,000 14,430 - - 39,430
Employee and director
stock transactions 188 940 302 (13) - 1,229
Cash dividends declared by
pooled companies:
Gwinnett Bancshares:
Common stock - $.29
per share - - - (606) - (606)
Repurchase and retirement
of common stock (488) (2,440) 486 (751) - (2,705)
-----------------------------------------------------------------------------
Balance at December 31, 1992 47,722 238,607 89,758 51,033 - 379,398
-----------------------------------------------------------------------------
Net income - - - 77,264 - 77,264
Cash dividends declared by
pooled companies: - - - (12,189) - (12,189)
Bank South:
Common Stock - $.24
per share - - - (11,267) - (11,267)
Gwinnett Banchares:
Common stock - $.45
per share - - - (922) - (922)
Issuance of stock in
business combination 1,679 8,394 14,879 - - 23,273
Dividend reinvestment plan 4,542 22,710 36,679 - - 59,389
Employee and director
stock transactions 497 2,487 2,816 - - 5,303
Unrealized gain on
investment securities
available for sale, net of tax - - - - 3,979 3,979
-----------------------------------------------------------------------------
Balance at December 31, 1993 54,440 272,198 144,132 116,108 3,979 536,417
-----------------------------------------------------------------------------
Net income - - - 78,745 - 78,745
Cash dividends declared by
pooled companies:
Bank South:
Comm stock - $.48 per
share - - - (26,030) - (26,030)
Gwinnett Banchares:
Common stock - $.60
per share - - - (1,241) - (1,241)
Issuance of stock in
business combination 2,821 14,105 32,317 - - 46,422
Dividend reinvestment plan 88 441 1,122 - - 1,563
Employee and director
stock transactions 915 4,575 6,285 - - 10,860
Unrealized loss on
investment securities
available for sale, net of tax - - - - (12,504) (12,504)
-----------------------------------------------------------------------------
Balance at December 31, 1994 58,264 $291,319 $183,856 $167,582 $ (8,525) $634,232
=============================================================================
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bank South Corporation is a bank holding company whose business is presently
conducted by its subsidiaries, primarily Bank South (the "Bank"). The
accounting principles followed by Bank South Corporation and its subsidiaries
(the "Company") and the methods of applying those principles conform with
generally accepted accounting principles and with general practices within the
banking industry, where applicable.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The Company's supplemental consolidated financial statements include the
accounts of the parent company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Results of operations of companies purchased are included from
the dates of acquisition. Prior year financial statements are restated to
include amounts of companies acquired and accounted for as poolings of
interests. Certain amounts in prior years have been reclassified to conform to
the 1994 presentation.
TRADING ACCOUNT SECURITIES, INVESTMENT SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES HELD TO MATURITY
The Company's policies for investments in debt and equity securities are as
follows: Trading account assets are held for resale in anticipation of
short-term market movements. Trading account assets, consisting of debt and
marketable equity securities and money market instruments, are stated at fair
value. Gains and losses, both realized and unrealized, are included in capital
markets activities. Management determines the appropriate classification of
debt securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. Debt securities are classified as investment
securities held to maturity when the Company has the positive intent and
ability to hold the securities to maturity. Debt securities classified as
investment securities held to maturity are stated at amortized cost. Debt
securities not classified as investment securities held to maturity or trading
and marketable equity securities not classified as trading are classified as
investment securities available for sale. Investment securities available for
sale are stated at fair value, with the unrealized gains and losses, net of
tax, reported as a separate component of shareholders' equity. The amortized
cost of investment securities held to maturity and investment securities
available for sale is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income. Realized gains and losses, and declines in value judged to be other
than temporary are included in securities gains. The cost of securities sold is
based on the specific identification method.
INTEREST CONTRACTS
The Company uses various interest rate related contracts such as swaps, caps,
futures and options to reduce its exposure to interest rate fluctuations
(asset/liability management) and to hedge trading activities. For contracts
used in asset/liability management which are designated and effective as hedges
of existing risk positions or anticipated transactions which will create risk
positions, gains and losses are deferred and recognized as an adjustment to the
yield of the hedged item. The fair value of contracts designated and effective
as hedges of existing risk positions for assets classified as available for
sale is recognized as an adjustment to equity, consistent with accounting for
the underlying hedged instrument. Contracts entered into hedging trading
positions are marked to market, and gains and losses are recognized currently
as non-interest income. Premiums paid on interest rate caps are amortized over
the life of the contract as an adjustment to the yield of the hedged position.
If a derivative financial instrument that is used to manage interest rate risk
is terminated early or results in a single payment based on the change in value
of an underlying item, any resulting gain or loss is deferred and amortized as
an adjustment to the yield of the designated assets or liabilities over the
remaining periods originally covered by the derivative financial instrument.
31
<PAGE> 34
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS
Interest income on loans is recognized in a manner that results in a level
yield on the principal amounts outstanding. The Company defers certain loan
fees, net of loan origination costs, and amortizes them to income over the life
of the related loan. Mortgage loans held for sale are recorded at lower of cost
or market on an aggregate basis as of the date of the balance sheet. Changes in
the valuation allowances are included in the determination of net income for
the period in which the change occurs.
Loans are generally classified as non-accrual when they are past due in
principal or interest payments for more than 90 days or it is otherwise not
reasonable to expect collection of principal and interest under the original
terms. Exceptions are allowed when loans are well-secured and in process of
collection. Generally, payments received on non-accrual loans are applied
directly against principal.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses is based upon management's regular
review and evaluation of the loan portfolio. The allowance is maintained at a
level which management believes is adequate to provide for losses inherent in
the loan portfolio. Management's review addresses several factors, including
current and expected economic conditions, lending policies, and historical loss
experience by loan category and loan classification. The evaluation of overall
portfolio quality when setting the allowance includes analysis of individual
loans with additional emphasis on non-accruing and past due credits. The amount
of the allowance is maintained through the provision for loan losses. Loans
that are declared uncollectible are charged against the allowance and any
subsequent recoveries are credited to the allowance. For individually
significant loans, management's review consists of evaluations of the financial
strength of the borrowers, appraisals and other estimates of the value of the
related collateral. The review of groups of loans, which are individually
insignificant, is based upon the delinquency status of the group, lending
policies and previous loss experience by each category. Changing economic
conditions affecting the Company's market or loan customers may result in
changes to management's estimates, appraisals, and evaluations of loans.
OTHER REAL ESTATE OWNED
Other real estate owned is recorded at foreclosure, or when the loan is
determined to be an in-substance foreclosure, at the lower of the investment in
the loan or fair value of the amount, less estimated selling costs. A valuation
allowance is established to recognize temporary declines in fair value. The
carrying value of these properties is adjusted downward when required by an
annual re-appraisal, or more frequently if market conditions indicate a decline
in fair value below carrying value. Changes in this allowance are reflected in
other real estate owned expense. Loans are accounted for as in-substance
foreclosures when the borrower has little or no equity in the project,
repayment is expected only from the operation or sale of a property, and the
borrower has either abandoned control of the property or it is doubtful the
borrower will be able to rebuild equity over a relatively short period of time.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed principally on the straight-line method
over the estimated useful lives of the assets.
EARNINGS PER COMMON SHARE
Earnings per common share (including common share equivalents) are based on the
weighted average number of common shares outstanding during the period.
INTANGIBLE ASSETS AND DEPOSIT-BASED INTANGIBLES
Intangible assets, primarily arising from the excess of purchase price over net
assets acquired of purchased banks, are principally amortized on a
straight-line basis over periods from 15 to 25 years. Deposit-based
intangibles, primarily arising from the excess fair value related to deposits
purchased from banks, are principally amortized on a straight-line basis over
periods from seven to 10 years.
32
<PAGE> 35
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The provision for income taxes is based on income as reported in the
consolidated financial statements.
STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, the Company considers cash and
cash equivalents to include cash and amounts due from banks.
