SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the fiscal year ended December 31, 1993
Commission File Number 0-15003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
GRENADA SUNBURST SYSTEM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 64-0723929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Gateway, Grenada, Mississippi 38901
(Address of principal executive offices) (ZIP Code)
(601) 226-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 15, 1994 was approximately $225,458,156 based
on the average bid and asked prices as quoted by NASDAQ.
On February 15, 1994, the Registrant had outstanding 9,492,975 shares of
common stock; par value $1.00 per share.
</PAGE>
<PAGE>2
XXX BEGIN PAGE 2 HERE XXX
PART I
Item 1. Business
- -----------------
Grenada Sunburst System Corporation (the "Registrant") is a multi-bank
holding company headquartered in Grenada, Mississippi. The Registrant was
organized under the laws of the state of Delaware on May 20, 1986. The
Registrant has two major subsidiaries: Sunburst Bank, Mississippi, and
Sunburst Bank, Louisiana. Sunburst Bank, Mississippi, organized in 1890, and
Sunburst Bank, Louisiana, acquired in May 1988 (collectively the "Banks"),
had approximately $1,952 million and $509 million, respectively, in total
assets as of December 31, 1993.
The Registrant is engaged in a general commercial banking business,
conducting operations in 124 locations in 59 communities in Mississippi and
Louisiana. The Banks accept demand deposits and various types of interest
bearing transaction and time deposit accounts and utilize funds from such
activities to make loans and other investments. In addition, through the
Registrant's subsidiary, Sunburst Financial Group, Inc., the Registrant
offers full-service brokerage to its customers. The Banks offer a wide range
of fiduciary services through their trust divisions, and mortgage services
through Sunburst Mortgage Corporation as well as other financial services to
their customers.
The Registrant has expanded its operations through de novo branch
banking and acquisition of banks in Mississippi and Louisiana. Each branch
office of the Banks does business under the name "Sunburst Bank".
At December 31, 1993 the Registrant had 1,657 full-time equivalent
employees.
Sunburst Bank, Mississippi is incorporated under the laws of the State
of Mississippi, and as such, is subject to regulation by the Department of
Banking and Consumer Finance for the State of Mississippi. Sunburst Bank,
Louisiana is incorporated under the laws of the State of Louisiana and is
subject to regulation by the Office of Financial Institutions for the State
of Louisiana. The Registrant is registered as a bank holding company with
the Board of Governors of the Federal Reserve System and is governed by its
applicable laws and regulations as a bank holding company. The Banks'
deposits are insured by the FDIC, and, therefore, both banks are subject to
the regulations of the Federal Deposit Insurance Act and to examination by
that corporation.
</PAGE>
<PAGE>3
XXX BEGIN PAGE 3 HERE XXX
EXECUTIVE OFFICERS OF THE REGISTRANT
When
Name Position Held with the Registrant Age Elected
- ---------------------------------------------------------------------------
R.E. Kennington, II Chairman of the Board 61 1986
J. T. Boone President & Chief Executive 43 1988
Officer
D. L. Holland Chief Financial Officer & 50 1986
Treasurer
A. J. Huff President & Chief Operating 51 1990
Officer, Sunburst Bank, LA
Don W. Ayres Senior Executive Vice President, 48 1991
Sunburst Bank, MS
J. Daniel Garrick, III Senior Executive Vice President, 44 1990
Sunburst Bank, MS
Frank W. Smith, Jr. Senior Executive Vice President, 40 1990
Sunburst Bank, MS
James L. Brown Regional Executive, Northeast 46 1987
Region, Sunburst Bank, MS
Thomas H. Carroll, Jr. Regional Executive, Northwest 54 1987
Region, Sunburst Bank, MS
E. Jackson Garner Regional Executive, Central 48 1989
Region, Sunburst Bank, MS
Todd Mixon Regional Executive, Southern 44 1990
Region, Sunburst Bank, MS
James A. Baker Executive Vice President, 49 1991
Asset Quality Group
Jerry A. Pegg Executive Vice President, 50 1990
Corporate Administration
There are no family relationships between any of the executive officers of
the Registrant.
