<PAGE>
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 14, 1995
(December 31, 1994)
Hibernia Corporation
(Exact name of issuer as specified in its charter)
Louisiana 1-10294 72-0724532
(State or other (Commission (IRS Employer
jurisdiction of File Number Identification No.)
organization)
313 Carondelet Street, New Orleans, Louisiana 70130
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504)533-5332
Item 5. Other Events
As has been disclosed by the Registrant in prior filings,
effective July 1, 1994, First Commercial Bancshares, Inc. was
merged with and into the Registrant, in a stock-for-stock exchange
that was accounted for by the Registrant as a pooling of interests.
On that same day, Bastrop National Bank was merged into Hibernia
National Bank, a subsidiary of the Registrant, in a stock-for-stock
exchange with the Registrant accounted for by the Registrant as a
pooling of interests. Effective August 1, 1994, First Bancorp of
Louisiana, Inc. and First Continental Bancshares, Inc. were each
merged with and into the Registrant, in separate stock-for-stock
exchanges that were accounted for by the Registrant as poolings of
interests. In addition, effective December 31, 1994 Pioneer
Bancshares Corporation was merged with and into the Registrant, in
a stock-for-stock exchange that was accounted for by the Registrant
as a pooling of interests. On that same day, First State Bank and
Trust Company was merged into Hibernia National Bank, a subsidiary
of the Registrant, in a stock-for-stock exchange with the
Registrant accounted for by the Registrant as a pooling of
interests.
The Registrant has prepared restated supplemental consolidated
financial statements reflecting the above-described transactions
and is filing them as Exhibit 99.1 to this Current Report on Form
8-K so that the Registrant may incorporate such financial
statements into any future registration statements by reference to
this Report.
Also filed as exhibits hereto are the audited financial statements
of Bastrop National Bank and First State Bank and Trust Company and
the audited consolidated financial statements of Commercial
Bancshares, Inc., First Bancorp of Louisiana, Inc., First
Continental Bancshares, Inc. and Pioneer Bancshares Corporation.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
23 Consent of Ernst & Young LLP
99.1 Supplemental Consolidated
Financial Statements of
Hibernia Corporation for the
fiscal year ended December 31,
1993 (as restated to reflect
the acquisitions of Commercial
Bancshares, Inc., and Bastrop
National Bank on July 1, 1994;
First Bancorp of Louisiana,
Inc. and First Continental
Bancshares, Inc. on August 1,
1994; and Pioneer Bancshares
Corporation and First State
Bank and Trust Company on
December 31, 1994)
99.2 Exhibit 99.2 to the
Consolidated Financial
Statements of Hibernia
Corporation for the fiscal year
ended December 31, 1993 filed
with the commission on October
11, 1994 by the Registrant is
hereby incorporated by
reference. (Audited
consolidated financial
statements of Commercial
Bancshares, Inc. for the fiscal
year ended December 31, 1993)
99.3 Exhibit 99.3 to the
Consolidated Financial
Statements of Hibernia
Corporation for the fiscal year
ended December 31, 1993 filed
with the commission on October
11, 1994 by the Registrant is
hereby incorporated by
reference. (Audited financial
statements of Bastrop National
Bank for the fiscal year ended
December 31, 1993)
99.4 Exhibit 99.4 to the
Consolidated Financial
Consolidated Financial
Statementsof Hibernia
Corporation for the fiscal year
ended December 31, 1993 filed
with the commission on October
11, 1994 by the Registrant is
hereby incorporated by
reference. (Audited
consolidated financial
statements of First Bancorp of
Louisiana, Inc. for the fiscal
year ended December 31, 1993)
99.5 Exhibit 99.5 to the
Consolidated Financial
Statements of Hibernia
Corporation for the fiscal year
ended December 31, 1993 filed
with the commission on October
11, 1994 by the Registrant is
hereby incorporated by
reference. (Audited
consolidated financial
statements of First Continental
Bancshares, Inc. for the fiscal
year ended December 31, 1993)
99.6 Audited consolidated financial
statements of Pioneer
Bancshares Corporation for the
fiscal year ended December 31,
1993
99.7 Audited financial statements of
First State Bank and Trust
Company for the fiscal year
ended December 31, 1993
EXHIBIT INDEX
Exhibit Page
Number Number
Description
23 Consent of Ernst & Young LLP
99.1 Supplemental Consolidated Financial Statements
of Hibernia Corporation for the fiscal year
ended December 31, 1993 (as restated to reflect
the acquisitions of Commercial Bancshares, Inc.,
and Bastrop National Bank on July 1, 1994; of
First Bancorp of Louisiana, Inc. and First
Continental Bancshares, Inc. on August 1, 1994;
and of Pioneer Bancshares Corporation and First
State Bank and Trust Company on December 31,
1994)
99.2 Exhibit 99.2 to the Consolidated Financial
Statements of Hibernia Corporation for the
fiscal year ended December 31, 1993 filed with
the commission on October 11, 1994 by the
Registrant is hereby incorporated by reference.
(Audited consolidated financial statements of
Commercial Bancshares, Inc. for the fiscal year
ended December 31, 1993)
99.3 Exhibit 99.3 to the Consolidated Financial
Statements of Hibernia Corporation for the
fiscal year ended December 31, 1993 filed with
the commission on October 11, 1994 by the
Registrant is hereby incorporated by reference.
(Audited financial statements of Bastrop
National Bank for the fiscal year ended December
31, 1993)
99.4 Exhibit 99.4 to the Consolidated Financial
Statements of Hibernia Corporation for the
fiscal year ended December 31, 1993 filed with
the commission on October 11, 1994 by the
Registrant is hereby incorporated by reference.
(Audited consolidated financial statements of
First Bancorp of Louisiana, Inc. for the fiscal
year ended December 31, 1993)
99.5 Exhibit 99.5 to the Consolidated Financial
Statements of Hibernia Corporation for the
fiscal year ended December 31, 1993 filed with
the commission on October 11, 1994 by the
Registrant is hereby incorporated by reference.
(Audited consolidated financial statements of
First Continental Bancshares, Inc. for the
fiscal year ended December 31, 1993)
99.6 Audited consolidated financial statements of
Pioneer Bancshares Corporation for the fiscal year
ended December 31, 1993
99.7 Audited financial statements of First State Bank
and Trust Company for the fiscal year ended
December 31, 1993
SIGNATURE
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.
HIBERNIA CORPORATION
(Registrant)
Date: February 14, 1995 By:/s/ Ronald E. Samford, Jr.
Ronald E. Samford, Jr.
Chief Accounting Officer
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the following Hibernia
Corporation Registration Statements
Form S-3 No. 33-26553 (dated February 21, 1989)
Form S-8 No. 2-81353 (dated February 23, 1989)
Form S-8 No. 33-26871 (dated February 23, 1989)
Form S-3 No. 33-37701 (dated January 31, 1991)
Form S-8 No. 2-96194 (dated April 8, 1991)
Form S-3 No. 33-53108 (dated December 28, 1992)
Form S-3 No. 33-55844 (dated December 28, 1992)
Form S-4 No. 33-52971 (dated May 13, 1994)
Form S-4 No. 33-51901 (dated May 13, 1994)
Form S-4 No. 33-53011 (dated June 16, 1994)
Form S-4 No. 33-52249 (dated July 8, 1994)
Form S-4 No. 33-56037 (dated November 8, 1994)
Form S-4 No. 33-56341 (dated November 11, 1994)
Form S-4 No. 33-57055 (dated December 29, 1994)
of our report dated January 11, 1994, except for the pooling of interests with
the Other Pooled Companies described in Note 16, for which the date is
December 31, 1994, with respect to the supplemental consolidated financial
statements of Hibernia Corporation included in this Report on Form 8-K dated
February 14, 1995.
s/ERNST & YOUNG LLP
New Orleans, Louisiana
February 13, 1995
<PAGE>
Report of Ernst & Young, Independent Auditors
The Board of Directors and Shareholders
Hibernia Corporation
We have audited the supplemental consolidated balance sheets of Hibernia
Corporation and Subsidiaries (formed as a result of the consolidation of
Hibernia Corporation and the Other Pooled Companies, as described in Note 16)
as of December 31, 1993 and 1992, and the related supplemental consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1993. The supplemental
consolidated financial statements give retroactive effect to the mergers of
Hibernia Corporation and the Other Pooled Companies during 1994, which have
been accounted for using the pooling of interests method as described in Note
16 to the supplemental consolidated financial statements. These supplemental
financial statements are the responsibility of the management of Hibernia
Corporation. Our responsibility is to express an opinion on these
supplemental 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 supplemental financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Hibernia Corporation and Subsidiaries at December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, after giving
retroactive effect to the mergers of Hibernia Corporation and the Other Pooled
Companies, as described in Note 16 to the supplemental consolidated financial
statements, in conformity with generally accepted accounting principles.
As discussed in Notes 3 and 13, in 1993 the Company changed its method of
accounting for debt securities and income taxes. As discussed in Note 14, in
1991 the Company changed its method of accounting for lease expense.
/s/ Ernst & Young LLP
New Orleans, Louisiana
January 11, 1994, except for the
poolings of interests with the Other Pooled Companies
described in Note 16, as to which the date is
December 31, 1994
<PAGE>
<TABLE>
<CAPTION>
Supplemental Consolidated Balance Sheets
Hibernia Corporation and Subsidiaries
ecember 31 ($ in thousands) 1993 1992
--------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $274,090 $320,133
Short-term investments 282,019 636,646
Securities available for sale 652,708 740,526
Securities held to maturity (estimated fair values 1993 and
1992: $1,953,100 and $1,323,894) 1,921,201 1,300,951
Loans, net of unearned income 2,942,811 2,946,435
Reserve for possible loan losses (172,535) (199,518)
Loans, net 2,770,276 2,746,917
Bank premises and equipment 102,593 108,517
Customers' acceptance liability 11,800 2,088
Other assets 208,374 246,814
TOTAL ASSETS $6,223,061 $6,102,592
LIABILITIES
Deposits:
Demand, noninterest-bearing $1,036,182 $975,399
Interest-bearing 4,302,278 4,281,107
Total Deposits 5,338,460 5,256,506
Federal funds purchased and securities sold under
agreements to repurchase 155,791 127,752
Liability on acceptances 11,800 2,088
Payables arising from securities transactions not yet settled 50,875 151,344
Other liabilities 113,467 85,535
Debt 30,194 32,587
TOTAL LIABILITIES 5,700,587 5,655,812
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized - 100,000,000 shares; issued and outstanding - none - -
Class A common stock, no par value:
Authorized - 200,000,000 shares; issued and outstanding
108,353,770 and 107,139,015 at December 31, 1993 and 1992 208,040 205,707
Surplus 384,997 383,758
Retained earnings (deficit) (82,356) (142,091)
Unrealized gain on securities available for sale 12,193 -
ESOP commitment (400) (594)
TOTAL SHAREHOLDERS' EQUITY 522,474 446,780
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,223,061 $6,102,592
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Supplemental Consolidated Income Statements
Hibernia Corporation and Subsidiaries
Year Ended December 31 ($ in thousands, except per share data) 1993 1992 1991
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $243,546 $313,577 $517,180
Interest on securities:
U.S. government securities and obligations of
U.S. government agencies 140,858 128,401 153,644
Obligations of states and political subdivisions 1,338 1,425 6,732
Trading account interest 33 99 70
Interest on time deposits in domestic banks 550 613 813
Interest on federal funds sold and securities
purchased under agreements to resell 9,592 15,795 12,663
Total Interest Income 395,917 459,910 691,102
Interest Expense
Interest on deposits 131,292 181,828 376,922
Interest on federal funds purchased and
securities sold under agreements to repurchase 4,016 6,910 16,794
Interest on debt 3,618 14,098 15,234
Total Interest Expense 138,926 202,836 408,950
Net Interest Income 256,991 257,074 282,152
Provision for possible loan losses (3,734) 71,093 184,350
Net Interest Income After Provision for
Possible Loan Losses 260,725 185,981 97,802
Noninterest Income
Trust fees 13,314 12,860 14,861
Service charges on deposits 38,602 40,279 42,599
Other service, collection and exchange charges 19,933 18,293 23,643
Gain on settlement of acquired loans 1,308 4,151 9,043
Loss on sale of Texas Bank - (2,934) -
Other operating income 8,083 10,431 13,585
Securities gains, net 92 17,358 17,893
Total Noninterest Income 81,332 100,438 121,624
Noninterest Expense
Salaries and employee benefits 108,088 107,968 135,270
Occupancy expense, net 24,789 27,349 32,829
Equipment expense 13,509 15,689 16,166
Data processing expense 17,099 18,727 13,652
Foreclosed property expense 7,883 25,368 31,236
Provision for data processing enhancements 11,991 - -
Other operating expense 89,271 84,242 126,949
Total Noninterest Expense 272,630 279,343 356,102
Income (Loss) Before Income Taxes, Extraordinary Items and
Cumulative Effect of Accounting Changes 69,427 7,076 (136,676)
Income tax expense 8,365 5,113 2,740
Income (Loss) Before Extraordinary Items and
Cumulative Effect of Accounting Changes 61,062 1,963 (139,416)
Extraordinary loss on debt restructurings, net of tax - (44,493) -
Utilization of net operating loss carryforwards - 6,181 305
Cumulative effect of accounting changes 2,782 - (21,643)
Net Income (Loss) $63,844 ($36,349) ($160,754)
Income (Loss) Per Share
Income (loss) before extraordinary items and cumulative effect of
accounting changes $0.57 $0.04 ($2.64)
Extraordinary loss on debt restructurings, net of tax - (0.82) -
Utilization of net operating loss carryforwards - 0.11 0.01
Cumulative effect of accounting changes 0.02 - (0.41)
Net Income (Loss) Per Share $0.59 ($0.67) ($3.04)
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
Hibernia Corporation and Subsidiaries
Year Ended December 31 ($ in thousands) 1993 1992 1991
------- -------- ---------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $63,844 ($36,349) ($160,754)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Extraordinary loss on debt restructuring, net of tax - 44,493 -
Provision for possible loan losses (3,734) 71,093 184,350
Rent accrued, not currently payable - - 21,643
Amortization of intangibles and deferred charges 8,799 10,548 9,951
Depreciation and amortization 13,623 16,980 16,479
Valuation of Texas Bank - - 13,000
Premium amortization, net of discount accretion 19,472 9,819 (6,095)
Realized investment securities gains (92) (17,358) (17,893)
Provision for data processing enhancements 11,991 - -
Gain on sale of assets (4,936) (2,186) (1,539)
Provision for losses on foreclosed and other assets 13,672 27,802 34,416
Decrease (increase) in interest receivable and other assets (4,868) 45,367 37,022
Increase (decrease) in interest payable and other liabilities 17,357 9,005 (10,807)
Net Cash Provided By Operating Activities 135,128 179,214 119,773
Investing Activities
Purchases of securities (1,354,562) (1,229,444) (885,715)
Proceeds from sales of securities 19,666 473,751 649,374
Maturities of securities 728,441 458,237 267,758
Net decrease (increase) in loans (79,836) 631,412 243,273
Proceeds from sales of loans 66,074 98,767 935,137
Proceeds from sale of Texas Bank, net of $146,237 cash sold - (88,237) -
Net cash paid to acquire bank (2,815) - -
Purchases of premises, equipment and other assets (11,233) (12,461) (17,738)
Proceeds from sales of foreclosed assets 40,129 52,207 31,882
Proceeds from sales of premises, equipment and other assets 2,553 24,353 8,262
Net Cash (Used) Provided By Investing Activities (591,583) 408,585 1,232,233
Financing Activities
Net increase (decrease) in domestic deposits 29,509 (431,757) (1,010,179)
Net increase (decrease) in time deposits - foreign office 1,722 (311) (120,923)
Net increase (decrease) in short-term borrowings 27,905 (14,198) (166,898)
Proceeds from issuance of debt 16,685 6,250 2,048
Payments on debt (19,474) (9,888) (15,121)
Issuance of common stock 3,572 77,705 2,330
Dividends paid (4,109) (3,785) (5,394)
Net Cash Provided (Used) By Financing Activities 55,810 (375,984) (1,314,137)
Increase (Decrease) in Cash and Cash Equivalents (400,645) 211,815 37,869
Cash and Cash Equivalents at Beginning of Year 956,754 744,939 707,070
Cash and Cash Equivalents at End of Year $556,109 $956,754 $744,939
Supplemental Disclosures
Cash paid (received) during the year for:
Interest expense $138,504 $211,114 $419,306
Income taxes $13,860 ($12,339) $1,888
Non-cash investing and financing activities:
Loans transferred to foreclosed assets $6,443 $37,363 $114,028
See notes to supplemental consolidated financial statements
</TABLE>
<PAGE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Hibernia Corporation and Subsidiaries
<TABLE>
<CAPTION>
Shares of Shares of
Preferred Common
Stock Stock Preferred Common
($ in thousands, except per share data) (000) (000) Stock Stock Surplus
----------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1990 - 52,590 $ $100,972 $251,837
Net loss for 1991 - - - - -
Issuance of Common Stock:
Divdend Reinvestment Plan - 174 - 335 827
Employee Benefit Plan - 243 - 467 764
Cash dividends declared:
Common ($.15 per share) - - - - -
By pooled companies prior to merger - - - - -
Reduction of ESOP Commitment
Other - - - - 318
Balances at December 31, 1991 - 53,007 - 101,774 253,746
Net loss for 1992 - - - - -
Issuance of Preferred Stock in debt
restructuring 21,818 - 60,000 - 50,472
Purchase Warrants in debt restructing - - - - 4,304
Conversion of Preferred Stock
to Common Stock (21,818) 22,091 (60,000) 42,416 17,584
Issuance of Common Stock:
Dividend Reinvestment Plan - 14 - 26 38
Employee Benefit Plan - 12 - 24 37
Rights offering - 21,677 - 41,619 37,588
Debt conversion - 10,338 - 19,848 20,079
Cash dividends declared:
By pooled companies prior to merger - - - - -
Reduction of ESOP Commitment - - - - -
Other - - - - (90)
Balances at December 31, 1992 - 107,139 - 205,707 383,758
Net income for 1993 - - - - -
Issuance of Common Stock:
Dividend Reinvestment Plan - 32 - 62 167
Stock Option Plan - 32 - 61 95
Exercise of Purchase Warrants - 1,151 - 2,210 955
Cumulative effect of change in accounting
for securities available for sale - - - - -
Cash dividends declared:
Common ($.03 per share) - - - - -
By pooled companies prior to merger - - - - -
Reduction of ESOP Commitment - - - - -
Other - - - - 22
Balances at December 31, 1993 - 108,354 - $208,040 $384,997
See notes to supplemental consolidated financial statements.