2. ACQUISITIONS AND DIVESTITURES
On December 2, 1993, the Company acquired Barnett Bank of Atlanta ("BBA") and
Barnett Bank of Fayette County ("BBFC") from Barnett Banks, Inc. ("Barnett"),
and sold to Barnett its Pensacola, Florida, subsidiary, the Citizens and
Peoples National Bank of Pensacola ("C&P"), pursuant to two Stock Purchase
Agreements, each dated as of May 4, 1993, with Barnett. In connection with the
acquisitions of BBA and BBFC, the Company paid to Barnett $31,727,000 in cash,
issued to Barnett 1,678,838 shares of the Company's Common Stock, and
transferred to Barnett all of the outstanding shares of C&P. The sale of C&P
resulted in an after-tax gain of $19,813,000. In connection with this issuance
of Bank South Common Stock, the Company and Barnett entered into a Standstill
and Registration Rights Agreement, also dated as of May 4, 1993. The
acquisitions of BBA and BBFC were accounted for as purchases. In conjunction
with this transaction, goodwill of $41,985,000 and deposit-based intangibles of
$13,000,000 were recorded. These amounts are being amortized over 15 and seven
years respectively. The fair value of combined assets of BBA and BBFC was
approximately $774,717,000 and liabilities assumed were $705,606,000 at the
acquisition date. The book value of C&P's assets and liabilities sold at the
acquisition date were approximately $416,416,000 and $378,705,000,
respectively. On December 2, 1993, subsequent to the acquisitions of BBA and
BBFC, those banks were merged with and into Bank South, N.A. The unaudited pro
forma results listed below reflect purchase price accounting adjustments
assuming the acquisition occurred at the beginning of each period presented.
These results have been prepared for informational purposes only and are not
necessarily indicative of what would have occurred had the acquisition been
made at the beginning of each period, nor are they necessarily indicative of
future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1992
-------------------------------------------
Thousands of dollars, except per share data
<S> <C> <C>
Net interest income $241,783 $212,769
Income before taxes 94,097 34,147
Net income 73,565 25,850
Earnings per common share 1.38 0.54
</TABLE>
On March 11, 1994, the Company acquired Merchant Bank Corporation ("Merchant").
At December 31, 1993, Merchant had total assets of approximately $138,612,000
and for the year then ended had net income of $1,006,000. The Company issued an
aggregate 1,272,937 shares of the Company's common stock to holders of Merchant
common stock. This acquisition was accounted for using the pooling of interests
accounting method.
On March 15, 1994, the Company acquired Chattahoochee Bancorp, Inc.
("Chattahoochee"). At December 31, 1993, Chattahoochee had total assets of
approximately $258,454,000 and for the year then ended had net income of
$450,000. The Company issued an aggregate 2,821,170 shares of the Company's
common stock to holders of Chattahoochee common stock. This acquisition was
accounted for using the purchase accounting method. In conjunction with this
transaction, goodwill of $13,742,000 and deposit-based intangibles of
$7,868,000 were recorded.
33
<PAGE> 36
2. ACQUISITIONS AND DIVESTITURES (CONTINUED)
On April 22, 1994, the Company acquired the Lithia Springs branch of Southern
Federal Savings Association ("Southern Federal") of Georgia which had
approximately $10,721,000 in deposits in a cash transaction from the RTC. This
transaction was accounted for as a purchase.
On July 22, 1994, the Company acquired Citizens Express Company ("Citizens").
At December 31, 1993, Citizens had total assets of approximately $98,944,000
and for the year then ended had net income of $1,461,000. The Company issued an
aggregate 1,062,500 shares of the Company's common stock to holders of Citizens
common stock. This acquisition was accounted for using the poolings of
interests accounting method.
At December 31, 1994, the Company's total intangible assets were $101,558,000,
net of accumulated amortization, which were primarily comprised of goodwill and
deposit-based intangibles resulting from acquisitions.
3. RESTRICTION ON CASH AND DUE FROM BANKS
The Company is required to meet certain reserve requirements with the Federal
Reserve Bank of Atlanta. The average balances were $64,606,000 and $83,794,000
in 1994 and 1993, respectively.
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
The cost, gross unrealized gains, gross unrealized losses and fair value of
investment securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 63,058 $ 6 $ 3,313 $ 59,751
Mortgage-backed securities 376,554 55 9,927 366,682
Other U.S. Government agencies 17,423 3 134 17,292
Corporate securities 1,229 - 15 1,214
Other debt securities 6,027 261 263 6,025
-----------------------------------------------------------------
Total debt securities available for sale 464,291 325 13,652 450,964
Equity securities 44,005 206 - 44,211
-----------------------------------------------------------------
Total investment securities available
for sale $508,296 $531 $13,652 $495,175
=================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
U.S. Treasury securities and other U.S.
government agencies $ 72,052 $1,242 $ 37 $ 73,257
Mortgage-backed securities 997,611 5,663 890 1,002,384
Corporate securities 61,650 204 36 61,818
Other debt securities 2,023 2 46 1,979
--------------------------------------------------------------------
Total debt securities available
for sale 1,133,336 7,111 1,009 1,139,438
Equity securities 48,805 21 - 48,826
--------------------------------------------------------------------
Total investment securities available
for sale $1,182,141 $7,132 $1,009 $1,188,264
====================================================================
</TABLE>
34
<PAGE> 37
4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
The net unrealized loss of $13,121,000 as of December 31, 1994, is recorded as
a component of equity, net of the estimated related tax effect of $4,599,000.
The net unrealized gain of $6,123,000 as of December 31, 1993, is recorded as a
component of equity, net of the estimated related tax effect of $2,143,000.
The cost and fair value of debt securities available for sale by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or pre-payment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
COST FAIR VALUE
---------------------------------
Thousands of dollars
<S> <C> <C>
One year or less $ 26,888 $ 25,303
Over one year through five years 54,990 53,137
Over five years through 10 years 60 56
Over 10 years 5,799 5,786
---------------------------------
87,737 84,282
Mortgage-backed securities 376,554 366,682
---------------------------------
Total debt securities available for sale $464,291 $450,964
=================================
</TABLE>
The carrying value of investment securities available for sale pledged to
secure deposits and other balances was approximately $331,176,000 and
$324,999,000 at December 31, 1994 and 1993, respectively. At December 31, 1994,
the Company had no commitments to purchase when-issued securities.
During the years ended December 31, 1994 and 1993, proceeds from the sale of
debt securities available for sale were $4,209,005,000 and $2,144,383,000,
respectively. Gross realized gains on such sales were $5,602,000 and
$8,074,000, respectively, and the gross realized losses were $7,355,000 and
$2,661,000, respectively.
During the year ended December 31, 1992, proceeds from the sale of debt
securities available for sale and held to maturity were $816,386,000. Gross
realized gains on such sales were $34,348,000 and gross realized losses were
$105,000. At December 31, 1994, the Company was committed to purchase a
mortgage-backed security with a par value of $12,500,000 for $12,480,000.
5. INVESTMENT SECURITIES HELD TO MATURITY
The cost, gross unrealized gains, gross unrealized losses and fair value of
investment securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 114,544 $ 10 $ 675 $ 113,879
Municipal securities 543,549 545 42,618 501,476
Mortgage-backed securities 1,276,326 21 50,983 1,225,364
Other U.S. Government agencies 5,749 4 268 5,485
Other securities 5,688 - - 5,688
------------------------------------------------------------------
Total investment securities held to
maturity $1,945,856 $580 $94,544 $1,851,892
==================================================================
</TABLE>
35
<PAGE> 38
5. INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 41,732 $ 897 $ 14 $ 42,615
Municipal securities 291,253 10,453 10,944 290,762
Mortgage-backed securities 429,389 453 258 429,584
Other U.S. Government agencies 997 41 5 1,033
Other securities 6,213 866 5,650 1,429
---------------------------------------------------------------
Total investment securities held to
maturity $769,584 $12,710 $16,871 $765,423
===============================================================
</TABLE>
The carrying value of investment securities held to maturity pledged to secure
deposits and other balances was approximately $1,045,448,000 and $746,409,000
at December 31, 1994 and 1993, respectively.
During the years ended December 31, 1994 and 1993, there were no sales of
investment securities held to maturity.