</PAGE>
<PAGE>4
XXX BEGIN PAGE 4 HERE XXX
R. E. Kennington, II, served as Chief Executive Officer of the Registrant
from 1986 to 1992, as Chairman of the Board and Chief Executive Officer of
Sunburst Bank, Mississippi, for the period from 1981 to 1989, and as Chairman
of Sunburst Bank, Louisiana for 1988 and 1989.
Mr. Boone served as Chief Operating Officer of the Registrant from 1990 to
1992, Chief Executive Officer for Sunburst Bank, Louisiana for the years 1988
and 1989 and as Executive Vice President of Sunburst Bank, Mississippi for
the six years prior to that.
Mr. Huff served as President of the Laurel, MS branch of Sunburst Bank, MS
prior to 1990.
Mr. Ayres was hired October 9, 1991.
Mr. Garrick served as Executive Vice President of Personnel for Sunburst
Bank, MS prior to 1990.
Mr. Smith served as Executive Vice President of Investments for Sunburst
Bank, MS prior to 1990.
Mr. Garner served as Executive Vice President for Grenada Sunburst System
Corporation prior to 1989.
Mr. Mixon served as Senior Vice President of the Commercial Lending Group for
Sunburst Bank, MS prior to 1990.
Mr. Pegg served as Senior Vice President for Sunburst Bank, MS prior to
1990.
Item 2. Properties
- ------------------
The administrative office of the Registrant is presently located in a
modern two story glass, steel, and concrete building owned by the Registrant
and located in Grenada, Mississippi. Sunburst Bank, Mississippi operates 124
banking locations, the majority of which are owned premises. Sunburst Bank,
Louisiana operates from its main offices in Baton Rouge, Louisiana and has 15
full service offices, one drive-in facility and one operations center. Ten
of the offices are owned by the Bank, while seven are leased. Sunburst
Financial Group, Inc. operates four offices in Mississippi: one modern,
leased building in Jackson, Mississippi which is the main office location,
one owned building in Grenada, one owned building in Hattiesburg, and one
owned building in Meridian. Sunburst Bank's wholly owned subsidiary, Rapid
Finance, Inc. operates 13 consumer lending offices in Mississippi, all of
which are leased. All buildings are of either brick masonry or glass, steel,
and concrete construction. All buildings have been constructed or remodeled
in the last 10 to 15 years and are considered adequate for current and future
banking needs.
Item 3. Legal Proceedings
- --------------------------
Various claims and lawsuits, incidental to the ordinary course of
business, are pending against the Registrant and its subsidiaries. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on the consolidated
financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1993.
</PAGE>
<PAGE>5
XXX BEGIN PAGE 5 HERE XXX
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
- -----------------------------------------------------------------------------
The information under the caption "Stock Information" on page 57 and
Note 13 of Notes to Consolidated Financial Statements on page 30 of Exhibit
13.1 attached hereto is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
The information under the caption "Selected Consolidated Financial
Information" on page 37 of Exhibit 13.1 attached hereto is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------------
Results of Operations
---------------------
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 39 thru 64 of
Exhibit 13.1 attached hereto is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The following consolidated financial statements of the Registrant and
its subsidiaries, the report of independent certified public accountants
thereon, and the quarterly data (unaudited) appearing at the pages set forth
below in Exhibit 13.1 attached hereto are incorporated herein by reference.
Consolidated Balance Sheets Page 11
Consolidated Statements of Income Page 12
Consolidated Statements of Changes in
Stockholders' Equity Page 13
Consolidated Statements of Cash Flows Page 14
Notes to Consolidated
Financial Statements Pages 15 - 35
Independent Auditor's Report Page 36
Summary of Quarterly Results of
Operations (Unaudited) Page 38
Item 9. Disagreements on Accounting and Financial Disclosures
- --------------------------------------------------------------
There have been no disagreements with the Registrant's independent
accountants and auditors on any matter of accounting principles or financial
statement disclosure.