</TABLE>
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Hibernia Corporation and Subsidiaries
(CONTINUED)
<TABLE>
<CAPTION>
Unrealized
Retained Gains (Losses)
Earnings on Securities ESOP
($ in thousands, except per share data) (Deficit) Available for Sale Commitment Total
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1990 $64,191 $ - ($826) $416,174
Net loss for 1991 (160,754) - - (160,754)
Issuance of Common Stock:
Divdend Reinvestment Plan - - - 1,162
Employee Benefit Plan - - - 1,231
Cash dividends declared:
Common ($.15 per share) (4,181) - - (4,181)
By pooled companies prior to merger (1,213) - - (1,213)
Reduction of ESOP Commitment - - 106 106
Other - - 318
Balances at December 31, 1991 (101,957) - (720) 252,843
Net loss for 1992 (36,349) - - (36,349)
Issuance of Preferred Stock in debt
restructuring - - - 110,472
Purchase Warrants in debt restructing - - - 4,304
Conversion of Preferred Stock
to Common Stock - - - -
Issuance of Common Stock:
Dividend Reinvestment Plan - - - 64
Employee Benefit Plan - - - 61
Rights offering - - - 79,207
Debt conversion - - - 39,927
Cash dividends declared:
By pooled companies prior to merger (3,785) - - (3,785)
Reduction of ESOP Commitment - - 126 126
Other (90)
Balances at December 31, 1992 (142,091) - (594) 446,780
Net income for 1993 63,844 - - 63,844
Issuance of Common Stock:
Dividend Reinvestment Plan - - - 229
Stock Option Plan - - - 156
Exercise of Purchase Warrants - - - 3,165
Cumulative effect of change in accounting
for securities available for sale - 12,193 - 12,193
Cash dividends declared:
Common ($.03 per share) (2,508) - - (2,508)
By pooled companies prior to merger (1,601) - - (1,601)
Reduction of ESOP Commitment - - 194 194
Other - - - 22
Balances at December 31, 1993 ($82,356) $12,193 ($400) $522,474
See notes to supplemental consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Hibernia Corporation and Subsidiaries
Note 1 Summary of Significant Accounting Policies
Hibernia Corporation, through its wholly owned subsidiary, Hibernia
National Bank (the Louisiana Bank), provides a full array of
financial products and services, including retail, commercial,
small-business, international, mortgage and private banking; cash
management; and trust throughout Louisiana. The Louisiana Bank,
through its wholly owned subsidiaries, also provides retail
brokerage and alternative investments, including mutual funds and
annuities.
The accounting principles followed by Hibernia Corporation and
Subsidiaries (the Company or Hibernia) and the methods of applying
those principles conform with generally accepted accounting
principles and those generally practiced within the banking
industry. The principles which significantly affect the
determination of financial position and results of operations are
summarized below:
Consolidation
The supplemental consolidated financial statements include the
accounts of Hibernia Corporation (the Parent Company) and its
wholly owned subsidiaries, Hibernia National Bank and Zachary
Taylor Life Insurance Company, for all periods presented and the
accounts of Hibernia National Bank in Texas (the Texas Bank) from
August 24, 1989, the date of acquisition, to June 30, 1992. The
consolidated financial statements include the Parent Company's
equity investment in the Texas Bank from June 30, 1992, to the date
of its sale, December 31, 1992.
These supplemental consolidated financial statements give
retroactive effect to the mergers of Hibernia Corporation with
Commercial Bancshares, Inc. (on July 1, 1994), Bastrop National
Bank (on July 1, 1994), First Bancorp of Louisiana, Inc. (on August
1, 1994), First Continental Bancshares, Inc. (on August 1, 1994),
Pioneer Bancshares Corporation (on December 31, 1994) and First
State Bank and Trust Company (on December 31, 1994) which have been
accounted for using the pooling of interests method. These
supplemental consolidated financial statements will become the
primary historical financial statements upon issuance of financial
statements that include the date of consummation.
All significant intercompany transactions and balances have been
eliminated.
Securities
At December 31, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires
the classification of securities into one of three categories:
Trading, Available for Sale, or Held to Maturity.
Management determines the appropriate classification of debt
securities at the time of purchase and re-evaluates this
classification periodically. Trading account securities are held
for resale in anticipation of short-term market movements. Debt
securities are classified as held to maturity when the Company has
the positive intent and ability to hold the securities to maturity.
Securities not classified as held to maturity or trading are
classified as available for sale.
Trading account securities are carried at market value and are
included in short-term investments. Gains and losses, both
realized and unrealized, are reflected in earnings. Held to
maturity securities are stated at amortized cost. Available for
sale securities are stated at fair value, with unrealized gains and
losses, net of tax, reported in a separate component of
shareholders' equity.
The amortized cost of debt securities classified as held to
maturity or 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. Amortization, accretion and accruing interest are
included in interest income on securities. Realized gains and
losses, and declines in value judged to be other than temporary,
are included in net securities gains. The cost of securities sold
is determined based on the specific identification method.
Loans
Loans are stated at the principal amounts outstanding, less
unearned income and the reserve for possible loan losses. Interest
on loans and accretion of unearned income are computed by methods
which approximate a level rate of return on recorded principal.
Non-refundable loan origination and commitment fees and certain
direct loan origination costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield over the
life of the loan.
Loans are placed in nonaccrual status when, in management's
opinion, there is a question concerning full collectibility of both
principal and interest.
Reserve for Possible Loan Losses
The reserve for possible loan losses is maintained to cover
possible losses inherent in the loan portfolio. The reserve is
based on management's estimate of future losses, and actual losses
may vary from the current estimate. The estimate is reviewed
periodically, taking into consideration the risk characteristics of
the loan portfolio, past loss experience, general economic
conditions and other factors which deserve current recognition. As
adjustments to the estimate of future losses become necessary, they
are reflected as a provision for possible loan losses in
current-period earnings. Actual loan losses are deducted from and
subsequent recoveries are added to the reserve.
Foreclosed Assets
Foreclosed assets include real estate and other collateral acquired
upon the default of loans and in-substance foreclosures.
In-substance foreclosure occurs when the market value of the
collateral is less than the legal obligation of the borrower,
repayment of the loan is dependent upon the sale or operation of
the collateral and the borrower's ability to rebuild equity in the
property is doubtful.
Foreclosed assets are recorded at fair value of the assets acquired
less the estimated cost to sell. Losses arising from the initial
reduction of the outstanding loan amount to fair value are deducted
from the reserve for possible loan losses. A valuation reserve for
foreclosed assets is maintained for subsequent valuation
adjustments on a specific-property basis.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less allowances for
depreciation and amortization. Depreciation and amortization are
computed primarily using the straight-line method over the
estimated useful lives of the assets, which generally are 10 to 40
years for buildings and 3 to 15 years for equipment, and over the
shorter of the lease terms or the estimated lives of the leasehold
improvements.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized using the straight-line method over
the estimated periods benefited, generally 15 years.
Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the liability
method is used in accounting for income taxes. This method
determines deferred tax assets and liabilities based on differences
between financial reporting and tax bases of assets and
liabilities. The tax effect of these differences is measured using
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to the adoption of SFAS
No. 109, income tax expense was determined using the deferred
method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial
statements and tax returns and was measured at the tax rate in
effect in the year the difference originated.
The Company files a consolidated federal income tax return. The
Louisiana Bank is subject to a Louisiana shareholder tax which is
based partly on income. The income portion is reported as state
income tax. In addition, certain subsidiaries of the Louisiana
Bank are subject to Louisiana state income tax.
Cash Flows
The Company considers as cash and cash equivalents all items
included in cash and due from banks, interest-bearing time deposits
in domestic banks and federal funds sold and securities purchased
under agreements to resell.
Reclassification
Certain items included in the consolidated financial statements for
1992 and 1991 have been reclassified to conform with the 1993
presentation.
Note 2
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
------------------
<S> <C> <C>
Interest-bearing time deposits in domestic banks $8,319 $16,096
Federal funds sold and securities purchased
under agreements to resell 273,700 620,525
Trading acount securities 0 25
Total short-term investments $282,019 $636,646
</TABLE>
Note 3 Securities
As discussed in Note 1, the Company adopted SFAS No. 115 effective
December 31, 1993. Prior to December 31, 1993, the Company
classified securities as held for sale securities (available for
sale) and investment securities (held to maturity) based on
criteria which did not differ significantly from that required by
SFAS No. 115. Held for sale securities were recorded at the lower
of cost or fair value. A summary of securities classified as
available for sale and held to maturity is presented below.
<TABLE>
<CAPTION>
($ in thousands) December 31, 1993
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Type Cost Value Gains Losses
--------- --------- ---------- -----------
Available for sale:
<S> <C> <C> <C> <C>
U.S. Treasuries $77,962 $78,589 $653 $26
U.S. Government Agencies:
Mortgage-backed securities 489,790 500,851 11,095 34
Other 56,026 56,038 93 81
Other 16,737 17,230 493 0
Total available for sale $640,515 $652,708 $12,334 $141
Held to maturity:
U.S. Treasuries $584,183 $597,863 $13,933 $253
U.S. Government Agencies:
Mortgage-backed securities 1,151,080 1,166,499 19,562 4,143
Other 155,648 157,596 2,308 360
States and political subdivisions 22,313 23,164 895 44
Other 7,977 7,978 1 0
Total held to maturity $1,921,201 $1,953,100 $36,699 $4,800
</TABLE>
<TABLE>
<CAPTION>
($ in thousands) December 31, 1992
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Type Cost Value Gains Losses
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasuries $119,090 $120,559 $1,555 $86
U.S. Government Agencies:
Mortgage-backed securities 579,435 590,954 11,543 24
Other 32,368 32,408 112 72
Other 9,633 10,131 498 0
Total available for sale $740,526 $754,052 $13,708 $182
Held to maturity:
U.S. Treasuries $601,957 $611,332 $9,777 $402
U.S. Government Agencies:
Mortgage-backed securities 559,197 569,751 11,468 914
Other 117,473 119,772 2,407 108
States and political subdivisions 16,542 17,256 731 17
Other 5,782 5,783 1 0
Total held to maturity $1,300,951 $1,323,894 $24,384 $1,441
</TABLE>
Realized gains and losses from the sale of securities are
summarized below:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
---- ------- -------
<S> <C> <C> <C>
Realized gains $175 $17,587 $23,339
Realized losses (83) (229) (5,446)
Net realized gains $92 $17,358 $17,893
</TABLE>
Securities with carrying values of $1,398,128,000 and
$1,249,969,000 at December 31, 1993, and 1992, respectively, were
either pledged to secure public and trust deposits or sold under
repurchase agreements.