The cost and fair value of debt securities held to maturity by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or pre-pay obligations
with or without call or pre-payment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
COST FAIR VALUE
---------------------------------
Thousands of dollars
<S> <C> <C>
One year or less $ 108,623 $ 108,251
Over one year through five years 19,571 18,979
Over five years through 10 years 32,298 30,644
Over 10 years 509,038 468,654
---------------------------------
669,530 626,528
Mortgage-backed securities 1,276,326 1,225,364
---------------------------------
Total investment securities held to maturity $1,945,856 $1,851,892
=================================
</TABLE>
6. LOANS
The following is a detail of loans by category:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------------------------
Thousands of dollars
<S> <C> <C>
Commercial, financial and agricultural $1,048,187 $ 894,774
Real estate construction 218,985 137,741
Commercial mortgages 598,376 579,652
1-4 Family residential mortgages 672,515 574,548
Consumer 1,384,573 1,306,783
Lease financing 31,854 15,517
-----------------------------------
Total gross loans $3,954,490 $3,509,015
===================================
</TABLE>
36
<PAGE> 39
6. LOANS (CONTINUED)
The allowance for loan losses is analyzed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992
-------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Balance at beginning of year $ 88,482 $ 78,713 $ 86,909
Loans charged-off (36,512) (26,490) (51,692)
Recoveries on loans previously charged-off 20,873 10,435 10,983
-------------------------------------------------
Net loans charged-off (15,639) (16,055) (40,709)
-------------------------------------------------
Net increase as a result of business
combinations 2,496 5,431 -
Provision for loan losses charged to operating
expense 7,597 20,393 32,513
-------------------------------------------------
Balance at end of year $ 82,936 $ 88,482 $ 78,713
=================================================
</TABLE>
Loans classified as non-accrual amounted to $22,266,000 at December 31, 1994
and $36,811,000 at December 31, 1993. At December 31, 1994, there were no
renegotiated or restructured loans that were not classified as non-accrual. At
December 31, 1993, there were $1,020,000 of such loans. At December 31, 1994,
1993 and 1992, interest foregone on non-accrual and renegotiated loans
outstanding was $2,517,000, $3,431,000 and $6,325,000, respectively.
Certain directors and executive officers of the Company, including immediate
families and companies in which they are immediate owners, were customers of
the Company during 1994 and 1993. Loans to such parties are made in the
ordinary course of business at the Company's normal credit terms, including
interest rates and collateralization, and do not represent more than a normal
risk of collection. Total loans to these parties at December 31, 1994 and 1993
amounted to $22,886,000 and $24,394,000, respectively. During 1994, $3,088,000
of additional loans were made to, and repayments of $4,596,000 were received
from, those persons who were related parties at December 31, 1994.
Statement of Financial Accounting Standards Number 114 ("FAS 114"), "Accounting
by Creditors for Impairment of a Loan," was issued in May 1993 and amended in
October 1994 by Statement of Financial Accounting Standards Number 118 (FAS
118), "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." These statements are effective for fiscal years beginning
after December 15, 1994. The statements apply to all loans except large groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans measured at fair value or at lower of cost or fair value,
leases, and debt securities as defined in FAS 115. The statements require that
impaired loans be valued at the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical matter, at
the fair market value of the loan's collateral if the loan is collateral
dependent. The Company will adopt these new standards effective January 1,
1995. The effect of adopting the new rules is not expected to be material to
the Company's financial position or results of operations.
The Company's concentration of credit in Georgia is a moderately limiting
factor in its ability to diversify the portfolio geographically. However,
management does not believe this concentration is of significant risk to the
Company's financial position.
37
<PAGE> 40
7. PREMISES AND EQUIPMENT
A summary of the Company's premises and equipment is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------------------------------
Thousands of dollars
<S> <C> <C>
Land owned $ 20,417 $ 21,338
Land leased 4,700 4,700
Buildings owned 55,955 53,301
Buildings leased 4,105 4,105
Leasehold improvements 20,472 19,753
Furniture and equipment 95,139 84,313
Construction in progress 9,605 4,917
------------------------------------
210,393 192,427
Less: Accumulated depreciation and amortization 96,836 90,742
------------------------------------
Premises and equipment, net $113,557 $101,685
====================================
</TABLE>
Depreciation and amortization expense, including amortization of capital
leases, was $12,611,000 in 1994, $9,423,000 in 1993 and $9,071,000 in 1992.
Future minimum payments for capital leases, non-cancelable operating leases and
data processing and facilities management service agreements with initial or
remaining terms of one year or more are summarized as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES AND
SERVICE TOTAL
CAPITAL LEASES AGREEMENTS COMMITMENTS
--------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Year ending December 31,
1995 $ 1,045 $ 24,076 $ 25,121
1996 1,059 25,749 26,808
1997 1,060 27,695 28,755
1998 1,060 29,304 30,364
1999 1,495 16,908 18,403
Thereafter 7,105 15,557 22,662
--------------------------------------------------------
Total minimum lease payments 12,824 $139,289 $152,113
==================================
Less: Amounts representing interest 5,012
------------------
Present value of net minimum lease
payments $ 7,812
==================
</TABLE>
Rental expense for all operating leases and service agreements was $25,444,000
in 1994, $22,432,000 in 1993 and $21,866,000 in 1992. Substantially all
non-cancelable leases have renewal options with the renewal option periods
ranging from 3 to 24 years.
38
<PAGE> 41
8. OTHER REAL ESTATE OWNED
Other real estate owned is analyzed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
--------------------------------
Thousands of dollars
<S> <C> <C>
Balance at beginning of year $ 5,803 $ 51,186
Transfers to other real estate owned 9,102 7,201
Sales of other real estate owned (9,040) (32,373)
Write-downs, principal reductions and other (1,641) (20,211)
--------------------------------
Balance at end of year $ 4,224 $ 5,803
================================
</TABLE>
The allowance for losses on other real estate owned is analyzed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993 1992
------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Balance at beginning of year $ 534 $ 13,954 $ 18,493
Provision for losses on other real estate owned 1,046 3,760 13,913
Write-downs on other real estate owned (1,034) (17,180) (18,452)
------------------------------------------------
Balance at end of year $ 546 $ 534 $ 13,954
================================================
</TABLE>
The net carrying value of other real estate owned was $3,678,000 and $5,269,000
at December 31, 1994 and 1993, respectively. The net realized gain on the sale
of other real estate owned was $1,496,000, $3,096,000 and $2,854,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
9. DEPOSITS
Deposits of $100,000 or more are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
-----------------------------------
Thousands of dollars
<S> <C> <C>
Certificates of deposits $385,154 $244,471
Other time deposits 55,320 88,869
-----------------------------------
Total deposits of $100,000 or more $440,474 $333,340
===================================
</TABLE>
Related interest expense was $16,572,000 in 1994, $18,106,000 in 1993 and
$22,260,000 in 1992.
39
<PAGE> 42
10. SHORT-TERM BORROWINGS
Information on short-term borrowings is presented below:
<TABLE>
<CAPTION>
1994 1993 1992
AMOUNT RATE AMOUNT RATE AMOUNT RATE
--------------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C> <C>
AT YEAR END
Federal funds purchased $ 394,304 6.12% $132,655 2.92% $137,868 3.02%
Securities sold under
agreements to repurchase 549,849 5.18 378,641 3.18 207,604 3.34
Commercial paper 49,773 5.57 21,616 2.99 - -
Other short-term borrowings 375,998 6.19 255,283 3.29 - -
--------------------------------------------------------------------------------
Total $1,369,924 5.74% $788,195 3.17% $345,472 3.21%
================================================================================
AVERAGE FOR THE YEAR
Federal funds purchased $ 298,375 4.33% $121,051 3.02% $109,793 3.39%
Securities sold under
agreements to repurchase 385,529 4.67 366,184 3.05 410,438 3.65
Commercial paper 40,033 4.24 3,437 3.00 - -
Other short-term borrowings 246,420 4.86 59,716 3.47 4,212 4.39
--------------------------------------------------------------------------------
Total $ 970,357 4.60% $550,388 3.09% $524,443 3.60%
================================================================================
MAXIMUM MONTH END BALANCE
Federal funds purchased $ 601,973 $270,123 $139,648
Securities sold under
agreements to repurchase 597,206 625,294 639,148
Commercial paper 49,773 21,616 -
Other short-term borrowings 481,016 360,171 65,000
</TABLE>
Federal funds purchased generally had a remaining average maturity of one day.