</PAGE>
<PAGE>6
XXX BEGIN PAGE 6 HERE XXX
PART III
Item 10. Directors and Executive Officers of Registrant
- --------------------------------------------------------
Information concerning the directors and nominees of the Registrant
appears on pages 3 and 4 of the Registrant's definitive Proxy Statement dated
March 18, 1994, and is incorporated herein by reference except for the
following information: J. H. Tabb, formerly a director of the Registrant,
passed away on March 25, 1994.
Information concerning executive officers of the Registrant is presented
in Part I hereof.
Item 11. Executive Compensation
- --------------------------------
Information concerning the remuneration of officers and directors of the
Registrant and transactions with such persons appears on pages 5-11 of the
Registrant's definitive Proxy Statement dated March 18, 1994, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information concerning the security ownership of certain beneficial
owners and directors and officers of the Registrant appears on pages 2, 3 and
4 of the Registrant's definitive Proxy Statement dated March 18, 1994, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not applicable
</PAGE>
<PAGE>7
XXX BEGIN PAGE 7 HERE XXX
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) 1. Financial Statements - See Item 8 above
2. Financial Statement Schedules - All schedules applicable
to the Registrant are included in Item 8 above, in the
financial statements or related notes thereto
3. Exhibits:
3.1 Certificate of Incorporation (filed as Exhibit (3.1) to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 and incorporated herein by
reference)
3.2 Bylaws, as amended (filed as Exhibit (3.2) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference)
*10.1 Equity Share Bonus Plan and Participation Agreement, as
amended (filed as Exhibit (10.1) to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1992 and incorporated herein by reference)
*10.2 Deferred Compensation Agreement (filed as Exhibit (10.2)
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991 and incorporated herein by
reference)
*10.3 Management Incentive Compensation Plan (filed as Exhibit
(10.3) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 and incorporated herein
by reference)
*10.4 Form of Executive Employment Contracts (filed as Exhibit
(10.4) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991 and incorporated herein
by reference)
10.5 Agreement to Merge with Commercial National Bank, Baton
Rouge, LA dated September 28, 1989 (filed as Exhibit A of
the Registrant's Registration Statement on Form S-4 (Reg.
No. 33-31627) and incorporated herein by reference)
10.6 Purchase and Assumption Agreement among Eastover Bank for
Savings, the Registrant and Sunburst Bank, Mississippi
dated July 22, 1992 (filed as Appendix H of the
Registrant's Registration Statement on Form S-4 (Reg. No.
33-53170) and incorporated herein by reference)
13.1 Portions of the Grenada Sunburst System Corporation 1993
Annual Report (filed herewith)
21.1 Subsidiaries of the Registrant (filed herewith)
23.1 Consent of Independent Auditors (filed herewith)
-----------------------------------------------------------------
* Management contract or compensatory plan or agreement
identified hereby pursuant to Item 14(a)3.
(b) No reports were filed on Form 8-K during the quarter ending
December 31, 1993.
</PAGE>
<PAGE>8
XXX BEGIN PAGE 8 HERE XXX
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Grenada Sunburst System Corporation
-----------------------------------
BY: /s/Daniel L. Holland Chief Financial Officer and Treasurer
-------------------- (Principal Financial and Accounting
Daniel L. Holland Officer)
Date: March 30, 1994
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date Capacity
--------- ---- --------
/s/James T. Boone March 30, 1994 President and Chief
- -------------------- Executive Officer
James T. Boone (Principal Executive
Officer)
/s/Daniel L. Holland March 30, 1994 Chief Financial Officer
- -------------------- and Treasurer (Principal
Daniel L. Holland Financial and Accounting
Officer)
</PAGE>
<PAGE>9
XXX BEGIN PAGE 9 HERE XXX
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
Registrant and in their capacity as Director on March 30, 1994.
/s/James T. Boone /s/E. Hayes Branscome
- --------------------------- ---------------------------
Boone, James T. Branscome, E. Hayes
/s/J. Russell Flowers /s/John T. Keeton
- --------------------------- ---------------------------
Flowers, J. Russell Keeton, John T.
/s/Robert E. Kennington, II /s/J. M. Robertson, Jr.