The carrying amount and estimated fair value by maturity of
securities held to maturity are shown below:
<TABLE>
<CAPTION>
December 31, 1993
Amortized Fair
($ in millions) Cost Value
-----------------------
<S> <C> <C>
Due in 1 year or less $184.8 $185.7
Due after 1 year through 5 years 582.9 597.6
Due after 5 years through 10 years 32.4 34.3
Due after 10 years 1,121.1 1,135.5
Total held to maturity $1,921.2 $1,953.1
</TABLE>
Mortgage-backed securities are classified according to their
contractual maturity without consideration of contractual
repayments or projected prepayments. Securities available for sale
at December 31, 1993, include $51,987,300 due in less than 1 year;
$80,171,700 due after 1 year through 5 years, $94,213,000 due after
5 years through 10 years and $426,336,000 due after 10 years.
Note 4 Loans
The following is a summary of loans classified by repayment source:
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
--------- ---------
<S> <C> <C>
Energy-related $68,492 $48,600
Transportation, communications
and utilities 112,625 153,851
Commercial real estate 432,147 459,949
Health care 214,348 253,728
Services 265,831 266,126
Commercial and industrial 547,497 552,212
Other commercial 86,454 101,393
Total commercial 1,727,394 1,835,859
Residential mortgage 558,448 540,530
Indirect 301,664 149,069
Student 74,526 51,253
Revolving credit 52,557 136,212
Other 228,222 233,512
Total consumer 1,215,417 1,110,576
Total portfolio $2,942,811 $2,946,435
</TABLE>
The following is a summary of nonperforming loans and foreclosed
assets:
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
------- --------
<S> <C> <C>
Nonaccrual loans $62,570 $142,055
Restructured loans 3,031 3,235
Nonperforming loans $65,601 $145,290
Foreclosed assets $38,316 $84,015
</TABLE>
Interest income in the amount of $9,138,000 for 1993, $18,171,000
for 1992 and $31,117,000 for 1991 would have been recorded on
nonperforming loans if they had been classified as performing. The
Company recorded $2,527,000, $1,492,000 and $578,000 of interest
income on nonperforming loans during 1993, 1992 and 1991,
respectively.
In May 1993, the Financial Accounting Standards Board (FASB) issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
which becomes effective January 1, 1995. SFAS No. 114 requires
that an impaired loan be measured based on discounted future cash
flows, observable market price or fair value of the collateral.
The effect of adopting SFAS No. 114 is not expected to have a
material impact.
The following is a summary of activity in the reserve for possible
loan losses:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
--------- -------- ---------
<S> <C> <C> <C>
Balance at beginning of year $199,518 $223,294 $170,454
Loans charged off (41,311) (96,715) (142,067)
Recoveries 17,703 17,352 10,557
Net loans charged off (23,608) (79,363) (131,510)
Provision for possible loan losses (3,734) 71,093 184,350
Added through acquisition of bank 359 0 0
Reduction due to sale of Texas Bank 0 (15,506) 0
Balance at end of year $172,535 $199,518 $223,294
</TABLE>
A valuation reserve on foreclosed assets is reported as a reduction
of foreclosed assets. The table below summarizes the changes in
this reserve:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year $11,456 $6,514 $7,861
Addition to reserve charged to expense 9,463 22,916 25,446
Write-downs of foreclosed property (7,823) (17,974) (26,793)
Balance at end of year $13,096 $11,456 $6,514
</TABLE>
Note 5 Related-Party Transactions
Certain directors and officers of the Company, members of their
immediate families and entities in which they or members of their
immediate families have principal ownership interests are customers
of and have other transactions with the Company in the ordinary
course of business. Loans to these parties are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
third-party transactions and do not involve more than normal risks
of collectibility or present other unfavorable features.
Loans to related parties were $35,263,000 and $42,837,000 at
December 31, 1993, and 1992, respectively. The change during 1993
reflects $65,617,000 in new loans and $73,191,000 of repayments.
These amounts do not include loans made in the ordinary course of
business to other entities with which the Company has no
relationship, other than a director of the Company being a director
of the other entity, unless the director had the ability to
significantly influence the other entity.
Securities sold to related parties under repurchase agreements
amounted to $9,968,000 and $13,115,000 at December 31, 1993, and
1992, respectively. During 1993, the Company sold $22,700,000 of
mortgage loan pools to a related party at carrying value, which
approximated fair value.
First National Bank of Jefferson (FNJ), a subsidiary of First
Continental Bancshares, Inc. (see Note 1) had a number of banking
relationships with other banks which had certain directors,
officers and shareholders in common. The most significant of these
relationships related to loan participations sold to and purchased
from the other banks. Total loan participations sold to affiliated
banks was approximately $2,149,000 and $551,000 at December 31,
1993 and 1992, respectively. The total of loan participations
purchased from these banks amounted to approximately $3,054,000 and
$2,009,000 at December 31, 1993 and 1992, respectively. These loan
participations sold and purchased were made without recourse, on
comparable terms with the original loan, and at market rates of
interest which provide for reimbursement of loan origination and
servicing costs.
The unsecured notes payable were acquired through the merger with
Pioneer. They are held by individuals who are related to the
former chairman of Pioneer, who after the merger is an officer of
Hibernia.
Note 6 Bank Premises and Equipment
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
------- -------
<S> <C> <C>
Land $22,687 $22,658
Bank premises 72,824 73,092
Leasehold improvements 28,403 27,547
Furniture and equipment 89,892 84,369
213,806 207,666
Less allowance for depreciation
and amortization (111,213) (99,149)
Total $102,593 $108,517
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
--------- ------- ------
Provisions for depreciation
and amortization included in:
<S> <C> <C> <C>
Occupancy expense $5,949 $4,806 $6,337
Equipment expense 7,501 9,171 8,466
Total $13,450 $13,977 $14,803
</TABLE>
Note 7 Time Deposits
Domestic certificates of deposit of $100,000 or more amounted to
$745,677,000 and $751,995,000 at December 31, 1993, and 1992,
respectively. Interest on these certificates amounted to
$27,234,000, $36,399,000 and $91,485,000 in 1993, 1992 and 1991,
respectively.
Foreign deposits, which are deposit liabilities of the Cayman
Island office of the Louisiana Bank, were $3,417,000 and $1,695,000
at December 31, 1993, and 1992, respectively. Interest expense on
foreign deposits amounted to $149,000, $71,000 and $3,854,000 for
1993, 1992 and 1991, respectively.
Note 8 Debt
The following is a summary of outstanding debt:
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
--------- --------
<S> <C> <C>
Hibernia Corporation:
Hibernia Corporation notes,
bearing interest at 13%,
due August 1995 $ - $2,020
Note payable to a bank,
bearing interest at prime plus 1%,
maturing in December 1998 3,345 3,545
Note payable to a bank,
bearing interest at prime plus 1%,
maturing in 1997, with required
quarterly principal payments of $90,000 - 1,008
Note payable to a bank,
bearing interest at prime plus 1%,
maturing in 2003, with required
quarterly principal payments of $110,000 3,690 -
Convertible subordinated debentures,
bearing interest at 10%,
due 2002 800 850
Employee Stock Ownership Plan,
bearing interest at prime,
maturing in 1997, with required
quarterly principal payments of $31,200 400 594
Senior Secured Notes Payable,
bearing interest at 10.75%,
due in 1997 5,884 5,444
Mandatory Convertible
Subordinated Debentures,
bearing interest at 12%,
maturing in 1996 6,000 6,000
Subordinated Debentures,
bearing interest at 7%,
maturing in 2000 879 5,722
Unsecured notes payable to related
parties, bearing interest at 7%,
maturing in 2000 1,155 1,155
Note payable to a bank,
bearing interest at a floating rate,
maturing in 2001 with required annual
principal payments of $597 4,179 -
Hibernia National Bank:
Subordinated capital notes,
bearing interest at 8%,
maturing in December 1997,
with required annual principal
payments of $360,000 - 6,040
Federal Home Loan Bank advances 3,862 -
Other - 209
Total $30,194 $32,587
</TABLE>
During 1993, the Company retired Hibernia Corporation notes,
Hibernia National Bank subordinated capital notes and other debt.
All other debt, which was acquired through mergers, was retired at
or immediately following the legal mergers, except for the Federal
Home Loan Bank advances and the unsecured notes payable to related
parties. The acquired debt was secured by the common stock of
various subsidiaries of merger companies.
The Federal Home Loan Bank advances were obtained to fund certain
loans made by First Bancorp of Louisiana, Inc. The balance of the
loans which secure the advances amounted to $3,899,000 at December
31, 1993. The advances accrue interest at contractual rates of
5.7% to 6.3% and are due in monthly installments of approximately
$39,000, including interest. The advances are scheduled to
amortize through various dates between 2002 and 2008. However,
should the loans for which the advances were obtained repay at a
faster rate than anticipated, then the advances are to be repaid at
a correspondingly faster rate.
Note 9 Other Assets and Other Liabilities
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
------ -----
Other assets:
<S> <C> <C>
Accrued interest receivable $53,442 $48,553
Goodwill 43,703 48,688
Foreclosed assets 38,316 84,015
Deferred income taxes 24,461 14,073
Purchased mortgage servicing rights 4,270 7,416
Excess servicing receivable arising
from asset securitization 3,384 7,270
Other 40,798 36,799
Total other assets $208,374 $246,814
Other liabilities:
Accrued interest payable $22,560 $21,636
Reserve for future rental
payments under sale/leaseback 21,155 21,317
Trade accounts payable and
accrued liabilities 49,766 26,154
Other 19,986 16,428
Total other liabilities $113,467 $85,535
</TABLE>
Amortization relating to goodwill totaled $4,985,000, $5,828,000
and $6,322,000 for the years ended December 31, 1993, 1992, and
1991, respectively. Accumulated amortization at December 31, 1993,
and 1992 totaled $38,345,000 and $33,323,000, respectively.
Note 10 Per-Share Data
Income (loss) per common share data are based on the weighted
average number of shares outstanding of 107,917,135; 54,350,285;
and 52,858,944 in 1993, 1992 and 1991, respectively. Primary and
fully diluted per-share data are not applicable to the Company
because the computations are not dilutive. The common stock issued
in the mergers is considered to be outstanding as of January 1,
1991.
Note 11 Employee Benefit Plans
The Company maintains a defined-contribution benefit plan under
Section 401(k) of the Internal Revenue Code, the Retirement
Security Plan (RSP). Substantially all employees who have
completed one year of service are eligible to participate in the
RSP. Under the RSP, employees contribute a portion of their
regular compensation, with the Company matching employee
contributions based upon tenure. Matching contributions are
charged to employee benefits expense. At December 31, 1993, the
RSP owned 771,100 shares of Class A Common Stock. The Company's
contributions to the RSP totaled $705,000 in 1993, $681,000 in 1992
and $2,216,000 in 1991.
In 1993 and 1992, the Company maintained incentive bonus programs
for key employees. Costs of the incentive bonus programs were
$1,800,000 and $1,750,000 for the years ended December 31, 1993,
and 1992, respectively. No bonuses were accrued or paid during
1991.
During 1993, the Company established a plan for grant of
performance share awards under its Long-Term Incentive Plan for
certain members of management. Under this plan, if the Company
achieves certain predetermined performance goals during the
two-year period from January 1, 1993, through December 31, 1994,
the Company will award common stock to certain members of
management who contribute to the Company's achievement of
predetermined goals. A maximum of 381,000 shares may be awarded
under this plan in 1995. During the year ended December 31, 1993,
$1,619,000 of compensation expense was recorded relating to the
performance share awards.
The Company sponsors a defined-benefit plan which provides certain
health care and life insurance benefits for employees who retired
on or before December 31, 1992. The plan is unfunded. Effective
January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The
effect of prospectively adopting SFAS No. 106 increased net
periodic postretirement cost and decreased net income by $292,000.
The accumulated postretirement benefit obligation at January 1,
1993, was $4,591,000. The components of net periodic
postretirement benefit cost for 1993 include $397,000 of transition
obligation amortization and $367,000 of interest cost.
The discount rate used in determining the accumulated
postretirement benefit obligation was 8%. The annual assumed rate
of increase in the cost of covered benefits (the health care trend
rate) is 11% and is assumed to decrease gradually to 8% in 1996 and
to remain constant thereafter. Increasing the health care trend
rate by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of January 1,
1993, by $279,000 and the aggregate of the amortization and
interest cost components of net periodic postretirement benefits by
$22,000.
In November 1992, the FASB issued SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires
accrual-based accounting for benefits cost relating to former or
inactive employees after employment but before retirement and
becomes effective January 1, 1994. The effect of adopting SFAS No.
112 is not expected to have a material impact.
First Bancorp of Louisiana, Inc., (FBL) which was merged into the
Company on August 1, 1994, maintained an Employee Stock Ownership
Plan (ESOP). This ESOP will remain in existence subsequent to the
merger. The ESOP covers substantially all FBL employees who
qualified as to age and length of service. A participant's
interest in his or her account becomes totally vested after
completion of five years of service. Contributions to the ESOP are
at the discretion of the Board of Directors; however,
contributions, including any dividends received, must be sufficient
to pay any current obligations of the ESOP. Expense relating to
this ESOP of $466,000, $135,000, and $154,000 is included in the
supplemental consolidated statements of income for the years ended
December 31, 1993, 1992 and 1991, respectively.
At December 31, 1993 and 1992, the ESOP had outstanding a note
payable to an unaffiliated bank in the amount of $400,000 and
$594,000, respectively, which is guaranteed by the Company. At
December 31, 1993, the borrowing was secured by 305,541 shares of
Hibernia's common stock. At December 31, 1993 and 1992, the ESOP
owned 1,202,316 and 1,230,182 shares, respectively, of Hibernia
common stock.
Certain of the merged companies adopted retention agreements in
1993 to encourage certain officers of the merged companies to
continue their employment through the consummation of the merger.
These agreements were executed primarily to maintain stability
within the organization and reduce the risk of loss of key members
of management before consummation of any potential merger or
acquisition of the respective Companies. These agreements provided
that if the designated officers remain with the Company through the
consummation of the merger, and certain other conditions are
satisfied, they would receive additional compensation aggregating
approximately $1.4 million. At December 31, 1993, this liability
had not been recorded as shareholder and regulatory approval for
the mergers had not yet been obtained. This liability was recorded
during 1994.
Note 12 Stock Options
The Company's stock option plans provide incentive and
non-qualified options to various key employees and non-employee
directors to purchase shares of Class A Common Stock at no less
than the fair market value of the stock at the date of grant. All
options issued prior to 1992 became exercisable six months from the
date of grant. The remaining options granted under the 1987 Stock
Option Plan, the Long-Term Incentive Plan and the 1993 Directors'
Stock Option Plan become exercisable in the following increments:
50% after the expiration of two years from the date of grant, an
additional 25% three years from the date of grant and the remaining
25% four years from the date of grant.