Securities sold under agreements to repurchase generally had remaining average
maturities of one day to eight months. Commercial paper had remaining average
maturities of one to 100 days. Other short-term borrowings had remaining
average maturities of five days to 11 months. At December 31, 1994, the
Company had a secured line of credit with the Federal Home Loan Bank. The line
of credit in the amount of $315,000,000 expires on October 26, 1995. The
$315,000,000 outstanding balance is secured by mortgage-backed securities.
The Company has $40,000,000 in lines of credit as back-up for commercial paper
maturities. At December 31, 1994, there were no outstanding balances under
these lines of credit. These lines of credit expire on June 29, 1995.
40
<PAGE> 43
11. LONG-TERM DEBT
A summary of long-term debt payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------------------------------
Thousands of dollars
<S> <C> <C>
ANNUAL REPAYMENT NOTES
7.50% Capital notes (a) $ - $ 6,140
SINGLE REPAYMENT NOTES
Floating rate subordinated notes (b) 13,000 13,000
10.20% Subordinated notes (c) 30,000 30,000
OTHER LONG-TERM DEBT
Long-term debt obligations under capital leases (Note 7) 7,812 7,875
Lines of credit (d) 38,500 40,000
Other 101 1,723
------------------------------------
Total long-term debt $89,413 $98,738
====================================
</TABLE>
(a) The Capital notes issued in April 1992 were paid off in June 1994 prior to
maturity, and were subordinate to claims of depositors and other creditors of
the Company. The notes were considered Tier 2 capital by bank regulators in
evaluating capital adequacy. Payments of principal and interest on the 7.50
percent Capital notes were guaranteed by the Company and had an original
maturity of January 1, 1997.
(b) The floating-rate subordinated notes issued in November 1985 are due
November 1997 and are considered Tier 2 capital by bank regulators in
evaluating capital adequacy. Interest is payable quarterly at 0.38 percent
above the London Interbank Offered Rate ("LIBOR") for three-month United States
dollar deposits. At December 31, 1994, the interest rate was 6.88 percent. At
maturity the notes may be exchanged at the option of the Company for common
stock, perpetual preferred stock or other capital securities of the Company.
This debt is recorded at the parent company level.
(c) The subordinated notes issued June 1987 and due in June 1999 are considered
Tier 2 capital by the bank regulators in evaluating capital adequacy. The
subordinated notes were issued in conjunction with an interest rate swap,
resulting in an interest rate at 0.76 percent above the LIBOR for six-month
United States dollar deposits. Interest is payable semiannually. At December
31, 1994, the interest rate was 7.76 percent. At maturity the notes may be
exchanged at the option of the Company for common stock, perpetual preferred
stock or other capital securities of the Company. This debt is recorded at the
parent company level.
(d) The lines of credit with Federal Home Loan Bank consist of: a $13,500,000
line of credit with an interest rate of 5.86 percent with payments of $750,000
made semiannually, maturing on November 8, 2003 and a $25,000,000 line of
credit with an interest rate of 5.70 percent maturing on August 5, 1998. The
$13,500,000 and $25,000,000 outstanding balances were secured by
mortgage-backed securities.
The principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
PARENT ONLY CONSOLIDATED
----------------------------
Thousands of Dollars
<S> <C> <C>
Year ending December 31,
1995 $ 166 $ 1,730
1996 75 1,652
1997 13,000 14,578
1998 - 26,576
1999 30,000 32,039
Thereafter - 12,878
----------------------------
Total long-term debt $43,241 $89,413
============================
</TABLE>
41
<PAGE> 44
12. COMMITMENTS & CONTINGENCIES
In the normal course of business, various claims and lawsuits are pending
against the Company. Management, after reviewing with counsel all actions and
proceedings, considers that the aggregate liability or loss, if any, resulting
therefrom will not be material to the Company's financial position or results
of operations.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form of
loans or through letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the Consolidated Balance Sheets. The contract or notional amounts
of the 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 non-performance by the
other party to commitments to extend credit, standby letters of credit and
commercial letters of credit is represented by the contractual or notional
amounts of these instruments. The Company accepts a variety of collateral types
for these instruments, including accounts receivable, inventory, fixed assets,
financial guarantees of responsible third parties, real and personal property,
marketable securities and cash or cash equivalents.
Since many of the commitments to extend credit, standby letters of credit and
commercial letters of credit are expected to expire without being drawn upon,
the contractual or notional amounts do not represent future cash requirements.
Commitments to extend credit are contractual obligations to lend to a customer
as long as all established contractual conditions are satisfied. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee by the customer.
Standby letters of credit and financial guarantees are conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party. Standby letters of credit and financial guarantees are generally
terminated through the lapse of time.
Commercial letters of credit are conditional commitments issued by the Company
to guarantee payment by a customer to a third party upon proof of shipment or
delivery of goods as agreed. Commercial letters of credit are used primarily
for importing or exporting goods and are terminated when proper payment is made
by the customer.
Commitments to purchase and sell securities-when-issued were primarily for
fixed rate municipal securities at December 31, 1993.
The contractual or notional amounts of financial instruments having credit risk
in excess of that reported in the Consolidated Balance Sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-------------------------------------
Thousands of dollars
<S> <C> <C>
Commitments to extend credit $(1,312,783) $(1,199,453)
Standby letters of credit and financial guarantees (87,271) (85,205)
Commercial letters of credit (1,371) (615)
Commitments to purchase securities-when-issued (12,500) (22,735)
Commitments to sell securities-when-issued - 20,800
</TABLE>
42
<PAGE> 45
13. SHAREHOLDERS' EQUITY
Dividends are paid by the Company from its unrestricted net assets, which are
mainly provided by dividends from the Company's subsidiaries. The Bank can
initiate dividend payments to the Company equal to net profit, as defined by
statute. Regulations also restrict the Bank in lending funds to affiliates,
including the Company, subject to regulatory collateral requirements. At
December 31, 1994, the Bank had $116,549,000 of undivided profits available for
payment of dividends to the Company. At December 31, 1994, no loans to the
parent company from the Bank were outstanding.
In 1994, the Board of Directors adopted the 1994 Stock Option Plan for outside
directors, authorizing the issuance of options for up to 300,000 shares of the
Company's common stock. During 1994, 26,000 shares were granted. At December
31, 1994, 274,000 shares were available for grant under this plan.
In 1993, the Board of Directors adopted the 1993 Equity Incentive Plan. Under
this plan, options can be granted for up to two million shares of the Company's
common stock. During 1994, options for 370,752 shares were granted under the
1993 Equity Incentive Plan. At December 31, 1994, 1,643,748 shares were
available for grant under this plan.
In 1992, the Board of Directors adopted the 1992 Stock Option Plan which
extended the term of the previous 1982 Stock Option Plan. The total number of
shares of common stock authorized for issuance under the 1992 and 1982 Stock
Options Plans was 2,986,950. During 1994, 15,000 shares were granted. At
December 31, 1994, stock options for 78,079 shares could be granted under the
1992 Stock Option Plan. There are no available shares under the 1982 plan.
The Company had authorized and granted options for 475,921 shares pursuant to
mergers consummated in 1987 and 1986. During 1994, the Company authorized and
granted options for 247,942 shares pursuant to the Chattahoochee acquisition.
The following table presents information on these plans:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
---------------------------------------------------------------------------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 2,275,306 $ 4.35 - 27.99 2,579,687 $ 4.35 - 16.64 2,631,669 $ 3.24 - 16.64
Granted 659,694 13.86 - 21.53 142,638 8.33 - 27.99 199,497 8.33 - 13.86
Exercised (507,965) 4.35 - 15.82 (289,916) 7.27 - 15.82 (72,223) 3.24 - 10.91
Canceled (17,556) 8.84 - 19.43 (157,103) 10.05 - 16.64 (179,256) 7.71 - 15.82
---------------------------------------------------------------------------------------------
Options outstanding,
end of year 2,409,479 $ 6.00 - 27.99 2,275,306 $ 4.35 - 27.99 2,579,687 $ 4.35 - 27.99
---------------==============-------------------==============-----------------==============
Options granted
(cumulative) 4,463,755 3,804,061 3,767,064
=============== ============= ===============
</TABLE>
Effective July 17, 1993, the Company adopted a new Employee Stock Purchase Plan
under which one million shares of common stock have been made available for
purchase through employee payroll withholdings or direct payment. Shares are
issued to participants at the lesser of 85 percent of the market price at the
beginning or end of the period. During 1994, purchases under the plan were
126,051 shares. At December 31, 1994, there were 836,570 shares available for
issuance under that plan.