- --------------------------- ---------------------------
Kennington, II, Robert E. Robertson, Jr., J. M.
/s/Milton J. Womack
- ---------------------------
Womack, Milton J.
</PAGE>
<PAGE>10
XXX BEGIN PAGE 10 HERE XXX
EXHIBIT INDEX
-------------
Item 14(a)3. Exhibits Page
- --------------------- ----
3.1 Certificate of Incorporation (filed as Exhibit (3.1) to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992 and incorporated herein by reference)......N/A
3.2 Bylaws, as amended (filed as Exhibit (3.2) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference).........N/A
*10.1 Equity Share Bonus Plan and Participation Agreement, as
amended (filed as Exhibit (10.1) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992
and incorporated herein by reference)...........................N/A
*10.2 Deferred Compensation Agreement (filed as Exhibit (10.2) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference).........N/A
*10.3 Management Incentive Compensation Plan (filed as Exhibit
(10.3) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991 and incorporated herein by
reference)......................................................N/A
*10.4 Form of Executive Employment Contracts (filed as Exhibit
(10.4) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991 and incorporated herein by
reference)......................................................N/A
10.5 Agreement to Merge with Commercial National Bank, Baton
Rouge, LA dated September 28, 1989 (filed as Exhibit A of
the Registrant's Registration Statement on Form S-4 (Reg. No.
33-31627) and incorporated herein by reference).................N/A
10.6 Purchase and Assumption Agreement among Eastover Bank for
Savings, the Registrant and Sunburst Bank, Mississippi dated
July 22, 1992 (filed as Appendix H of the Registrant's
Registration Statement on Form S-4 (Reg. No. 33-53170) and
incorporated herein by reference)...............................N/A
13.1 Portions of the Grenada Sunburst System Corporation 1993
Annual Report (filed herewith)...................................11
21.1 Subsidiaries of the Registrant (filed herewith)..................65
23.1 Consent of Independent Auditors (filed herewith).................66
-----------------------------------------------------------------------
* Management contract or compensatory plan or agreement identified
hereby pursuant to Item 14(a)3.
(b) No reports were filed on Form 8-K during the quarter ending
December 31, 1993.
</PAGE>
<PAGE>11
XXX BEGIN PAGE 11 HERE XXX
PORTIONS OF THE GRENADA SUNBURST SYSTEM CORPORATION 1993 ANNUAL REPORT ARE
INCLUDED HEREWITH PURSUANT TO ITEM 303(B) OF REGULATION S-T
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands)
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
ASSETS
Cash and demand balances with banks (Note 3) $ 133,889 126,797
Interest bearing deposits with banks 28 20,030
Securities held for sale (Note 4) 120,101 29,700
Investment securities (Market value of
approximately $301,240 and $303,312)(Note 4) 287,945 290,212
Mortgage-backed securities (Market value
of approximately $170,815 and $183,978)(Note 4) 167,532 179,473
Mortgages held for resale 73,956 63,072
Federal funds sold and securities
purchased under agreements to resell 25,000 0
Loans (Note 5) 1,569,547 1,207,599
Less: Unearned income 9,007 5,660
Allowance for credit losses (Note 6) 32,749 24,412
---------- ---------
Net loans 1,527,791 1,177,527
Premises and equipment, net (Note 8) 48,738 39,880
Other real estate 5,185 9,296
Accrued interest receivable 18,262 16,699
Other assets 27,771 17,930
--------- ----------
Total Assets $ 2,436,198 1,970,616
========= ==========
LIABILITIES
Deposits
Demand:
Non-interest bearing $ 419,641 317,397
Interest bearing 607,472 517,480
Savings 165,814 100,968
Time, $100,000 and over 247,538 201,255
Other time 759,342 639,471
--------- ---------
Total deposits 2,199,807 1,776,571
Federal funds purchased and securities
sold under agreements to repurchase (Note 7) 30,542 25,664
Other borrowed funds (Note 7) 12,941 3,892
Accrued interest payable 8,939 7,599