Options issued to employees and directors, other than the chief
executive officer, become immediately exercisable if the holder of
the option dies while the option is outstanding. Options granted
under the 1987 Stock Option Plan generally expire 10 years from the
date granted. Options granted under the Long-Term Incentive Plan
and the 1993 Directors' Stock Option Plan do not expire unless the
holder dies, retires, becomes permanently disabled or leaves the
employ of the Company, at which time the options expire at various
times ranging from 30 to 180 days.
At December 31, 1993, shares available for grant under the 1987
Stock Option Plan, the Long-Term Incentive Plan and the 1993
Directors' Stock Option Plan amounted to 173,945; 1,918,970; and
925,000, respectively. The 1983 Stock Option Plan was terminated in
November 1993, and there are no options outstanding under this
plan.
The table below summarizes the activity in the plans during 1993:
<TABLE>
<CAPTION>
Price Range
Incentive Non-qualified Per Share
--------- ------------- -----------
1987 Stock Option Plan:
Outstanding,
<S> <C> <C> <C> <C>
December 31, 1992 176,828 752,379 $4.19 to $18.80
Granted 13,913 642,152 $7.19
Canceled - (4,196) $4.94
Exercised - (31,639) $4.94
Outstanding,
December 31, 1993 190,741 1,358,696 $4.19 to $18.80
Exercisable,
December 31, 1993 15,188 401,583 $4.94 to $18.80
Long-Term Incentive Plan:
Outstanding,
December 31, 1992 - -
Granted - 963,000 $5.94 to $7.75
Canceled - (58,000) $7.13 to $7.63
Outstanding,
December 31, 1993 - 905,000 $5.94 to $7.75
Exercisable,
December 31, 1993 - -
1993 Directors' Stock Option Plan:
Outstanding,
December 31, 1992 - -
Granted - 75,000 $7.31
Outstanding,
December 31, 1993 - 75,000 $7.31
Exercisable,
December 31, 1993 - -
</TABLE>
Note 13 Income Taxes
As discussed in Note 1, the Company adopted SFAS No. 109 effective
January 1, 1993. As permitted by SFAS No. 109, prior-year
financial statements were not restated. The cumulative effect of
the adoption of this Statement was to increase net income by
$2,782,000.
Income tax expense includes amounts currently payable and amounts
deferred to or from other years as a result of differences in the
timing of recognition of income and expense for financial reporting
and federal tax purposes. The components of income tax expense are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
------- ------ -------
Current tax expense:
<S> <C> <C> <C>
Federal income tax $15,210 $5,644 $1,900
State income tax 1,709 904 207
Total current tax expense 16,919 6,548 2,107
Deferred tax expense (benefit):
Federal income tax 4,953 (1,435) 633
Change in deferred tax valuation reserve (13,507) - -
Total deferred tax expense (benefit) (8,554) (1,435) 633
Shareholder's Equity:
Cumulative effect of change in accounting
for securities available for sale 4,268 - -
Change in deferred tax valuation reserve (4,268) - -
Total shareholder's equity - - -
Income tax expense $8,365 $5,113 $2,740
</TABLE>
The reconciliation of the federal statutory income tax rate to the
Company's effective rate can be found in the table below.
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
Amount Rate Amount Rate Amount Rate
--------- ------ ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) based on federal statutory rate $24,300 35.0 % $2,408 34.0 % ($46,469) (34.0)%
Tax-exempt interest (3,043) (4.4) (4,244) (60.0) (7,783) (5.7)
Goodwill 1,685 2.4 1,327 18.8 (2,661) (1.9)
Sale of Texas Bank - - 2,182 30.8 4,420 3.2
State income tax, net of federal benefit 1,103 1.6 559 7.9 120 0.1
Limitation on recognition of tax benefit - - 2,527 35.7 54,407 39.8
Change in deferred tax valuation reserve (13,507) (19.5) - - - -
Change in tax rate on existing temporary differences (2,109) (3.0) - - - -
Other (64) - 354 5.0 706 0.5
Income tax expense $8,365 12.1 % $5,113 72.2 % $2,740 2.0 %
</TABLE>
During 1993, deferred income taxes were based on differences
between the basis of assets and liabilities for financial statement
purposes and tax reporting purposes and available tax credit
carryforwards. During 1992 and 1991, deferred income taxes were
provided on those items that were taxable or deductible in
different periods for financial statement and federal income tax
purposes. The tax effects of the cumulative temporary differences
and tax credit carryforwards which create deferred tax assets and
liabilities at December 31, 1993, are detailed below:
<TABLE>
<CAPTION>
($ in thousands) December 31, 1993
-----------------
Deferred tax assets:
<S> <C>
Reserve for possible loan losses $57,208
Sale / leaseback 6,258
Foreclosed assets 7,187
Loan fees 2,462
Other 12,272
Alternative minimum tax credit carryforward 17,450
Regular net operating losses 2,096
Total deferred tax assets 104,933
Deferred tax liabilities:
Discounts on securities 426
Unrealized gain on securities
available for sale 4,268
Depreciation 2,825
Purchase accounting adjustments, net 2,619
Other 4,296
Total deferred tax liabilities 14,434
Deferred tax assets net of
deferred tax liabilities 90,499
Deferred tax valuation reserve (66,038)
Total net deferred tax asset $24,461
</TABLE>
Management currently estimates realizability of the net deferred
tax asset based on the Company's ability to, first, recover taxes
previously paid and, second, generate taxable income over the next
12 months. A deferred tax valuation reserve is established to
limit the net deferred tax asset to its realizable value.
The tax effects of significant items giving rise to deferred tax
expense (benefit) in 1992 and 1991 are detailed below:
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1992 1991
------ ---------
<S> <C> <C>
Provision for possible loan losses $2,698 ($17,840)
Discounts on securities (102) (300)
Foreclosed assets 813 (3,028)
Loan fees 572 334
Depreciation (776) (501)
Sale of auto loans (3,638) 562
Alternative minimum tax credits (692) -
Other (310) (4,611)
Limitation on recognition of tax benefit - 26,017
Deferred tax expense (benefit) ($1,435) $633
</TABLE>
For federal income tax purposes, the Company has $17,450,000 in
alternative minimum tax credit carryforwards at December 31, 1993,
which do not expire.
The 1992 debt restructuring between the Company and bank group
discussed in Note 17 gave rise to "testing dates" under Section 382
of the Internal Revenue Code to determine if a change in ownership
of the Company had occurred. Generally, a change in ownership
occurs when the percentage of stock owned by one or more
five-percent shareholders, as defined, has increased by more than
50 percentage points over a three-year period. When a change of
this type occurs, a limitation is imposed on pre-change "built-in"
losses, as defined, and tax credit carryforwards. Due to the
issuance of stock in connection with mergers and dependent upon
resolution of proposed tax regulations related to stock issuances,
for purposes of Section 382, a change in ownership of the Company
will occur in 1994. Based on current estimates, the Company has no
pre-change "built-in" losses, and its ability to utilize tax credit
carryforwards will not be significantly affected.
Note 14 Leases
The Company leases its headquarters, operations center and certain
other bank premises and equipment under non-cancelable operating
leases which expire at various dates through 2013. Certain of the
leases have escalation clauses and renewal options ranging from one
to 30 years.
Total rental expense (none of which represents contingent rentals)
included in occupancy and equipment expense was $10,740,000;
$12,490,000 and $15,151,000 in 1993, 1992 and 1991, respectively.
The future minimum rental commitments at December 31, 1993, for all
long-term operating leases are as follows: 1994 - $9,254,000; 1995
- - - $8,838,000; 1996 - $8,077,000; 1997 - $7,733,000; 1998 -
$7,520,000; and thereafter - $64,812,000.
On January 1, 1991, the Company changed its method of accounting
for lease expense related to the 1983 sale/leaseback of the
Company's headquarters and operations buildings. Under the
alternative method adopted in 1991, the Company recognizes lease
expense on the straight-line basis over the terms of the 25-year
leases, rather than in accordance with the contractual lease
payments. The cumulative effect adjustment resulting from the
change in method included in the results of operations for 1991
amounted to $21.6 million. The change had no material effect on
the results of operations (before the cumulative effect adjustment)
for 1991. There was no income tax benefit recognized related to
the cumulative effect adjustment.
Note 15
<TABLE>
<CAPTION>
Year ended December 31
($ in thousands) 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Deposit insurance and examination fees $15,327 $14,329 $17,008
Postage 4,362 4,875 7,240
Stationery and supplies 4,754 4,588 5,408
Professional 9,537 13,882 15,705
Amortization of intangibles 8,328 10,226 10,314
State taxes on equity 2,745 1,872 4,614
Loan collection expense 4,875 7,241 9,439
Advertising and promotional expenses 6,044 3,235 3,549
Valuation allowance on Texas Bank - - 13,000
Other 33,299 23,994 40,672
Total other operating expense $89,271 $84,242 $126,949
</TABLE>
Note 16 Mergers
The Company merged with six Louisiana financial institutions in
1994. These supplemental consolidated financial statements give
retroactive effect to these mergers.
Hibernia's mergers with Commercial Bancshares, Inc. (Commercial),
Bastrop National Bank (Bastrop), First Bancorp of Louisiana, Inc.
(FBL), First Continental Bancshares, Inc. (FCBI), Pioneer
Bancshares Corporation (Pioneer) and First State Bank and Trust
Company (First State) (collectively, the Other Pooled Companies)
were accounted for as poolings-of-interests.
The following table shows the effective date, the total shares
issued and the exchange rate for each merger.
<TABLE>
<CAPTION>
Commercial Bastrop FBL FCBI Pioneer First State
---------- --------- ----- ------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Merger Date July 1, 1994 July 1, 1994 August 1, 1994 August 1, 1994 December 31, 1994 December 31, 1994
Hibernia shares issued 2,367,481 2,444,043 4,311,315 3,898,655 8,370,512 3,350,000
Exchange Ratio 8.4 : 1 8.147 : 1 18.14 : 1 1.41 : 1 30.5 : 1 33.5 : 1
</TABLE>
The following table shows the key components of the results of
operations of the previously separate entities for the years ended
December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Hibernia Commercial Bastrop FBL FCBI Pioneer First State Total
--------- ----------- ------- ------ ------ --------- ------------ -----
Year ended December 31, 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $195,705 $6,459 $4,939 $8,248 $18,713 $16,682 $6,245 $256,991
Cumulative effect of
accounting changes - $421 - - $2,622 ($261) - $2,782
Net income $47,950 $2,088 $2,050 $2,706 $3,640 $3,429 $1,981 $63,844
Year ended December 31, 1992
Net interest income $197,278 $6,538 $5,179 $7,067 $18,336 $16,869 $5,807 $257,074
Extraordinary gain (loss)
on debt restructuring ($56,122) $284 - - $11,345 - - ($44,493)
Utilization of net operating
loss carryforward - $185 - - $5,996 - - $6,181
Net income (loss) ($64,037) $2,058 $2,179 $1,945 $17,791 $2,200 $1,515 ($36,349)
Year ended December 31, 1991
Net interest income $234,599 $5,590 $4,175 $4,899 $14,085 $14,281 $4,523 $282,152
Utilization of net operating
loss carryforward - $200 - - - - $105 $305
Cumulative effect of
accounting changes ($21,643) - - - - - - ($21,643)
Net income (loss) ($165,640) $1,070 $1,561 $1,038 ($839) $1,671 $385 ($160,754)
</TABLE>
Hibernia is a party to merger agreements with three additional
Louisiana financial institutions which are pending regulatory and
shareholder approval. All of these transactions are expected to be
consummated in early 1995 and will be accounted for as poolings-of-
interests. The summary below contains information regarding
institutions with which Hibernia has entered into definitive merger
agreements.
<TABLE>
<CAPTION>
($ in thousands) September 30, 1994 Estimated Consideration
------------------ -----------------------
Number Hibernia Value of
of Total Shares Shares
Institution Offices Assets Issued * Issued *
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
American Bank of Norco 5 $92,699 2,250,000 $18,000
STABA Bancshares, Inc. 4 97,387 2,250,000 18,000
Progressive Bancorporat 5 139,645 2,500,000 20,000
Total 14 $329,731 7,000,000 $56,000
* Based upon an estimated market value of $8.00 per share
</TABLE>
Note 17 Recapitalization
During 1992, the Company increased shareholders' equity by $177.8
million through the restructuring of $99.1 million in debt and a
shareholder rights offering.
Debt Restructuring
On September 28, 1992, the Company completed the restructuring of
its $99.1 million debt to a group of seven banks. As reflected in
the table below, the existing debt was extinguished through the
issuance of securities and resulted in a non-cash extraordinary
loss for the fair value of the securities issued in excess of the
carrying value of the debt restructured.
The Company recorded the preferred stock at its $60 million
liquidation preference and recorded as surplus the value of the
preferred stock in excess of the liquidation preference, together
with the value of the warrants issued, net of costs of issuance of
$1.3 million. Subsequent to the completion of the rights offering
and pursuant to antidilution provisions of the preferred stock, the
bank group converted an aggregate of 21,818,182 shares of preferred
stock to 22,091,443 shares of common stock.
Under antidilution provisions of the senior and subordinated debt
agreements, each bank was issued rights to purchase additional
shares of common stock, the number to be determined by the number
of shares issued in a rights offering to shareholders. The
agreements provided that, if all shares available in the rights
offering were purchased, the banks would have the right to purchase
an aggregate of approximately 16.5 million shares. The rights
offering was fully subscribed, and the banks elected to purchase an
aggregate of 10.3 million shares through the conversion of debt and
related accrued interest, and certain of the banks purchased for
cash an additional 1.9 million shares.
During 1993, certain warrants issued in the restructuring were
exercised, resulting in the issuance of approximately 1,151,000
shares of common stock. The number of shares subject to warrants
outstanding and exercisable at December 31, 1993, was approximately
661,000. The warrants expire in September 1999.
During 1992, FCBI restructured its debt with a bank. As a result
of this restructuring, a gain on extinguishment of debt of
$11,345,000, net of tax, was recorded. During 1992, a portion of
Commercial's notes payable were discounted by the lending bank. As
a result, an extraordinary gain of $284,000, net of tax, was
recorded.