43
<PAGE> 46
Effective February 13, 1992, the Company adopted a Dividend Reinvestment and
Stock Purchase Plan under which stock could be purchased by shareholders at 95
percent of the average market price at the date of purchase without incurring
brokerage commissions, service charges or other fees. During the fourth
quarter of 1993, the plan was amended to discontinue this 5 percent discount.
During 1994, purchases under the plan were 88,203 shares. At December 31,
1994, there were 3,544,197 shares available for issuance under that plan.
14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's principal objective in holding derivatives is for asset-liability
management. The operations of the Company are subject to the risk of interest
rate fluctuations to the extent that there is a difference between the amount
of the Company's interest-earning assets and the amount of interest-bearing
liabilities that mature or reprice in specified periods. The principal
objective of the Company's asset-liability management activities is to provide
maximum levels of net interest income while maintaining acceptable levels of
interest rate and liquidity risk and facilitating the funding needs of the
Company. To achieve that objective, the Company utilizes a combination of
derivative financial instruments, primarily interest rate swaps and interest
rate caps. In addition, the Company utilizes interest rate futures and options
on a limited basis.
An interest rate swap is an agreement in which two parties agree to exchange,
at specified intervals, interest payment streams calculated on an agreed-upon
notional principal amount with at least one stream based on a specified
floating-rate index. Interest rate caps are option-like contracts that require
the seller to pay the purchaser at specified future dates the amount, if any,
by which a specified market interest rate exceeds the fixed cap rate, applied
to a notional principal amount.
Interest rate options are contracts that grant the purchaser, for a premium
payment, the right to either purchase or sell a financial instrument at a
specified price within a specified period of time or on a specified date from
or to the writer of the option. Interest rate futures contracts are commitments
to either purchase or sell a financial instrument at a specific future date for
a specified price and may be settled in cash or through delivery of the
financial instrument.
Income or expense on derivative financial instruments used to manage interest
rate exposure is recorded on an accrual basis as an adjustment to the yield of
the related interest-earning assets or interest-bearing liabilities over the
periods covered by the contracts. As of December 31, 1994, there were no
deferred gains. During 1994 and 1993, the Company recognized $5,189,000 and
$179,000, respectively, of deferred gains on terminations of interest rate
swaps. The Company uses futures and options to manage trading account risk.
The notional amount and fair value of the Company's derivative financial
instruments by category at December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
NOTIONAL FAIR CREDIT
AMOUNT VALUE EXPOSURE
-------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Interest rate swaps $2,075,511 $(106,882) $ 4,138
Interest rate caps 1,547,000 16,459 16,484
Futures 35,000 (1) -
Written put options 8,000 (6) -
Purchased call options 101,362 (2) -
-------------------------------------------------
Total financial derivatives $3,766,873 $ (90,432) $20,622
=================================================
</TABLE>
44
<PAGE> 47
14. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The notional amount, fair value, average pay and receive rates (average strike
rate), average final maturities and average life of the Company's derivative
financial instruments by hedging activity at December 31, 1994 are summarized
as follows:
<TABLE>
<CAPTION>
AVERAGE
NATIONAL FAIR PAY RECEIVE FINAL AVERAGE
AMOUNT VALUE RATE RATE MATURITY* LIFE*
----------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps:
Loans $1,198,910 $ (64,110) 6.0% 6.5% 3.6 2.0
Capital markets:
Trading accounts 50,000 1,677 4.2 7.0 1.0 1.0
Investment securities available
for sale 245,900 (3,254) 5.6 6.8 1.7 0.2
Investment securities held to
maturity 425,701 (42,165) 7.7 7.8 4.6 4.5
Deposits 25,000 (390) 5.3 6.3 1.3 1.3
Debt 130,000 1,360 5.9 6.9 1.4 1.4
----------------------------------------------------------------------------
Total interest rate swaps $2,075,511 $(106,882) 6.3% 6.8% 3.4 2.2
============================================================================
</TABLE>
<TABLE>
<CAPTION>
AVERAGE AVERAGE
NATIONAL FAIR STRIKE FINAL AVERAGE
AMOUNT VALUE RATE MATURITY* LIFE*
----------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C>
Interest rate caps:
Deposits $1,000,000 $ 9,497 6.0% 0.8 0.8
Capital markets:
Investment securities available
for sale 125,000 2,002 9.4 3.4 3.4
Investment securities held to
maturity 422,000 4,960 6.3 1.0 1.0
----------------------------------------------------------------------------
Total interest $1,547,000 $16,459 6.4% 1.1 1.1
============================================================================
</TABLE>
* Calculated in years. Average final maturity is calculated using the
remaining maturity for all interest rate swaps and caps within the given
category. Average life is average final maturity adjusted to reflect the
estimated effects of amortization of the related notional amounts for the
interest rate swaps and caps.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards Number 107 ("FAS 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
settlements using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
FAS 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
45
<PAGE> 48
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
CASH, DUE FROM BANKS, FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL The carrying amounts reported in the balance sheet for
cash, due from banks, Federal funds sold and securities purchased under
agreements to resell approximates those assets' fair values.
TRADING ACCOUNT SECURITIES, INVESTMENT SECURITIES AVAILABLE FOR SALE AND
INVESTMENT SECURITIES HELD TO MATURITY For securities and derivative
instruments held for trading purposes (which include mortgage-backed
securities, agency securities, bonds, interest rate futures, options and
securities sold not owned), fair values are based on quoted market prices or
dealer quotes. For other investment securities, fair value equals quoted market
price, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities or dealer quotes.
LOANS For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for certain mortgage loans (e.g., 1-4 family residential) are based on
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
for other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
DEPOSITS The fair values disclosed for demand deposits (e.g., interest and
non-interest bearing demand deposits, NOW accounts, savings accounts and
certain types of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts). The
carrying amounts for variable-rate, fixed-term money market accounts, time
deposits and certificates of deposit with maturities of less than one year
approximate their fair values at the reporting date. Fair values for all other
fixed-rate time deposits and certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on these deposits to a schedule of aggregated expected monthly
maturities.
SHORT-TERM BORROWINGS The carrying amounts reported in the balance sheet for
short-term debt approximate those liabilities' fair values.
LONG-TERM DEBT For variable rate long-term debt that reprices frequently, fair
values are based on carrying values. The fair values of the Company's other
long-term debt is estimated using discounted cash flow analyses, based on
current incremental borrowing rates for similar types of borrowing
arrangements.
46
<PAGE> 49
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Fair values for off-balance-sheet financial instruments are based on fair
values obtained by soliciting close-out bids or offers from counterparties
(interest rate swaps and interest rate caps); quoted market prices (futures);
current settlement values (written and purchased options); fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing (guarantees and
loan commitments); or, if there are no relevant comparables, on pricing models
or formulas, using current assumptions.