Other liabilities 9,897 11,152
--------- ---------
Total Liabilities 2,262,126 1,824,878
STOCKHOLDERS' EQUITY (Note 13)
Common stock, $1.00 par value, 15,000,000
authorized, 9,492,975 shares issued at
December 31, 1993, and 9,046,847 at
December 31, 1992 9,493 9,047
Paid in capital 31,842 22,953
Surplus 71,123 71,123
Undivided profits 61,614 42,615
-------- --------
Total Stockholders' Equity 174,072 145,738
-------- --------
Commitments and contingent liabilities (Note 14)
Total Liabilities and
Stockholders' Equity $ 2,436,198 1,970,616
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
<PAGE>12
XXX BEGIN PAGE 12 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(in thousands, except per share data)
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Loans including fees $122,482 103,751 114,269
Deposits with banks 108 916 2,373
Mortgages held for resale 4,096 3,689 1,479
Federal funds sold and securities
purchased under agreements to resell 490 970 2,185
Securities:
Taxable 27,501 27,887 34,399
Exempt from federal taxes 5,377 6,090 6,620
Dividends 1,535 1,520 1,213
------- ------- -------
Total Interest Income 161,589 144,823 162,538
INTEREST EXPENSE
Deposits:
Demand 14,093 14,463 16,858
Time, $100,000 and over 7,789 9,394 17,641
Other time and savings 36,828 38,046 51,724
Federal funds purchased and securities
sold under agreements to repurchase (Note 7) 943 1,098 1,574
Other borrowed funds 895 66 192
------- ------- -------
Total Interest Expense 60,548 63,067 87,989
------- ------- -------
Net interest income 101,041 81,756 74,549
Provision for credit losses (Note 6) 6,815 7,988 8,922
------- ------- -------
Net interest income after
provision for credit losses 94,226 73,768 65,627
NON-INTEREST INCOME
Service charges on deposit accounts 17,258 14,255 13,758
Other service charges,
commissions, and fees 10,665 7,703 5,029
Investment securities, net (237) 656 (767)
Fees from fiduciary activities 1,905 1,792 1,531
Other 1,244 929 457
------- ------- -------
Total Non-Interest Income 30,835 25,335 20,008
NON-INTEREST EXPENSE
Salaries 41,193 33,493 30,259
Employee benefits (Note 10) 7,540 6,026 6,278
Net occupancy expense (Note 8) 7,100 5,892 5,871
Furniture and equipment expense 7,307 5,961 5,450
FDIC deposit insurance expense 4,761 3,888 3,424
Other 21,461 19,366 17,592
------- ------- -------
Total Non-Interest Expense 89,362 74,626 68,874
------- ------- -------
Income before income taxes and
cumulative effect of a change
in accounting principle 35,699 24,477 16,761
Income taxes (Note 12) 11,087 6,250 3,999
------- ------- -------
Income before cumulative effect of
a change in accounting principle 24,612 18,227 12,762
Cumulative effect on prior years of
a change in accounting for income
taxes (Note 12) 781 0 0
------- ------- -------
Net Income $25,393 18,227 12,762
======= ======= =======
EARNINGS PER SHARE (Note 13)
Income before cumulative effect $ 2.62 2.01 1.41
Cumulative effect of a change
in accounting principle 0.08 0.00 0.00
Net Income 2.70 2.01 1.41
DIVIDENDS PER SHARE (Note 13) 0.72 0.60 0.60
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 13 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(in thousands)
<CAPTION>
Common Paid in Undivided Treasury
Stock Capital Surplus Profits Stock Total
------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances January 1, 1991 $9,017 22,698 71,123 20,502 (51) 123,289
Net income 12,762 12,762
Net unrealized gain
on marketable equity
securities 951 951
Purchase of Treasury Stock (7) (7)
Sale of Treasury Stock 58 58
Cash dividend declared (5,421) (5,421)
Unearned compensation 30 255 (256) 29
------ ------- ------- -------- ------- -------
Balances January 1, 1992 $9,047 22,953 71,123 28,538 0 131,661
Net income 18,227 18,227
Net unrealized gain on
marketable equity
securities 1,250 1,250
Cash dividend declared (5,428) (5,428)
Unearned compensation 28 28
------ ------ ------ ------- ------- -------
Balances January 1, 1993 $9,047 22,953 71,123 42,615 0 145,738
Net income 25,393 25,393
Net unrealized gain on
marketable equity
securities 384 384