<TABLE>
<CAPTION>
COMPUTATION OF EXTRAORDINARY LOSS
($ in thousands)
<S> <C>
Securities issued:
21,818,182 shares of non-cumulative
convertible preferred stock valued at
$5.125 per share, which was the quoted
market price of Hibernia Corporation
common stock on September 28,1992 $111,818
1,812,000 common stock purchase warrants
valued at $2.375 per share, which is the
spread between the $5.125 quoted market
price of Hibernia Corporation common
stock on September 28, 1992, and the
$2.75 contractual exercise price 4,304
Senior debt, secured by all assets of the Company 26,625
Subordinated debt 12,500
Total fair value of securities issued (155,247)
Less: debt restructured 99,125
Extraordinary loss (non-cash) on debt restructuring - Hibernia (56,122)
Extraordinary gain (non-cash) on debt restructuring - FCBI 11,345
Extraordinary gain (non-cash) on debt restructuring - Commercial 284
Extraordinary loss on debt restructurings, net of tax ($44,493)
</TABLE>
Rights Offering
On November 12, 1992, the Company commenced an offering to
shareholders of record on that date to purchase 19.8 million shares
of common stock at a subscription price of $4.00 per share. The
closing market price of the Company's common stock on November 11,
1992, was $5.00 per share. The offering was fully subscribed, and
the Company issued 19.8 million shares of common stock. As
previously described, certain debtholders elected to participate in
the rights offering and purchased an additional 1.9 million shares
of common stock at $4.00 per share. The Company received net
proceeds from the rights offering of $79.2 million.
Note 18 Sale of the Texas Bank
On December 31, 1992, the Company sold the stock of the Texas Bank
to Comerica Incorporated. The Company received net proceeds of
$56.2 million, which is the purchase price of $58.0 million reduced
by the dividend paid by the Texas Bank to the Parent Company in the
third quarter of 1992. The Company recorded a loss of $2.9 million
in the third quarter of 1992 in order to reduce the Parent
Company's investment in the Texas Bank to its net realizable value.
At June 30, 1992, the carrying values of the assets and liabilities
of the Texas Bank were $910.2 million and $848.2 million,
respectively. The revenues and expenses of the Texas Bank (before
eliminations) shown in the table below are included in the
Consolidated Statements of Income on a fully consolidated basis for
1991 and the first six months of 1992.
<TABLE>
<CAPTION>
Condensed Income Statements
Hibernia National Bank in Texas
Six Months Year Ended
Ended June 30 December 31
($ in thousands) 1992 1991
------------- -----------
<S> <C> <C>
Interest Income $36,132 $94,676
Interest Expense 15,974 55,377
Net interest income 20,158 39,299
Provision for possible loan losses 3,125 7,280
Net interest income after provision 17,033 32,019
Noninterest income 5,316 17,730
Noninterest expense 19,939 46,647
Income before income taxes 2,410 3,102
Income tax expense 1,009 864
Net income $1,401 $2,238
</TABLE>
Note 19 Hibernia Corporation (Parent Company only)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
-------- --------
<S> <C> <C>
Investment in subsidiaries $512,123 $424,697
Other assets 67,486 73,000
Total assets $579,609 $497,697
Current liabilities $30,803 $24,429
Debt 26,332 26,488
Shareholders' equity 522,474 446,780
Total liabilities and
shareholders' equity $579,609 $497,697
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
<S> <C> <C> <C>
Equity in undistributed income
(loss) of subsidiaries $67,651 $16,007 ($142,122)
Dividends from subsidiaries 11,340 7,838 11,150
Other income 2,263 (3,457) 623
Total income 81,254 20,388 (130,349)
Interest expense 3,141 13,550 14,582
Other expense 13,384 6,140 16,372
Total expense 16,525 19,690 30,954
Income (loss) before taxes, extraordinary
item and accounting changes 64,729 698 (161,303)
Income tax benefit (289) (1,186) (549)
Income (loss) before extraordinary items and
cumulative effect of accounting changes 65,018 1,884 (160,754)
Extraordinary loss on debt restructurings, net of tax 0 (44,493) 0
Utilization of NOL carryforwards 0 6,260 0
Cumulative effect of accounting changes (1,174) 0 0
Net income (loss) $63,844 ($36,349) ($160,754)
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
($ in thousands) 1993 1992 1991
------- ------- ----------
Operating Activities
<S> <C> <C> <C>
Net income (loss) $63,844 ($36,349) ($160,754)
Non-cash adjustment for equity
in subsidiaries' undistributed
net (income) loss (66,951) (12,607) 142,972
Extraordinary loss on
debt restructuring 0 44,493 0
Other adjustments 7,854 13,642 29,591
Net cash provided by operating activities 4,747 9,179 11,809
Investing Activities
Investment in subsidiary (9,181) (75,000) (6,217)
Proceeds from sales of investments, net 283 (1,103) 1,218
Sale of Texas Bank 0 56,225 0
Net cash used by investing activities (8,898) (19,878) (4,999)
Financing Activities
Issuance of debt 13,119 6,250 2,900
Payments on debt (13,275) (9,475) (14,436)
Dividends paid (4,109) (3,785) (5,394)
Issuance of Common Stock 3,572 79,051 2,330
Net cash provided (used)
by financing activities (693) 72,041 (14,600)
Increase (decrease) in cash (4,844) 61,342 (7,790)
Cash at beginning of year 64,313 2,971 10,761
Cash at end of year $59,469 $64,313 $2,971
</TABLE>
Note 20 Other Financial Instruments
The Company issues financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers and to reduce exposure to fluctuations in interest
rates. These financial instruments include commitments to extend
credit, letters of credit and standby letters of credit and
involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet.
Commitments to extend credit are legally binding, conditional
agreements generally having fixed expiration or termination dates
and specified interest rates and purposes. These commitments
generally require customers to maintain certain credit standards.
Collateral requirements and loan-to-value ratios are the same as
those for funded transactions and are established based on
management's credit assessment of the customer. Commitments may
expire without being drawn upon. Therefore, the total commitment
amount does not necessarily represent future requirements.
The Company issues letters of credit and financial guarantees
whereby it agrees to honor certain financial commitments in the
event its customers are unable to perform. The majority of the
standby letters of credit consist of performance guarantees.
Management conducts regular reviews of all outstanding standby
letters of credit, and the results of these reviews are considered
in assessing the adequacy of the Company's reserve for possible
loan losses.
<TABLE>
<CAPTION>
December 31
($ in thousands) 1993 1992
----- -----
Commitments to
<S> <C> <C>
extend credit $588,171 $470,923
Letters of credit
and financial guarantees $106,370 $134,032
</TABLE>
Management does not anticipate any material losses as a result of
these instruments.
As of December 31, 1993, and 1992, the Company was a guarantor of
an interest rate swap agreement, which matures in 1995, with a
notional amount of $74 million. The agreement was executed by one
of the Company's customers, and the Company is exposed to loss
should its customer default. The Company's exposure to loss is
limited to the difference between the interest payments the
customer is obligated to pay and those it is entitled to receive.
The Company attempts to minimize this risk by performing normal
credit reviews on its customer.
Significant loan concentrations are disclosed in Note 4.
Note 21 Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about
financial instruments for which it is practicable to estimate fair
value, whether or not the financial instruments are recognized in
the financial statements. When quoted market prices are not
available, fair values are based on estimates 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. The derived fair value estimates
cannot be substantiated through comparison to independent markets
and, in many cases, could not be realized in immediate settlement
of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements. Further, the disclosures do not include estimated
fair values for items which are not financial instruments but which
represent significant value to the Company - among them, core
deposit intangibles, loan servicing rights, trust operations and
other fee-generating businesses. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of
the Company.
The carrying amount of cash and short-term investments, demand
deposits and short-term borrowings approximates the estimated fair
value of these financial instruments. The estimated fair value of
securities, interest rate swaps and other off-balance-sheet
instruments is based on quoted market prices, dealer quotes and
prices obtained from independent pricing services. The estimated
fair value of loans and interest-bearing deposits is based on
present values using applicable risk-adjusted spreads to the LIBOR
yield curve to approximate current interest rates applicable to
each category of these financial instruments.
Interest rates were not adjusted for changes in credit of
performing commercial loans for which there are no known credit
concerns. Management segregates loans in appropriate risk
categories and believes the risk factor embedded in the interest
rates results in a fair valuation of these loans on an entry-value
basis.
Variances between the carrying amount and the estimated fair value
of loans reflect both credit risk and interest rate risk. Changes
in credit risk gave rise to carrying amounts in excess of fair
values which is more than offset by the reserve for possible loan
losses of $172.5 million. However, the current low interest rate
environment gave rise to fair values in excess of carrying amounts.
The fair value estimates presented are based on information
available to management as of December 31, 1993. Although
management is not aware of any factors that would significantly
affect the estimated fair value amounts, these amounts have not
been revalued for purposes of these financial statements since that
date, and, therefore, current estimates of fair value may differ
significantly from the amounts presented.
<TABLE>
<CAPTION>
December 31, 1993
Estimated
Carrying Fair
($ in thousands) Amount Value
-------- ----------
Assets
<S> <C> <C>
Cash and short-term investments $556,109 $556,109
Securities available for sale 652,708 652,708
Securities held to maturity 1,921,201 1,953,100
Commercial loans 1,723,024 1,734,124
Consumer loans 1,219,787 1,226,199
Liabilities
Demand deposits 1,036,182 1,036,182
Interest-bearing deposits 4,302,278 4,288,736
Federal funds purchased and securities sold
under agreements to repurchase 155,791 155,791
Off-balance-sheet financial instruments
Interest rate swaps - 1,408
Commitments and letters of credit - (6,373)
</TABLE>
Note 22 Regulatory Matters and Dividend Restrictions
In July 1991, the Louisiana Bank entered into a consent order with
the Office of the Comptroller of the Currency (OCC). Under the
consent order, the Louisiana Bank agreed to develop three-year
capital, strategic, profit and liquidity plans; to review and
revise certain policies; and to correct specific matters deemed by
the OCC to be violations of law. In June 1993, this consent order
was terminated by the OCC.
In December 1991, the Parent Company entered into an agreement with
the Federal Reserve Bank of Atlanta (FRB), pursuant to which the
Parent Company agreed, among other things, to develop capital,
strategic and liquidity plans and to obtain approval from the FRB
prior to declaring or paying any dividends on its capital stock,
increasing its indebtedness or selling certain assets. These
regulatory controls were terminated by the FRB in November 1993.
Under current FRB regulations, the Louisiana Bank may lend the
Parent Company up to 10% of the Louisiana Bank's capital and
surplus. Based on this limitation, approximately $31,655,000 was
available for loans to the Parent Company at December 31, 1993.
The payment of dividends by the Louisiana Bank to the Parent
Company is restricted by various regulatory and statutory
limitations. In 1994, the Louisiana Bank will have available to
pay dividends to the Parent Company, without approval of the OCC,
approximately $99,227,000, plus net retained profits earned in 1994
prior to the dividend declaration date.
Banks are required to maintain noninterest-bearing balances with
the FRB to meet reserve requirements. Average reserve balances were
$46,009,000 in 1993 and $51,107,000 in 1992.
Note 23 Contingencies
The Company is a party to certain pending legal proceedings arising
from matters incidental to its business.
In addition, the Company is a named defendant in a shareholder
class-action suit which alleges that, during the period March 19,
1990, to July 30, 1991, the market value of the Company's common
stock was artificially inflated due to false and misleading news
releases and public statements and the failure to disclose material
facts. This suit is in the discovery stage. The Company intends
to contest the suit vigorously.
The Company has established reserves for potential litigation
losses of approximately $11,500,000 at December 31, 1993. In the
opinion of management and counsel, the aggregated unreserved
liability or loss, if any, of legal proceedings will not have a
significant effect on the consolidated financial condition of the
Company.