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS (ASSETS)
Cash and due from banks $ 423,521 $ 423,521 $ 401,148 $ 401,148
Federal funds sold and securities
purchased under agreements to resell
50,649 50,649 9,170 9,170
Trading account securities 75,431 75,431 13,154 13,154
Investment securities available for
sale 495,175 495,175 1,188,264 1,187,160
Investment securities held to maturity 1,945,856 1,851,892 769,584 765,423
Loans, net of unearned income 3,933,283 3,696,888 3,473,523 3,511,163
Customers' acceptance liability 770 770 1,733 1,733
------------------------------------------------------------------
Total financial instruments (assets) 6,929,685 $6,594,326 5,856,576 $5,888,951
============= ===============
Non-financial instruments (assets) 316,324 229,144
----------------- -------------
Total assets $7,246,010 $6,085,720
================= =============
FINANCIAL INSTRUMENTS (LIABILITIES)
Non-interest bearing demand deposits $1,203,258 $1,203,258 $1,107,657 $1,107,657
Interest-bearing deposits 3,829,501 3,806,232 3,420,716 3,432,297
------------------------------------------------------------------
Total deposits 5,032,759 5,009,490 4,528,373 4,539,954
Short-term borrowings 1,369,924 1,369,924 788,195 788,195
Long-term debt 89,413 89,971 98,738 98,206
Bank acceptances outstanding 770 770 1,733 1,733
------------------------------------------------------------------
Total financial instruments
(liabilities) 6,492,866 $6,470,155 5,417,039 $5,428,088
============= ===============
Non-financial instruments (liabilities
and shareholders' equity) 753,144 668,681
----------------- -------------
Total liabilities and shareholders'
equity $7,246,010 $6,085,720
================= =============
</TABLE>
47
<PAGE> 50
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (CONTINUED)
The fair values for the Company's off-balance-sheet financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
----------------------------------------------------------------
CONTRACTUAL CONTRACTUAL
OR NOTIONAL FAIR OR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
Interest rate swaps $ 2,075,511 $(106,882) $ 1,487,273 $ 25,861
Interest rate caps 1,547,000 16,459 - -
Commitments to extend credit (1,312,783) (2,493) (1,199,453) (1,924)
Standby letters of credit and financial
guarantees written (87,271) (808) (85,205) (742)
Commercial letters of credit (1,371) (65) (615) (104)
Commitments to purchase securities-when
-issued (12,500) (12,480) (22,735) (22,627)
Commitments to sell securities-when -
issued - - 20,800 20,702
Option contracts 109,362 (8) 200,124 89
Futures contracts 35,000 (1) 103,000 3
</TABLE>
16. EMPLOYEE BENEFITS
The Company sponsors a noncontributory trusteed pension plan that covers
substantially all employees of the Company who have completed one year of
service and have attained the age of 21. The plan provides defined benefits
based on an employee's compensation, age at retirement and years of service. It
is the policy of the Company to fund not less than the minimum funding amounts
required by ERISA.
Net periodic pension cost of this plan included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
---------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Service cost $1,952 $ 1,765 $ 1,804
Interest costs on projected benefit 2,520 2,250 2,787
obligations
Actual return on plan assets 696 (2,522) (3,076)
Net amortization and deferral (4,992) (1,341) 444
---------------------------------------------
Net periodic pension cost $ 176 $ 152 $ 1,959
=============================================
</TABLE>
Assumptions used to determine the projected benefit obligations were:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
--------------------------
<S> <C> <C>
Discount rates 8.5% 7.5%
Rates of increase in compensation levels 5.5 5.5
</TABLE>
The expected long-term rate of return on plan assets used to determine the net
periodic pension cost was 9.0 percent in 1994, 1993 and 1992.
48
<PAGE> 51
16. EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth this plan's funded status and amounts recognized
in the Company's balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
-------------------------------
Thousands of dollars
<S> <C> <C>
Accumulated benefit obligations:
Vested $32,575 $31,989
Non-vested 985 787
-------------------------------
Total accumulated benefit obligations $33,560 $32,776
===============================
Market value of plan assets $38,707 $37,727
Projected benefit obligation 33,923 32,776
-------------------------------
Plan assets in excess of projected benefit obligation 4,784 4,951
Unrecognized net transition asset (2,322) (2,668)
Unrecognized prior service benefit (5,370) (5,791)
Unrecognized net loss 5,855 3,168
-------------------------------
Prepaid (accrued) pension expense recognized in the balance sheet $ 2,947 $ (340)
===============================
</TABLE>
At December 31, 1994, the Plan assets included common stocks, U.S. Treasury
notes and units of commingled trust funds. Included in common stocks were
68,019 shares of the Company's common stock with a market value of
approximately $1,207,337.
In 1993, the Company offered an early retirement window to all employees who
were at least 55 years of age and had 15 years of credited service. Eligible
employees were required to accept or decline this offer by March 31, 1993, and
retire by June 30, 1993, if the offer was accepted. The window provided a
benefit calculated using both the greater accrued benefit reflecting 5 years
extra service or treating the participants as if they were 5 years older and
the cash balance earnings credit for 1993. Thirty-two employees accepted the
window option. The early retirement window option cost for 1993 was $1,381,000.
Effective April 1, 1993, the Company amended and restated a prior contributory
profit sharing and investment plan to establish a 401(k) Profit Sharing Plan.
Under the provisions of the current plan, eligible employees (those with 6
months of full-time service) may contribute 1 percent to 10 percent of their
salaries. The Company will provide a guaranteed match of 100 percent of the
first 1 percent to 6 percent of employee contributions. If the Company exceeds
certain goals, the Board may authorize additional matching contributions of up
to 75 percent of the first 1 percent to 6 percent of employee contributions. In
addition, the Board may authorize a profit sharing contribution of zero to $400
per eligible employee. The aggregate expense associated with these plans was
$3,134,000 in 1994, $3,712,000 in 1993, and $131,000 in 1992. Included in the
assets of this plan were 1,589,762 shares of the Company's common stock with a
market value of approximately $28,218,276.
The Company also sponsors an unfunded non-qualified Supplemental Executive
Retirement Plan that provides certain key executive officers of the Company
defined pension benefits, in excess of those benefits provided by qualified
plans.
49
<PAGE> 52
16. EMPLOYEE BENEFITS (CONTINUED)
Net periodic pension cost of this plan included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
--------------------------------------------
Thousand of dollars
<S> <C> <C> <C>
Service cost $288 $226 $224
Interest costs on projected benefit obligations 164 142 97
Net amortization and deferral 56 50 28
--------------------------------------------
Net periodic pension cost $508 $418 $349
============================================
</TABLE>
Assumptions used to determine the projected benefit obligation were:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
--------------------------
<S> <C> <C>
Discount rates 8.5% 7.5%
Rates of increase in compensation levels 6.0 6.0
</TABLE>
The following sets forth the Supplemental Executive Retirement Plan's funded
status and amounts recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
----------------------------
Thousands of dollars
<S> <C> <C>
Accumulated benefit obligations:
Non-vested $ 1,339 $ 1,288
----------------------------
Total accumulated benefit obligations $ 1,339 $ 1,288
============================
Projected benefit obligation $(2,020) $(2,158)
----------------------------
Projected benefit obligation in excess of plan assets (2,020) (2,158)
Unrecognized net transition obligations 189 216
Unrecognized prior service costs 285 260
Unrecognized net (gain) loss (440) 187
----------------------------
Accrued pension expense recognized in the balance sheet $(1,986) $(1,495)
============================
</TABLE>
In addition to the Company's defined-benefit pension plans, the Company
sponsors a defined-benefit health care plan that provides postretirement
medical benefits to full-time employees who have worked 15 years and attained
age 55 while in service with the Company. The plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the plan
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent to increase the retiree contribution rate
annually for the expected general inflation rate for that year.
In 1993, the Company adopted Statement of Financial Accounting Standards Number
106 ("FAS 106"), "Employers' Accounting for Postretirement Benefits Other than
Pensions." Postretirement benefit cost for 1992 of $249,000, which was recorded
on a cash basis, was not restated. The transition obligation is being amortized
over 20 years.
50
<PAGE> 53
16. EMPLOYEE BENEFITS (CONTINUED)
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
--------------------------
Thousands of dollars
<S> <C> <C>
Service cost $122 $ 101
Interest costs on projected benefit obligations 402 578
Amortization of transition obligation 262 344
--------------------------
Net periodic postretirement benefit cost $786 $1,023
===========================
</TABLE>
The following table presents the plan's funded status, reconciled with amounts
recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
----------------------------
Thousands of dollars
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 4,210 $ 5,876
Fully eligible active plan participants 151 692
Other active plan participants 814 73
----------------------------
Total accumulated postretirement benefit obligations $ 5,175 $ 6,641
============================
Accumulated postretirement benefit obligation in excess of plan assets $(5,175) $(6,641)
Unrecognized transition obligation 6,197 6,541
Unrecognized net gain (2,152) (554)
----------------------------
Accrued postretirement benefit expense recognized in the balance sheet $(1,130) $ (654)
============================
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) for participants under age
65 is 10.5 percent for 1995 and is assumed to decrease gradually to 5.5 percent
for 2003 and remain at that level thereafter. The weighted-average annual
assumed rate of increase in the per capita cost of covered benefits for
participants over age 65 is 10 percent for 1995 and is assumed to decrease
gradually to 5 percent for 2003 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend by one
percentage point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1994, by $657,000 and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for 1994 by $65,000.