PIONEER BANCSHARES CORPORATION
AND SUBSIDIARIES
SHREVEPORT, LOUISIANA
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Table of Contents
December 31, 1993
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . .1
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . .2
Consolidated Statements of Income. . . . . . . . . . . . . . . .3
Consolidated Statements of Changes in Stockholders' Equity . . .4
Consolidated Statements of Cash Flows. . . . . . . . . . . . .5-6
Notes to Consolidated Financial Statments. . . . . . . . . . 7-18
<PAGE>
Independent Auditor's Report
To the Board of Directors and Stockholders
Pioneer Bancshares Corporation
Shreveport, Louisiana
We have audited the accompanying consolidated balance sheets of Pioneer
Bancshares Corporation and Subsidiaries as of December 31, 1993, 1992, and
1991, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. 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 audits 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 Pioneer
Bancshares Corporation and Subsidiaries at December 31, 1993, 1992, and
1991, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Certified Public Accountants
/s/ Smith, Pugh & Company
Shreveport, Louisiana
February 7, 1994
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1993, 1992, and 1991
(in thousands)
<TABLE>
<CAPTION>
Assets
1993 1992 1991
<S> <C> <C> <C>
Cash and Due from Banks $ 12,957 $ 16,172 $ 15,450
Interest-bearing Deposits with Banks 7,235 6,774 6,279
Federal Funds Sold - 9,000 17,000
Total Cash and Cash Equivalents 20,192 31,946 38,729
Investment Securities (Note 2) (market value of
$177,758 in 1993, $171,650 in 1992,
and $160,863 in 1991) 176,444 170,221 157,591
Loans (Note 3) 149,392 138,613 136,849
Less: -Unearned Discount (1,104) (1,221) (1,721)
Allowance for Loan Losses (2,450) (3,365) (3,600)
Net Loans 145,838 134,027 131,528
Premises and Equipment - Net (Note 4) 7,386 7,151 6,071
Other Real Estate Owned (Note 5) 227 7,840 14,338
Accrued Interest Receivable 2,476 2,640 3,528
Other Assets (Note 6) 2,769 6,017 5,019
Total Assets $ 355,332 $ 359,842 $ 356,804
Liabilities and Stockholders' Equity
<S> <C> <C> <C>
Liabilities:
Time Certificates Greater than $100,000 $ 14,622 $ 12,635 $ 14,700
Other Deposits 302,293 311,750 308,808
Total Deposits 316,915 324,385 323,508
Accrued Interest, Taxes, and Expenses 1,822 3,766 3,164
Securities Sold Under Repurchase Agreement 2,550 - -
Long-Term Debt (Note 7) 6,213 6,877 7,243
Total Liabilities 327,500 335,028 333,915
Stockholders' Equity:
Common Stock, Par Value $10 Per Share, Authorized
600,000 Shares, Issued and Outstanding 287,959 Shares 2,880 2,880 2,880
Paid-In Capital 6,742 6,742 6,742
Retained Earnings 19,023 16,005 14,080
Less: Treasury Stock, 13,516 Shares at Cost (813) (813) (813)
Total Stockholders' Equity 27,832 24,814 22,889
Total Liabilities and Stockholders' Equity $ 355,332 $ 359,842 $ 356,804
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For Years Ended December 31, 1993, 1992, and 1991
(in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $ 14,704 $ 14,947 $ 16,686
Interest on Investment Securities:
Taxable 8,980 11,030 12,041
Exempt from Federal Income Tax 86 187 394
Interest on Federal Funds Sold 217 343 573
Interest on Deposits in Banks 255 252 291
Total Interest Income 24,242 26,759 29,985
Interest Expense:
Other Deposits 6,318 8,603 13,704
Time Deposits Over $100,000 279 555 1,162
Securities Sold Under Repurchase Agreement 14 - -
Long-Term Debt 949 732 838
Total Interest Expense 7,560 9,890 15,704
Net Interest Income 16,682 16,869 14,281
Provision for Loan Losses 1,509 2,221 2,561
Net Interest Income after Provision
for Loan Losses 15,173 14,648 11,720
Other Income:
Service Fees 5,063 5,166 4,513
Other 411 370 498
Net Gains (Losses) on Sales of Assets 255 405 (442)
Net Investment Securities Gains (Losses) (73) 22 186
Total Other Income 5,656 5,963 4,755
Other Expenses:
Salaries 5,999 5,380 4,675
Employee Benefits 1,525 1,126 872
Occupancy Expenses, Net 1,240 1,188 1,169
Equipment Expenses 751 529 491
Other Operating Expenses 5,649 9,094 7,025
Total Other Expenses 15,164 17,317 14,232
Income before Income Taxes and
Cumulative Effect Adjustment 5,665 3,294 2,243
Cumulative Effect on Prior Years of
Accounting Change (Note 8) 261 - -
Income Taxes (Note 8) 1,975 1,094 572
Net Income $ 3,429 $ 2,200 $ 1,671
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1993, 1992, and 1991
(in thousands)
<TABLE>
<CAPTION>
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance December 31, 1990 $2,880 $6,742 $12,670 (813) $21,479
Prior-Year Adjustment 13 13
------- ------- ------- ------- --------
Balance, Beginning of Year,
Restated 2,880 6,742 12,683 (813) 21,492
Add: -Net Income for Year 1,671 1,671
Less: -Dividends Paid (274) (274)
------ ------- -------- ------- --------
Balance December 31, 1991 2,880 6,742 14,080 (813) 22,889
Add: -Net Income for Year 2,200 2,200
Less: -Dividends Paid (275) (275)
------- ------- -------- -------- ---------
Balance December 31, 1992 2,880 6,742 16,005 (813) 24,814
Add: -Net Income for Year 3,429 3,429
Less: -Dividends Paid (411) (411)
------- -------- -------- -------- ---------
Balance December 31, 1993 $2,880 $6,742 $19,023 $(813) $27,832
======= ====== ======= ======= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Years Ended December 31, 1993, 1992, and 1991
(in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Interest Received $ 24,510 $ 27,852 $ 30,343
Service Fees and Other Income Received 5,575 6,470 4,995
Interest Paid (7,754) (10,264) (15,468)
Income Taxes Paid (650) (1,205) (894)
Cash Paid to Suppliers and Employees (17,788) (14,176) (9,451)
Net Cash Provided by Operating Activities 3,893 8,677 9,525
Cash Flows from Investing Activities:
Proceeds from Sales and Maturities
of Investments 72,146 67,475 80,221
Purchase of Investments (78,547) (80,289) (75,611)
Purchase of Securities Under Repurchase Agreement 2,550 - -
Increase in Loans (7,171) (6,553) (1,691)
Purchase of Premises and Equipment (1,073) (1,392) (195)
Proceeds from Sales of Premises and Equipment 247 20 300
Proceeds from Sales of Other Real Estate Owned 1,045 4,511 1,590
Proceeds from Sales of Other Assets 2,249 530 185
Net Cash Provided by (Used in) Investing Activities (8,554) (15,698) 4,799
Cash Flows from Financing Activities:
Proceeds from Note Payable 4,478 - -
Payments on Notes Payable (299) - (300)
Dividends Paid (411) (273) (274)
Payments on Subordinated Debentures (4,843) (366) (366)
Net Increase (Decrease) in Other Deposits (8,005) 2,942 14,223
Net Increase (Decrease) Time Deposits Over $100,000 1,987 (2,065) (7,081)
Net Cash Provided by (Used In) Financing Activities (7,093) 238 6,202
Net Increase (Decrease) in Cash and Cash Equivalents (11,754) (6,783) 20,526
Cash and Cash Equivalents Beginning of Year 31,946 38,729 18,203
Cash and Cash Equivalents End of Year $ 20,192 $ 31,946 $ 38,729
(continued)
</TABLE>
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Years Ended December 31, 1993, 1992, and 1991
(in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
<S> <C> <C> <C>
Net Income $ 3,429 $ 2,200 $ 1,671
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 859 673 644
Provision for Possible Losses on Loans 1,509 2,221 2,561
Provision for Deferred Tax Benefit 1,462 (114) (154)
1990 Tax Settlement Refund - - 13
Write-offs of Other Real Estate Owned
and Other Repossessed Assets 429 3,926 3,716
(Gains)Losses on Sale of Premises and Equipment 3 (1) (182)
Gains on Sale of Other Real Estate Owned (150) (376) 633
(Gains)Losses on Sale of Investments 73 (22) (186)
Gains on Sale of Other Assets (108) (29) (10)
Decrease in Accrued Interest Receivable 159 828 159
Increase (Decrease) in Accrued Interest
and Other Liabilities (1,944) 927 (711)
Decrease in Other Assets (1,828) (1,556) 1,371
Net Cash Provided by Operating Activities $ 3,893 $ 8,677 $ 9,525
Supplemental Disclosure of Noncash Investing Activities:
Transfer of Loans to Other Real Estate $ 131 $ 3,345 $ 2,238
Financed Sales of Other Real Estate 5,137 3,109 1,565
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PIONEER BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992 and 1991
Dollars in thousands (except per share amounts)
1. Summary of Significant Accounting Policies:
Principles of consolidation:
The consolidated financial statements include the accounts of Pioneer
Bancshares Corporation and its wholly-owned subsidiaries: Pioneer Bank & Trust
Company and Zachary Taylor Life Insurance Company. Also included are the
accounts of the wholly-owned subsidiaries of Pioneer Bank & Trust Company.
All material intercompany transactions have been eliminated in consolidation.
Investment securities:
Investment debt securities are those securities which the bank has the ability
and intent to hold to maturity. These securities are stated at cost adjusted
for amortization of premium and accretion of discount, computed by the
interest method. Generally, such securities are sold only to meet liquidity
needs. Gains and losses on the sale of investment securities are computed on
the basis of specific identification of the adjusted cost of each security.
The investment marketable equity securities are carried at the lower of cost
or market value.
Loans and allowance for possible loan losses:
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for loan losses. Unearned discount on installment
loans is recognized as income over the terms of the loans by a method which
approximates the interest method. Interest on other loans is calculated by
using the simple interest method or Rule of 78s on daily balances of the
principal amount outstanding.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for
possible loan losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions and
trends that may affect the borrowers' ability to pay. Accrual of interest is
discontinued on loans past due 90 days or more and on which the collateral is
inadequate to cover principal and interest.
Loan origination fees and costs:
Loan origination fees are charged by Pioneer Mortgage Corporation on loans
which are sold to investors. Origination fees of Pioneer Bank & Trust and
Pioneer Mortgage Corporation are recorded as income immediately. Loan
origination expenses of Pioneer Bank & Trust Company and Pioneer Mortgage
Corporation are expensed as incurred. Origination fees, net of loan
origination costs, are considered immaterial at year end.
Premises and equipment:
Premises and equipment is carried at cost less accumulated depreciation.
Depreciation is provided over the estimated useful lives of the respective
assets using straight-line and accelerated methods of depreciation.
Other real estate owned:
Other real estate owned includes properties the Company has foreclosed and
taken title to and properties that have in-substance been foreclosed.
In-substance repossessed properties are those which the borrower has little or
no remaining equity in the property considering its fair value, repayment can
only be expected to come from the operation or sale of the property, and the
borrower has effectively abandoned control of the property or it is doubtful
that the borrower will be able to rebuild equity in the property.
Amortization:
Goodwill is charged to operations using the straight-line method over a period
of forty years.
Income taxes:
Pioneer Bancshares Corporation, with the consent of all subsidiaries, files a
consolidated Federal income tax return on behalf of all Companies. The income
tax liability for each Company is computed separately and settled through a
transfer of funds with its Parent Company. Provisions for income taxes are
based on amounts reported in the Statements of Income (after exclusion of non-
taxable income such as interest on state and municipal securities) and include
deferred taxes on temporary differences in the recognition of income and
expense for tax and financial statement purposes. Deferred taxes are computed
on the liability as prescribed in SFAS No. 109, Accounting for Income Taxes.
Off balance sheet financial instruments:
In the ordinary course of business Pioneer Bank & Trust has entered into off-
balance sheet financial instruments consisting of unfunded master note
obligations, commitments to extend credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they
become payable.
Cash and cash equivalents:
For purposes of presentation in the Statements of Cash Flows, cash and cash
equivalents include cash on hand, amounts due from banks, and federal funds
sold. Generally, federal funds are sold for one-day periods.
Reclassification:
Certain amounts in 1992 and 1991 have been reclassified to conform to 1993
presentation.
2. Investment Securities:
Amortized costs and approximate market values of investment securities held to
maturity are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
--------- ---------- ---------- ---------
December 31, 1993
<S> <C> <C> <C> <C>
U.S. treasury securities $ 39,237 $ 167 $ - $ 39,404
Obligations of other U.S.
government agencies 129,388 1,041 199 130,230
Obligations of state and
political subdivisions 131 2 - 133
Other securities 7,688 303 7,991
-------- ------- -------- ----------
$ 176,444 $ 1,513 $ 199 $ 177,758
======== ======= ======== ==========
December 31, 1992
U.S. treasury securities $ 75,720 $ 825 $ 21 $ 76,524
Obligations of other U.S.
government agencies 94,313 762 349 94,726
Obligations of state and
political subdivisions 136 3 - 139
Other securities 52 209 - 261
------- ------- ---------- ----------
$ 170,221 $ 1,799 $ 370 $ 171,650
======= ======= ========== ===========
December 31, 1991
U.S. treasury securities $ 77,914 $ 1,965 $ - $ 79,879
Obligations of other U.S.
government agencies 76,964 1,193 229 77,928
Obligations of state and
political subdivisions 2,063 55 5 2,113
Other securities 650 293 - 943
-------- ------- ------- --------
$ 157,591 $ 3,506 $ 234 $ 160,863
======== ======= ======= ========
</TABLE>
Investment account securities with amortized costs of $27,150 at December 31,
1993, $24,270 at December 31, 1992, and $23,296 at December 31, 1991, were
pledged to secure public deposits and securities sold under agreements to
repurchase and for other purposes as required by law.
Gross realized gains and gross realized losses on sales of securities were:
<TABLE>
<CAPTION>
December 31, 1993 December 31,1992 December 31, 1991
------------------- ------------------ -------------------
Realized Realized Realized Realized Realized Realized
Gains Losses Gains Losses Gains Losses
-------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Obligations of other
U.S. government agencies $ 1 $ 75 $ - $ 10 $ 279 $ 93
Other securities - - 32 - - -
U.S. Treasury
securities 1 - - - - -
-------- -------- ----- ------- -------- -------
$ 2 $ 75 $ 32 $ 10 $ 279 $ 93
======== ======== ===== ======= ======== =======
</TABLE>
The maturities of investment securities at December 31, 1993, were as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Costs Values
--------- ---------
<S> <C> <C>
Due in one year or less $ 67,945 $ 68,087
Due from one to five years 61,182 61,512
Due from five to ten years 102 103
Due after ten years 47,163 47,787
Marketable equity securities 52 269
----------- -----------
$ 176,444 $ 177,758
============ ===========
</TABLE>
3. Loans:
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
------------ ------------ ----------
<S> <C> <C> <C>
Real Estate $ 78,189 $ 73,227 $ 68,005
Commercial 31,511 31,134 29,012
Consumer 20,873 20,955 26,738
Residential mortgage - held for sale 17,990 12,125 11,610
Other 829 1,172 1,484
--------- --------- ---------
149,392 138,613 136,849
Unearned discount (1,104) (1,221) (1,721)
--------- --------- ---------
148,288 137,392 135,128
Allowance for loan losses (2,450) (3,365) (3,600)
--------- --------- ---------
Loans - net $ 145,838 $ 134,027 $ 131,528
========= ========= =========
</TABLE>
Mortgage loans which are held for sale are valued at market at balance sheet
date.
Loans on which the accrual of interest has been discontinued total $1,809,
$1,137, and $3,749 at December 31, 1993, 1992, and 1991, respectively. If
interest on these loans was accrued, such interest income would approximate
$184, $59, and $398 for 1993, 1992, and 1991, respectively. Interest on these
loans, which is recorded only when received, totaled $-0-, $41, and $88 for
the years 1993, 1992, and 1991, respectively.
Mortgage loans serviced for others through the mortgage lending subsidiary
were $396,744, $372,566, and $306,572 for 1993, 1992, and 1991, respectively.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Balance beginning of year $ 3,365 $ 3,600 $ 4,500
Loans charged-off during period (2,694) (3,130) (3,747)
Recoveries 270 674 286
-------- -------- -------
941 1,144 1,039
Provision charged to operating expense 1,509 2,221 2,561
-------- -------- -------
Balance end of year $ 2,450 $ 3,365 $ 3,600
======== ======== =======
</TABLE>
4. Premises and Equipment:
Components of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- --------
<S> <C> <C> <C>
Cost:
Land $ 1,994 $ 1,551 $ 1,522
Building and improvements 7,420 7,382 7,162
Furniture, fixtures, and equipment 4,231 3,613 2,901
Automobiles 152 108 124
------- -------- -------
Total cost 13,797 12,654 11,709
Less:-accumulated depreciation (6,411) (5,503) (5,638)
------- -------- -------
Net book value $ 7,386 $ 7,151 $ 6,071
======== ======== =======
</TABLE>
Depreciation totaled $702 for 1993, $593 for 1992, and $446 for 1991.
Premises and equipment include buildings rented by Pioneer Mortgage
Corporation to Pioneer Bank & Trust Company on a month-to-month basis. Rents
for 1993, 1992, and 1991, were $27 per month.
5. Other Real Estate Owned:
A summary of other real estate owned at December 31, 1993, 1992, and 1991, is
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- -------- -------
<S> <C> <C> <C>
Acquired in settlement of loans $ 150 $ 7,011 $ 9,214
In-substance foreclosures 77 1,589 5,124
------- -------- --------
227 8,600 14,338
Less:-allowance for losses on other
real estate owned - (760) -
------- -------- --------
$ 227 $ 7,840 $ 14,338
======== ======== =========
</TABLE>
Activity in the allowance for losses on other real estate owned for the years
ended December 31, 1993, 1992, and 1991, follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 760 $ - $ -
Provisions 332 1,974 -
Charge-offs, net (1,092) (1,214) -
---------- ---------- ----------
Balance at end of year $ -0- $ 760 $ -0-
========== ========== ==========
</TABLE>
During 1993 the Bank changed its method of accounting for other real estate
write-downs from the reserve method to specific charge-off.
6. Other Assets:
Other assets consist of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
Goodwill $ 1,501 $ 1,553 $ 1,604
Deferred income tax benefit 147 1,609 1,797
Other repossessed assets, net 52 93 1,003
Other assets 1,069 2,762 615
-------- -------- -------
$ 2,769 $ 6,017 $ 5,019
======== ======== ========
</TABLE>
7. Long-term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
7% Subordinated debentures due 2001 $ 879 $ 5,722 $ 6,088
7% Notes due 2001 1,155 1,155 1,155
Floating rate note due through 2001 4,179 - -
------ ------- ------
$ 6,213 $ 6,877 $ 7,243
======= ======== ========
</TABLE>
The subordinated debentures were substantially redeemed in July, 1993. The
remaining had the interest rate reduced from 10% to a fixed rate of 7%. The
debenture matures at July, 2000, but can be prepaid without penalty. The
debenture is subordinated to all other indebtedness of the Corporation.
The 7% notes mature in 2000. Prior to July 1993, these notes were at 10%
interest and would mature in May of 1994. The agreements were renegotiated
and the interest rate was reduced to 7% with payment of principal due July,
2000. These notes are unsecured.
During 1993, proceeds from the floating rate note were used to pay for the
redemption of the subordinated debentures. Annual principal payments of $597
are required from January, 1995, to retire the notes in 2001. Prepayment may
be made at the option of the corporation without penalty. The note agreement
contains various financial covenants pertaining to minimum levels of net
worth, minimum asset ratios, limitations on debt and restrictions on common
stock. The Corporation was in compliance with all such covenants at December
31, 1993. This note is secured by a pledge of all common stock of the bank
subsidiary, Pioneer Bank & Trust Company.
Principal payments on total long-term debt required in each of the five years
subsequent to December 31, 1993, are as follows:
1994 . . . . . . . . . . . . . . . . . . . . . $ -
1995 . . . . . . . . . . . . . . . . . . . . . 597
1996 . . . . . . . . . . . . . . . . . . . . . 597
1997 . . . . . . . . . . . . . . . . . . . . . 597
1998 . . . . . . . . . . . . . . . . . . . . . 597
8. Income Taxes:
Each company records a provision for income taxes (benefits) based on its
estimated income or loss at year end, and a tax settlement is made with the
parent corporation based on separately computed company tax liabilities in the
subsequent year when the final tax liability is known.
The consolidated provision for income taxes for 1993, 1992, and 1991, consists
of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- --------
<S> <C> <C> <C>
Taxes currently payable:
Federal $ 472 $ 1,408 $ 702
State 13 54 23
-------- --------- -------
485 1,462 725
Deferred taxes (benefits):
Federal 1,490 (370) (154)
State - 2 1
-------- -------- --------
1,490 (368) (153)
-------- -------- --------
Total income taxes $ 1,975 $ 1,094 $ 572
======== ======== ========
</TABLE>
The provision for federal income taxes differs from that computed by applying
the federal statutory rate of 34% in 1993, 1992, and 1991, as indicated in the
following analysis:
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- -------
<S> <C> <C> <C>
Tax based on statutory rate $ 1,926 $ 1,120 $ 763
Effect of tax-exempt income (29) (64) (137)
Other - net 78 36 (54)
-------- -------- --------
$ 1,975 $ 1,092 572
========= ========= ========
</TABLE>
Deferred tax liabilities have been provided for taxable temporary differences
related to accumulated depreciation and amortization of servicing costs.
Deferred tax assets have been provided for deductible temporary differences
related to the allowance for loan losses, for losses on foreclosed assets,
accumulated depreciation and accrued litigation expenses. Due to the tax
timing differences, the effective tax rates are 35% for 1993, 33% for 1992,
and 26% in 1991. The net deferred tax assets in the accompanying statements
of financial condition include the following components:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- -------
<S> <C> <C> <C>
Deferred tax liabilities $ (186) $ (198) $ (104)
Deferred tax assets 333 1,807 1,797
-------- -------- --------
Net deferred tax assets $ 147 $ 1,609 $ 1,693
======== ======== ========
</TABLE>
Effective January 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The cumulative
effect of the change in accounting principle is included in determining net
income for year 1993. Financial statements for prior years have not been
restated.
9. Related Party Transactions:
The Bank has entered into transactions with its officers, directors,
significant shareholders and their affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve unfavorable features.
A summary of changes in such loans during 1993 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1 $ 3,529
Additions 623
Repayments ( 750)
Changes in director status ( 492)
----------
Balance at December 31 $ 2,910
==========
</TABLE>
There were additional commitments for the benefit of these individuals and
their interests in the form of standby letters of credit totaling $231, $236,
and $100 at December 31, 1993, 1992, and 1991, respectively.
10. Commitments and Contingent Liabilities:
In the normal course of business, Pioneer Bank & Trust Company has various
outstanding commitments and contingent liabilities that are not reflected in
the consolidated financial statements, and which involve elements of credit
risk, interest risk, and liquidity risk. The commitments and contingent
liabilities include unfunded master note obligations, commitments to extend
credit, and standby letters of credit.
Credit risk exposure is minimized by subjecting these off-balance sheet
instruments to standard credit policies. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, is based on management's credit
evaluation. The Bank manages this credit risk by maintaining a well
diversified portfolio of highly rated counterparties in addition to imposing
limits as to types, amounts and degree of risk the portfolios can undertake.
The limits are approved by the appropriate loan committee or authority and
positions are monitored to ensure compliance with such limits.
Generally accepted accounting principles recognize these instruments as
contingent obligations or off-balance sheet items and accordingly, the
contract or notional amounts are not reflected in the consolidated financial
statements. Provided below is a summary of the Corporation's off-balance
sheet financial instruments at December 31, 1993.
<TABLE>
<CAPTION>
<S> <C>
Unfunded master note obligations $ 9,097
Commitments to extend credit 10,116
Standby letters of credit 1,428
---------
$ 20,641
=========
</TABLE>
Unfunded master note obligations represent the credit available on current
contractual loans. Based on management estimates approximately 50% of these
remaining amounts will be funded due to the revolving nature of the loans.
A loan commitment represents a notional contractual agreement to lend up to a
specified amount, over a stated period of time as long as there is no
violation of any condition established in the contract, and generally requires
the payment of a fee. Standby letters of credit are issued to improve a
customer's credit standing with third parties, whereby the Bank agrees to
honor a financial commitment by issuing a guarantee to third parties in the
event the Bank's customer fails to perform. The Bank estimates that 60% of
these commitments will be drawn upon by customers, while standby letters of
credit are rarely funded. Interest rates are predominantly based on market
rates at the time the commitments are made. Substantially all the commitments
expire within 30-90 days.
The Corporation and its subsidiaries are parties to litigation and claims
arising in the normal course of business. Management, after consultation with
legal counsel, believes the current reserve is sufficient for any claims that
might arise.
11. Disclosures about Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
The carrying amount is a reasonable estimate of fair value.
Investment securities
Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
Loans
For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the net
present value, adjusted for differences in loan characteristics. The fair
value of other types of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit liabilities
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar maturities.
Long-term debt
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to extend credit, standby letters of credit, and unfunded master
notes
The fees on commitments to extend credit are recognized at the time collected
because of the short-term nature of the instrument. Standby letters of credit
fees are collected yearly. The majority of unfunded master notes are based on
a variable interest rate and the fees are collected at the outset of the note.
Therefore, the value of these unrecognized financial instruments was
immaterial.
The estimated fair values of the Bank's financial instruments as of December
31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1993 1992
----------------- ----------------
Carrying Fair Carrying Fair
Values Value Values Value
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 20,192 $ 20,192 $ 31,946 $ 31,946
Investment securities 176,444 177,757 170,221 171,650
Loans 148,288 148,215 137,392 142,716
Less:-allowance for loan losses (2,450) (2,449) (3,365) (3,365)
--------- ------- --------- ----------
$ 342,474 $ 343,715 $ 336,194 $ 342,947
========== ========== =========== =============
Financial liabilities:
Deposits $ 316,915 $ 316,941 $ 324,385 $ 322,957
Long-term debt 6,213 6,213 6,877 6,000
---------- ---------- ---------- -----------
$ 323,128 $ 323,154 $ 331,262 $ 328,957
========== ========== ========== ===========
This is not a required disclosure for 1991.
</TABLE>
12. Employer Sponsored Defined Contribution Profit Sharing Plan:
All employees of Pioneer Bancshares Corporation and Subsidiaries participate
in an employer sponsored defined contribution profit sharing plan. Benefits
are determined by account balances at retirement date.
All full-time employees of the controlled group at the end of the calendar
year are participants in the plan. The contribution each year is computed at
10% of the consolidated net income before income taxes, with certain
limitations, and at the discretion of the employer's board of directors.
Contributions of $500, $200, and $-0- were made for the years ended December
31, 1993, 1992, and 1991, respectively.
13. Concentrations of Credit:
All of the Bank's loans, commitments, and commercial and standby letters of
credit have been granted to customers in the Bank's market area. Most
customers are depositors of the Bank. Investments in state and municipal
securities also involve governmental entities within the Bank's market area.
The concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Commercial and standby letters of credit were granted
primarily to commercial borrowers. The Bank, as a matter of policy, does not
extend credit to any single borrower or group of related borrowers in excess
of $2.5 million without specific approval of the Board of Directors.
14. Regulatory Matters:
The Bank is subject to the dividend restriction applicable to all state
chartered banks as set forth by State law. The Bank is prohibited from paying
any cash dividends in excess of the sum of the current year's earnings and
previous year's earnings without the consent of the Commissioner of Financial
Institutions for the State of Louisiana. The dividends, as of December 31,
1993, that the Bank could pay to the holding company, without the approval of
the Commissioner, amounted to approximately $7.2 million.
The Memorandum of Understanding between the FDIC and the Board of Directors of
the Bank dated October 12, 1989, was removed April 5, 1993.
15. Book Values and Earnings per Share:
Consolidated book values and consolidated earnings per share of common stock
of Pioneer Bancshares Corporation at December 31, 1993, 1992, and 1991, are
computed on the weighted average number of shares of common stock outstanding
during the period as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- --------- --------
<S> <C> <C> <C>
Book value $ 101.41 $ 90.42 $ 83.40
Less:-goodwill 5.47 5.66 5.85
---------- --------- -------
Book value per share of
tangible assets $ 95.94 $ 84.76 $ 77.55
========= ========= =========
Earnings per share $ 12.50 $ 8.02 $ 6.09
========= ========= =========
</TABLE>
<PAGE>
FIRST STATE BANK
AND TRUST COMPANY
FINANCIAL REPORT
DECEMBER 31, 1993
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First State Bank and Trust Company
Franklinton, Louisiana
We have audited the accompanying balance sheets of First State Bank
and Trust Company as of December 31, 1993 and 1992, and the related
statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1993.
These financial statements are the responsibility of the Bank'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 financial position of First
State Bank and Trust Company as of December 31, 1993 and 1992, and
the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles.
/s/ H. J. Lowe & Company, L.L.C.