51
<PAGE> 54
16. EMPLOYEE BENEFITS (CONTINUED)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5 percent at December 31, 1994 and 7.5
percent at December 31, 1993. The plan has not been funded, therefore the
long-term rate-of-return assumptions have not been established.
17. OTHER EXPENSE
The major components of other expense are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Electronic banking $ 7,191 $ 4,963 $ 3,762
Postage and freight 6,773 5,457 5,149
Stationery and supplies 5,559 4,739 4,142
Marketing and business development 12,444 11,447 8,128
Professional fees 10,250 12,369 12,842
Insurance and taxes 14,088 14,565 13,031
Other data-processing expense 18,217 14,250 14,345
General and administrative 3,567 5,402 7,314
Amortization of intangibles 12,363 5,758 11,394
Other 14,501 12,618 12,456
------------------------------------------------
Total other expense $104,953 $91,568 $92,563
================================================
</TABLE>
18. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
LIABILITY METHOD DEFERRED METHOD
-------------------------------------------------------
1994 1993 1992
-------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
Current federal tax expense $ 6,353 $21,554 $5,928
Current state tax expense 14 1,892 93
-------------------------------------------------------
Total current tax expense 6,367 23,446 6,021
Deferred federal tax expense (benefit) 8,528 (1,663) 2,473
Deferred state tax expense (benefit) 508 (229) 44
-------------------------------------------------------
Total deferred tax expense (benefit) 9,036 (1,892) 2,517
-------------------------------------------------------
Total income tax expense $15,403 $21,554 $8,538
=======================================================
</TABLE>
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards Number 109 ("FAS 109"), "Accounting
for Income Taxes." As permitted under FAS 109, prior years' financial
statements have not been restated. The effect of adopting FAS 109 was not
material to financial position or results of operations of the Company.
52
<PAGE> 55
18. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
----------------------------------------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
----------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C>
Allowance for loan losses $ 35,399 $ - $ 36,813 $ -
Other real estate owned 883 - 2,650 -
Reserves for expenses 3,974 - 4,451 -
Deferred compensation 4,569 - 3,846 -
Mortgage servicing premiums 1,284 - 1,856 -
Federal net operating loss carryforward 455 - 652 -
Federal alternative minimum tax credit
carryforward 3,926 - 271 -
State net operating loss carryforward 1,770 - 3,027 -
State credit carryforward 7,262 - 7,040 -
Market valuation adjustment on
available for sale portfolio 4,563 - - 2,136
Depreciation - 5,022 - 5,372
Deferred option income - 8,664 - 6,987
Purchase accounting adjustments - 4,573 - 3,063
Deferred gain on interest rate swap - 16,400 2,128 -
Deferred gain on notional principal
contract - 2,471 - -
Other 8,998 8,400 8,531 7,156
------------------------------------------------------------
73,083 45,530 71,265 24,714
Valuation allowance (11,064) - (27,658) -
Total deferred taxes 62,019 $45,530 43,607 $24,714
--------------------=======-----------------------==========
Net deferred taxes $ 16,489 $ 18,893
============== ============
</TABLE>
The components of the provision for deferred income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1992
---------------------
Thousands of dollars
<S> <C>
Securities transactions $ (607)
Other real estate owned 3,775
Allowance for loan losses 2,561
Non-accrual loans 672
Deferred option income 2,738
Mortgage servicing premiums (2,073)
Net alternative minimum tax 7,365
Net operating loss carryforward (10,715)
Net general business credit carryforward (453)
Other (746)
---------------------
Deferred tax expense $ 2,517
=====================
</TABLE>
53
<PAGE> 56
18. INCOME TAXES (CONTINUED)
Income taxes at the statutory rate are reconciled to the Company's income tax
expense as follows:
<TABLE>
<CAPTION>
LIABILITY METHOD DEFERRED METHOD
------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------------------------------------------------------------------------
Thousands of dollars
<S> <C> <C> <C> <C> <C> <C>
Taxes at statutory rate $ 32,952 35.0% $ 34,586 35.0% $ 13,940 34.0%
Increase (decrease) resulting from:
Tax exempt income (9,212) (9.8) (3,468) (3.5) (1,984) (4.8)
Amortization of goodwill 1,815 1.9 561 0.6 851 2.1
State taxes, net of federal tax benefit 340 0.4 1,080 1.1 90 0.2
Alternative minimum tax - - - - 7,365 18.0
Reduction of deferred tax valuation
allowance (12,376) (13.2) (10,000) (10.1) -
Net operating loss carryforward - - - - (10,958) (26.7)
General business credit carryforward - - - - (1,151) (2.8)
Recepture of bad debt reserves 2,400 2.6 - - - -
Other (516) (0.5) (1,205) (1.0) 385 0.9
------------------------------------------------------------------------------
Income tax expense $ 15,403 16.4% $ 21,554 22.1% $ 8,538 20.9%
==============================================================================
</TABLE>
The Company increased its net Federal deferred tax asset in 1993 due to the
increase in the corporate tax rate from 34 percent to 35 percent. The result
was a reduction to deferred tax expense of $935,000.
A valuation allowance of $18,064,000 at December 31, 1994 and $15,280,000 at
December 31, 1993 offsets the full amount of the Georgia deferred tax asset.
During 1993, the Company acquired Georgia NOL and occupation tax credit
("Credit") carryforwards in the BBA and BBFC acquisitions (see Note 2) of
approximately $74,544,000 and $925,000, respectively. The NOL carryforwards
expire in years through 2008 and the Credit carryforwards expire in years
through 1997. The Company established a valuation allowance relating to
carryforwards of $2,649,000 and $925,000, respectively, which is included in
the valuation allowance noted above. If the Georgia NOL and Credit
carryforwards are utilized the valuation allowance will be reduced, which, in
turn will reduce goodwill for the transaction. For the year ended December 31,
1994, the Company recognized state tax expense of $508,000 relating to the
reduction in the valuation allowance from Georgia NOL and Credit carryforwards
that reduced goodwill.
At December 31, 1994, the Company had Georgia Credit carryforwards available of
$7,262,000 compared to $7,040,000 at December 31, 1993. At December 31, 1994,
the Company had net operating loss carryforwards available of $29,500,000
expiring in years through 2009.