Baton Rouge, Louisiana
January 13, 1994
<PAGE>
FIRST STATE BANK AND TRUST COMPANY
BALANCE SHEETS
December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
------- -------
ASSETS
<S> <C> <C>
Cash and due from banks $ 6,277,000 $ 8,531,000
Securities held to maturity 85,350,000 89,573,000
Federal funds sold 2,550,000 3,050,000
Loans, net 47,909,000 43,632,000
Bank premises and equipment, net 1,643,000 1,647,000
Accrued income receivable 1,568,000 1,769,000
Other assets 1,570,000 1,852,000
------------- -------------
$ 146,867,000 $ 150,054,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Interest bearing $ 106,614,000 $ 111,726,000
Noninterest bearing 20,077,000 19,577,000
------------- -------------
126,691,000 131,303,000
Accrued interest and other liabilities 640,000 521,000
Income taxes payable 103,000 678,000
------------- -----------
127,434,000 132,502,000
------------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $10 per share; 100,000
shares authorized, issued and outstanding 1,000,000 1,000,000
Surplus 8,000,000 8,000,000
Retained earnings 10,433,000 8,552,000
------------- ------------
Total stockholders' equity 19,433,000 17,552,000
------------- ------------
$ 146,867,000 $ 150,054,000
============= =============
See notes to financial statements
</TABLE>
<PAGE>
FIRST STATE BANK AND TRUST COMPANY
STATEMENTS OF INCOME
Three Years Ended December 31, 1993
<TABLE>
<CAPTION>
1993 1992 1991
------- -------- -------
Interest income on:
<S> <C> <C> <C>
Loans $ 4,696,000 $ 4,650,000 $ 4,797,000
Securities held to maturity 5,088,000 5,925,000 5,738,000
Federal funds sold 156,000 254,000 673,000
------------- ------------- -------------
9,940,000 10,829,000 11,208,000
Interest expense on:
Deposits 3,695,000 5,022,000 6,685,000
------------- ------------- -------------
Net interest income 6,245,000 5,807,000 4,523,000
Provision for possible loan losses 364,000 545,000 1,200,000
------------- ------------- -------------
Net interest income after provision for
possible loan losses 5,881,000 5,262,000 3,323,000
------------- ------------- -------------
Other income:
Service fees 700,000 699,000 675,000
Other 563,000 418,000 369,000
------------- ------------- -------------
1,263,000 1,117,000 1,044,000
------------- ------------- -------------
Other expenses:
Salaries and wages 1,471,000 1,433,000 1,304,000
Profit-sharing and other employee benefits 576,000 549,000 356,000
Occcupancy expenses 792,000 768,000 837,000
Other operating expenses 1,293,000 1,265,000 1,333,000
------------- ------------- -------------
4,132,000 4,015,000 3,830,000
------------- ------------- -------------
Income before federal income tax expense
and extraordinary item 3,012,000 2,364,000 537,000
------------- ------------- -------------
Federal income tax
Current expense 1,031,000 849,000 152,000
Tax effect of loss carryforward realized - - 105,000
------------- ------------- -------------
Income before extraordinary item 1,981,000 1,515,000 280,000
Extraordinary item, reduction of income taxes arising
from realization of loss carryforward - - (105,000)
------------- ------------- --------------
Net income $ 1,981,000 $ 1,515,000 $ 385,000
============= ============= ==============
Earnings per share $ 19.81 $ 15.15 $ 3.85
============= ============= ==============
See notes to financial statements
</TABLE>
<TABLE>
FIRST STATE BANK AND TRUST COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1993
<CAPTION>
Common Stock
--------------------- Retained
Shares Par Value Surplus Earnings Total
------ ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 100,000 $1,000,000 $ 8,000,000 $6,852,000 $15,852,000
Net income - - - 385,000 385,000
Cash dividends declared
($1.00 per share) - - - (100,000) (100,000)
------- ----------- ----------- ------------- -------------
Balance, December 31, 1991 100,000 $ 1,000,000 $ 8,000,000 7,137,000 $ 16,137,000
Net Income - - - 1,515,000 1,515,000
Cash dividends declared
($1.00 per share) - - - (100,000) (100,000)
------- ----------- ----------- ------------- -------------
Balance, December 31,1992 100,000 $ 1,000,000 $ 8,000,000 $ 8,552,000 $ 17,552,000
Net income - - - 1,981,000 1,981,000
Cash dividends declared
($1.00 per share) - - - (100,000) (100,000)
------- ----------- ----------- ------------ ------------
Balance, December 31,1993 100,000 $ 1,000,000 $ 8,000,000 $ 10,433,000 $ 19,433,000
======= =========== =========== ============ ============
See notes to financial statements
</TABLE>
FIRST STATE BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1993
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 1,981,000 $ 1,515,000 $ 385,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 341,000 323,000 386,000
Provision for possible loan loss 364,000 545,000 1,200,000
Gain on sale of other real estate (281,000) (13,000) -
Amortization of bond premiums 154,000 96,000 21,000
Write down of other real estate 56,000 145,000 -
Loss on disposal of equipment 15,000 - -
(Increase) Decrease in accrued income
receivable and other assets 201,000 136,000 (348,000)
Increase (decrease) in accrued interest
and other liabilities (456,000) 160,000 416,000
------------- ------------- -------------
Net cash provided by
operating activities 2,375,000 2,907,000 2,060,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities 35,257,000 38,973,000 30,750,000
Purchase of investment securities (31,188,000) (43,900,000) (55,141,000)
Federal funds sold, net 500,000 4,350,000 (3,800,000)
(Increase) in loans (4,708,000) (4,979,000) (2,503,000)
Purchases of premises and equipment (352,000) (22,000) (660,000)
Proceeds from sale of other real estate 574,000 194,000 -
------------- ------------- -------------
Net cash provided by (used in
investing activities 83,000 (5,384,000) (31,354,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in interest-bearing deposits (5,112,000) 2,657,000 14,686,000
Net increase in noninterest-bearing deposits 500,000 2,366,000 919,000
Dividends paid (100,000) (100,000) (100,000)
------------- ------------- -------------
Net cash provided by (used in)
financing activities (4,712,000) 4,923,000 15,505,000
------------- ------------- -------------
Increase (decrease) in cash and due from banks (2,254,000) 2,446,000 (13,789,000)
Cash and due from banks:
Beginning 8,531,000 6,085,000 19,874,000
------------- --------------- -------------
Ending $ 6,277,000 $ 8,531,000 $ 6,085,000
============= ============== =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 3,521,000 $ 5,195,000 $ 6,769,000
Income taxes $ 950,000 $ 184,000 $ (44,000)
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in $ 455,000 $ 221,000 $ 539,000
supplement of loans
Bank premises and equipment
reclassified to other assets $ - $ 473,000 $ -
See notes to financial statements
</TABLE>
<PAGE>
FIRST STATE BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from banks includes
cash on hand and amounts due from banks (including cash items in process
of clearing). Cash flows from loans originated by the Bank, deposits,
and federal funds purchased and sold are reported net.
Securities held to maturity:
Securities classified as held to maturity are those debt securities the
Bank has both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the
interest method over their contractual lives. It is the intent of
management to hold all investment securities until maturity.
Loans:
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and fees and an allowance for possible loan losses.
The allowance for possible loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to
operating expense and reduced by net charge-offs. The Bank makes
continuous credit reviews of the loan portfolio and considers current
economic conditions, historical loan loss experience, review of specific
problem loans and other factors in determining the adequacy of the
allowance balance.
Unearned interest on discounted loans is amortized to income over the
life of the loans, using the interest method. For all other loans,
interest is accrued daily on the outstanding balances. Accrual of
interest is discontinued on a loan when management believes, after
considering collection efforts and other factors, that the borrower's
financial condition is such that collection of interest is doubtful.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment
of the related loan's yield. The Bank is generally amortizing these
amounts over the contractual life.
Postretirement benefits:
The Bank does not pay any postretirement benefits.
Off balance sheet financial instruments:
In the ordinary course of business, the Bank has entered into off balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit
and standby letters of credit. Such financial instruments are recorded
in the financial statements when they become payable.
Fair values of financial instruments:
FASB Statement No. 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
estimates 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. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
Cash and due from banks: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair
values.
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are
not available, fair values are based on quoted market prices of
comparable instruments.
Loans receivable: 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 other loans, e.g., commercial real
estate and rental property mortgage loans, commercial and industrial
loans, automobile loans, and agricultural 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.
Commitments to extend credit and standby letters of credit: The fair
value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms
of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting
date.
Deposit liabilities: The fair values disclosed for demand deposits,
e.g., interest and noninterest checking, passbook savings, 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.
Fair values for fixed-rate certificates of deposit are estimated using
a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-line
method over the following estimated useful lives:
Years
-----
Buildings and improvements 33
Furniture and equipment 3-10
Earnings per share:
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding.
Income taxes:
The provision for income taxes relates to items of revenue and expenses
recognized for financial accounting purposes during each of the years.
The actual current tax liability may be less than the charge against
earnings due to the effect of certain items of revenue that are not
taxable.
Note 2. Restriction on Cash and Due From Banks
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. The average
balance maintained for such purposes was $1,000,000 for the years ended
December 31, 1993 and 1992.
Note 3. Investment Securities
Carrying amounts and fair values of securities being held to maturity as
of December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U. S. Treasury securities $46,234,000 $ 590,000 $27,000 $46,797,000
U. S. government agencies and
corporations 38,926,000 444,000 66,000 39,304,000
States and political subdivisions 190,000 13,000 - 203,000
----------- ----------- ------- -----------
$85,350,000 $1,047,000 $93,000 $86,304,000
=========== ========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
-----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U. S. Treasury securities $53,029,000 $ 825,000 $57,000 $53,797,000
U. S. government agencies and
corporations 35,953,000 849,000 22,000 36,780,000
States and political subdivisions 591,000 19,000 - 610,000
----------- ----------- ------- -----------
$89,573,000 $1,693,000 $79,000 $91,187,000
=========== ========== ======= ===========
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1993, 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
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $32,103,000 $32,345,000
Due after one year through five years 53,247,000 53,959,000
----------- -----------
$85,350,000 $86,304,000
=========== ===========
</TABLE>
There were no sales of investments in debt securities during the years
ended December 31, 1993, 1992 or 1991. Investment securities with a
carrying amount of $4,479,000 and $4,571,000 at December 31, 1993 and
1992, respectively, were pledged as collateral on public deposits.
Note 4. Loans
The composition of net loans is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
---------- ------------
<S> <C> <C>
Commercial and agricultural $10,729,000 $13,946,000
Installment 11,731,000 12,724,000
Real estate 26,736,000 18,358,000
----------- -----------
49,196,000 45,028,000
Deduct:
Unearned discount 58,000 102,000
Allowance for loan losses 1,229,000 1,294,000
----------- ------------
$47,909,000 $43,632,000
=========== ===========
</TABLE>
Nonaccruing loans (principally real estate loans) totaled $1,108,000,
$0 and $627,000 at December 31, 1993, 1992 and 1991, respectively, which
had the effect of reducing net income $44,059, $0 and $70,000 ($.44, $0
and $.70 per common share) for the respective years then ended. Interest
income on these loans, which is recorded only when received, amounted to
$0, $0 and $0 for the years ended December 31, 1993, 1992 and 1991,
respectively.
The fair value of all loans at December 31, 1993, is estimated to be
approximately $49,699,000.
Note 5. Allowance for Possible Loan Losses
Changes in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1993 1992
-------- ---------
<S> <C> <C>
Balance, beginning of year $1,294,000 $1,151,000
Provision charged to operations 364,000 545,000
Loans charged off (989,000) (957,000)
Recoveries 560,000 555,000
---------- -----------
Balance, end of year $1,229,000 $1,294,000
========== ==========
</TABLE>
Note 6. Bank Premises and Equipment
The major classes of bank premises and equipment and the total
accumulated depreciation are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
------ -------
<S> <C> <C>
Land $ 320,000 $ 320,000
Buildings and improvements 1,905,000 1,876,000
Furniture and equipment 1,948,000 1,835,000
----------- -----------
4,173,000 4,031,000
Less accumulated depreciation 2,529,000 2,384,000
----------- -----------
$ 1,644,000 $ 1,647,000
=========== ===========
</TABLE>
Note 7. Deposits
The composition of deposits is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1992
---------- -------
<S> <C> <C>
Demand $ 20,078,000 $ 19,577,000
NOW accounts 9,411,000 9,501,000
Savings 47,754,000 40,479,000
Time, $100,000 and over 10,114,000 16,479,000
Other time 39,334,000 45,267,000
------------ ------------
$126,691,000 $131,303,000
============ ============
</TABLE>
The fair market value of deposit liabilities at December 31, 1993, is
estimated to be approximately $126,928,000.
Note 8. Profit-Sharing Plan
The Bank has a contributory profit-sharing plan which covers all
employees from date of employment. The plan provides for contributions
by the Bank, not to exceed 15% of the annual compensation of the
participants. The Bank's contributions to the plan were $243,000,
$234,000 and $100,000 for the years 1993, 1992 and 1991, respectively.
Note 9. Federal Income Tax
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1993 1992 1991
----------- -------- --------
<S> <C> <C> <C>
Currently paid or payable $ 976,000 $835,000 $308,000
Deferred 55,000 14,000 (156,000)
----------- -------- --------
$1,031,000 $849,000 $152,000
=========== ======== ========
</TABLE>
A reconciliation of the expected income tax expense computed at 34% in
1993, 1992 and 1991, to the income tax expense included in the
statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1993 1992 1991
--------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense $1,024,000 $804,000 $183,000
Tax exempt interest (15,000) (12,000) (23,000)
Other 22,000 57,000 (8,000)
---------- -------- --------
$1,031,000 $849,000 $152,000
========== ======== ========
</TABLE>
The deferred income tax provision consists of the following items:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1993 1992 1991
------- ------- ------
<S> <C> <C> <C>
Accretion of discount recognized for
financial statements but not recognized
for income tax purposes until realized $24,000 $33,000 $ (24,000)
Difference between the depreciation
methods used for financial statements
and for income tax purposes (9,000) (3,000) (27,000)
Difference between loan loss provision
charged to operating expense and
the bad debt deduction taken for income
tax purposes (68,000) (38,000) (135,000)
Difference between the gain on sale of
other real estate used for financial
statements and for income tax purposes 78,000 - -
Difference between loan origination income
and expense methods used for financial
statements and for income tax purposes 30,000 22,000 30,000
------- ------- -----------
$55,000 $14,000 $(156,000)
======= ======= ============
</TABLE>
Note 10. Transactions With Directors and Officers
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they
are principal stockholders (commonly referred to as related parties), all
of which have been, in the opinion of management, on the same terms,
including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. These related parties were
indebted to the Bank in the aggregate amount of $1,479,000, $1,821,000
and $1,857,000 at December 31, 1993, 1992 and 1991, respectively. This
group had deposits in the Bank of $2,106,000, $1,694,000 and $1,665,000
at December 31, 1993, 1992 and 1991, respectively.
Note 11. Contingent Liabilities and Commitments
The Bank's financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest rate risk and liquidity
risk. These commitments and contingent liabilities are commitments to
extend credit, credit card arrangements, and standby letters of credit.
A summary of the Bank's commitments and contingent liabilities at
December 31, 1993, is as follows:
<TABLE>
<CAPTION>
Notional Amount
---------------
<S> <C>
Commitments to extend credit $3,710,000
Credit card arrangements 867,000
Standby letters of credit 918,000
----------
$5,495,000
==========
</TABLE>
Commitments to extend credit, credit card arrangements, and standby
letters of credit all include exposure to some credit loss in the event
of nonperformance of the customer. The Bank's credit policies and
procedures for credit commitments and financial guarantees are the same
as those for extension of credit that are recorded on the statements of
condition. Because these instruments have fixed maturity dates, and
because many of them expire without being drawn upon, they do not
generally present any significant liquidity risk to the Bank. The Bank's
experience has been that approximately 20% of loan commitments are drawn
upon by customers. The bank has not been required to perform any
financial guarantees during the past two years. The Bank has not
incurred any losses on its commitments in either 1993 or 1992. The fair
value of these commitments and contingent liabilities at December 31,
1993, is estimated to approximate their notional amounts.
The Bank is party to litigation and claims arising in the normal course
of business. Management, after consultation with legal counsel, believes
that the liabilities, if any, arising from such litigation and claims
will not be material to the financial position of the Bank.
Note 12. Concentrations of Credit
All of the Bank's loans, commitments, and standby letters of credit have
been granted to customers in the Bank's market area. All such customers
are depositors of the Bank. Investments in state and municipal
securities also involve governmental entities within the state of
Louisiana. The concentrations of credit by type of loan are set forth
in Note 4. The distribution of commitments to extend credit approximates
the distribution of loans outstanding. Standby letters of credit were
granted primarily to commercial borrowers. The Bank, as a matter of
policy, does not extend credit to any single borrower or group of related
borrowers in excess of $1,000,000.
Note 13.Regulatory Matters
The Bank, as a state Bank is subject to the dividend restrictions set
forth by the Office of Financial Institutions of the state of Louisiana
(OFI). Under such restrictions, the Bank may not, without the prior
approval of the OFI, declare dividends in excess of the sum of the
current year's earnings (as defined) plus the retained earnings (as
defined) from the prior years. The dividends, as of December 31, 1993,
that the Bank could declare, without the approval of the OFI, amounted
to approximately $3,296,000. The Bank is also required to maintain
minimum amounts of capital to total "risk weighted" assets, as defined
by the banking regulators. At December 31, 1993, the Bank is required
to have minimum Tier 1 and total capital ratios of 4.0% and 8.0%,
respectively. The Bank's actual ratios at that date were 33.50% and
34.76%, respectively. The Bank's leverage ratio at December 31, 1993,
was 13.14%. According to FDIC capitol guidelines, the Bank is considered
to be "well capitalized."