54
<PAGE> 57
19. CONDENSED FINANCIAL INFORMATION OF BANK SOUTH CORPORATION (PARENT ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
--------------------------------
Thousands of dollars
<S> <C> <C>
ASSETS
Cash and due from banks $108,784 $ 82,325
Investment securities available for sale 9,681 2,000
Investment securities held to maturity 4,552 3,334
Investment in affiliates*:
Bank subsidiaries 578,080 491,155
Non-bank subsidiaries 8,383 9,793
--------------------------------
Total investment in affiliates 586,463 500,948
Advances to and amounts receivable from non-bank subsidiaries* 6,957 5,655
Goodwill and other intangible assets 16,626 19,228
Other assets 2,829 5,009
--------------------------------
Total assets $735,892 $618,499
================================
LIABILITIES
Advances from and amounts payable to non-bank subsidiaries* $ - $ 1,042
Commercial paper 49,773 21,616
Long-term debt 43,100 43,408
Other liabilities 8,787 16,016
--------------------------------
Total liabilities 101,660 82,082
Shareholders' equity 634,232 536,417
--------------------------------
Total liabilities and shareholders' equity $735,892 $618,499
================================
</TABLE>
* Eliminated in consolidation
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
----------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
REVENUE
Income from affiliates*:
Dividends from bank subsidiaries $27,936 $ - $ -
Interest from subsidiaries 4,305 1,591 672
Management and service fees from subsidiaries 23,146 16,461 14,904
----------------------------------------------
Total income from affiliates 55,387 18,052 15,576
Interest on advances and investment securities available
for sale and investment securities held to maturity 495 56 450
Gain on sale of subsidiary - 32,288 -
Other income 3,007 2,958 2,951
----------------------------------------------
Total revenue 58,889 53,354 18,977
EXPENSE
Interest expense 4,141 2,290 2,448
Management and service fees* 2,945 1,989 2,264
Other expense 27,059 24,196 19,909
----------------------------------------------
Total expense 34,145 28,475 24,621
Income (loss) before income taxes and equity in
undistributed income of subsidiaries 24,744 24,879 (5,644)
Income tax (benefit) expense (636) 8,507 (2,257)
----------------------------------------------
Income (loss) before equity in undistributed income of
subsidiaries 25,380 16,372 (3,387)
Equity in undistributed income of subsidiaries* 53,365 60,892 35,848
----------------------------------------------
Net income $78,745 $77,264 $32,461
==============================================
</TABLE>
* Eliminated in consolidation
55
<PAGE> 58
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------------------------------------------
Thousands of dollars
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 78,745 $ 77,264 $ 32,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (53,365) (57,892) (33,237)
Depreciation and amortization expense-premises
and equipment 376 570 353
Amortization expense-intangible and other assets 2,602 2,724 2,238
Gain on sale of subsidiary - (32,288) -
Net (increase) decrease in other assets (83) 33,543 11,265
Net (decrease) increase in other liabilities (4,717) 13,913 1,377
------------------------------------------------
Total adjustments (55,187) (39,430) (18,004)
------------------------------------------------
Net cash provided by operating activities 23,558 37,834 14,457
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in other short-term investments - - 3,800
Net (increase) decrease in advances to subsidiaries (1,302) (5,321) 1,216
Purchase of investment securities available for sale (12,177) (2,000) -
Purchase of investment securities held to maturity (235) (262) -
Proceeds from calls, redemptions, and maturities of
investment securities held to maturity 3,513 - -
Purchases of premises and equipment (55) (974) (51)
Business combinations, net of cash acquired 1,553 (31,020) (40,000)
Capital contribution to subsidiaries (500) (14,437) -
------------------------------------------------
Net cash used in investing activities (9,203) (54,014) (35,035)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in advances from subsidiaries (1,042) 1,040 (13,066)
Net increase in commercial paper 28,157 21,616 -
Repayments of long-term debt (167) (521) (198)
Cash dividends paid (27,268) (12,031) (609)
Proceeds from employee and director stock purchases 10,861 5,303 1,229
Proceeds from dividend reinvestment plan 1,563 59,389 19,083
Proceeds from foreign stock issuance - - 39,430
Common stock repurchases - - (2,705)
------------------------------------------------
Net cash provided by financing activities 12,104 74,796 43,164
------------------------------------------------
Net increase in cash and due from banks 26,459 58,616 22,586
Cash and due from banks at beginning of year 82,325 23,709 1,123
------------------------------------------------
Cash and due from banks at end of year $108,784 82,325 23,709
================================================
</TABLE>
20. SUBSEQUENT EVENT
On February 17, 1995, the Company acquired Gwinnett Bancshares, Inc.
("Gwinnett"), parent company of Gwinnett Federal Bank, FSB. As of December 31,
1994, Gwinnett had total assets of approximately $319,140,000 and total
shareholders' equity of approximately $33,157,000. For the year ended December
31, 1994, Gwinnett reported a net loss of approximately $1,405,000. The
Company issued an aggregate of 3,681,402 shares of the Company's common stock
to holders of Gwinnett common stock. The acquisition was accounted for using
the pooling-of-interests accounting method. Accordingly, prior periods have
been restated.
56
<PAGE> 59
21. CONTINGENCIES (UNAUDITED)
Although no suit has been filed, the Company has been informed of a potential
claim for contribution to clean-up costs by a party currently incurring such
costs on a Superfund site under federal environmental laws. The Company's
subsidiary, Bank South, acts in a fiduciary capacity, serving as trustee of a
trust which has an interest in a partnership that previously owned the site.
It is understood that such claim will be asserted against Bank South in both
its fiduciary and individual capacities. At this time the Company has only
limited information about the possible claim and intends to defend the claim
vigorously. The Company is not able to determine what effect, if any, such a
claim may have on the Company's financial statements.
57
<PAGE> 60
BANK SOUTH CORPORATION
FORM 8-K
Item 7. Financial Statements and Exhibits
(A) Financial Statements of Business Acquired.
Not applicable.
(B) Proforma Financial Information.
Not applicable.
(C) Exhibits.
Exhibit No. Description
23 Consent of Ernst and Young, LLP
27 Financial Data Schedules (for SEC use only)
58
<PAGE> 61
SIGNATURES
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 10, 1995
BANK SOUTH CORPORATION
Registrant
By: /s/ Ralph E. Hutchins, Jr.
---------------------------------
Ralph E. Hutchins, Jr.
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 1
Exhibit No. 23
<PAGE> 2
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Bank South Corporation (1)
Registration Statement (Form S-8 No. 33-23592) dated August 1, 1988, (2)
Registration Statement (Form S-8 No. 2-87371) as amended on February 27, 1987,
(3) Registration Statement (Form S-8 No. 33-19257) dated December 23, 1987, (4)
Registration Statement (Form S-8 No. 33-19256) dated December 23, 1987, (5)
Registration Statement (Form S-3 No. 33-46896) as amended on April 21, 1992,
(6) Registration Statement (Form S-3 No. 33-61470) dated April 22, 1993, (7)
Registration Statement (Form S-8 No. 33-61518) dated April 23, 1993, (8)
Registration Statement (Form S-8 No. 33-61522) dated April 23, 1993, (9)
Registration Statement (Form S-8 No. 33-61526) dated April 23, 1993, (10)
Registration Statement (Form S-8 No. 33-66254) dated July 20, 1993, (11)
Registration Statement (Form S-8 No. 33-52791) dated March 18, 1994, (12)
Registration Statement (Form S-8 No. 33-53493) dated May 5, 1994, (13)
Registration Statement (Form S-8 No. 33-53497) dated May 5, 1994, and (14)
Registration Statement (Form S-8 No. 33-57791) dated February 22, 1995, of our
report dated January 19, 1995, except for the pooling of interests with
Gwinnett Bancshares, Inc. as to which the date is February 17, 1995, with
respect to the consolidated financial statements of Bank South Corporation
included in this Current Report (Form 8-K) dated October 10, 1995.
ERNST & YOUNG LLP
Atlanta, Georgia
October 10, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BANK SOUTH CORP FOR THE YEARS ENDED, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERECNE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 359,473
<INT-BEARING-DEPOSITS> 64,048
<FED-FUNDS-SOLD> 50,649
<TRADING-ASSETS> 75,431
<INVESTMENTS-HELD-FOR-SALE> 495,175
<INVESTMENTS-CARRYING> 1,945,856
<INVESTMENTS-MARKET> 1,851,892
<LOANS> 3,933,283
<ALLOWANCE> 82,936
<TOTAL-ASSETS> 7,246,010
<DEPOSITS> 5,032,759
<SHORT-TERM> 1,369,924
<LIABILITIES-OTHER> 119,682
<LONG-TERM> 89,413
<COMMON> 291,319
0
0
<OTHER-SE> 342,913
<TOTAL-LIABILITIES-AND-EQUITY> 7,246,010
<INTEREST-LOAN> 308,570
<INTEREST-INVEST> 118,553
<INTEREST-OTHER> 8,974
<INTEREST-TOTAL> 436,097
<INTEREST-DEPOSIT> 131,169
<INTEREST-EXPENSE> 181,521
<INTEREST-INCOME-NET> 246,979
<LOAN-LOSSES> 7,597
<SECURITIES-GAINS> (868)
<EXPENSE-OTHER> 272,365
<INCOME-PRETAX> 94,148
<INCOME-PRE-EXTRAORDINARY> 94,148
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,745
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 7.58
<LOANS-NON> 22,266
<LOANS-PAST> 1,428
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 124,656
<ALLOWANCE-OPEN> 88,482
<CHARGE-OFFS> 36,512
<RECOVERIES> 20,873
<ALLOWANCE-CLOSE> 82,936
<ALLOWANCE-DOMESTIC> 82,936
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 49,531
</TABLE>