Cash dividend declared (6,835) (6,835)
Stock issued in exchange
for selected net assets
of Eastover Bank for
Savings (Note 2) 439 8,734 9,173
Stock issued under
compensation plan 7 155 162
Unearned compensation 57 57
------ ------ ------ ------- ------- -------
Balances December 31, 1993 $9,493 31,842 71,123 61,614 0 174,072
====== ====== ====== ======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
<PAGE>14
XXX BEGIN PAGE 14 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands)
<CAPTION>
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Net Cash Flows From Operating Activities:
Net income $ 25,393 18,227 12,762
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Amortization of goodwill and intangible assets 949 862 867
Depreciation and amortization of premises and equipment 4,911 4,193 4,104
Net accretion of investment securities (1,378) (2,807) (4,278)
Accretion of loan fees and discounts (1,980) (1,596) (2,940)
Net increase in securities held for sale (90,401) (29,700) 0
Provision for possible credit losses 6,815 7,988 8,922
Provision for possible investment losses 0 0 1,013
Net increase in mortgages held for resale (10,884) (35,707) (27,365)
Other real estate provision 956 1,051 1,430
Gains on sales of other real estate (246) (28) (95)
Losses from sales of premises and equipment 44 17 84
Decrease in interest receivable 1,158 4,759 1,377
Decrease in interest payable (638) (3,317) (2,833)
(Gains) losses on sales of securities, net 237 (656) 767
Net decrease in trading account assets 0 0 10,118
(Gains) losses on trading account activity (183) 0 32
Other, net (7,880) 598 10,530
-------- -------- --------
Net cash provided (used) by operating activities (73,127) (36,116) 14,495
Cash Flows From Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks 20,002 22,524 (30,493)
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell (25,000) 30,950 (7,850)
Purchases of securities (95,045) (121,834) (171,633)
Maturities of securities 130,291 197,353 95,790
Sales of securities 10,560 9,242 41,447
Purchases of mortgage-backed securities (42,768) (97,290) (7,427)
Sales of mortgage-backed securities 16,749 14,923 12,482
Principal payments of mortgage-backed securities 119,928 68,201 30,535
Net increase in loans (115,707) (127,949) 16,237
Net increase in premises and equipment (4,413) (2,894) (4,930)
Proceeds from sales of premises and equipment 176 193 214
Proceeds from sales of other real estate 5,429 5,805 7,915
Net cash received from acquisition 35,922 0 0
--------- --------- ---------
Net cash provided (used) by investing activities 56,124 (776) (17,713)
Cash Flows From Financing Activities:
Net increase in demand and savings accounts 102,026 167,234 117,331
Net decrease in other deposits (74,998) (112,545) (33,296)
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 4,878 825 (43,293)
Net increase (decrease) in other borrowed money (976) 3,731 (16,063)
Cash dividends paid (6,835) (5,428) (5,421)
Sale of Treasury Stock 0 0 51
-------- --------- ---------
Net cash provided by financing activities 24,095 53,817 19,309
-------- --------- ---------
Net increase in cash and due from banks 7,092 16,925 16,091
Cash and due from banks at the beginning of the period 126,797 109,872 93,781
-------- --------- ---------
Cash and due from banks at the end of the period $133,889 126,797 109,872
======== ========= =========
Interest paid $ 59,208 66,384 90,822
Income taxes paid 13,038 7,750 3,290
Unrealized gain on marketable equity securities 384 1,250 951
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
<PAGE>15
XXX BEGIN PAGE 15 HERE XXX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Grenada Sunburst System
Corporation and Subsidiaries ("GSSC" or the "Company") are prepared in
conformity with generally accepted accounting principles and prevailing
practices within the banking industry. Management of the Company is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and income and expenses
for the periods reported. The Company, a multi-bank holding company, is
engaged in the business of banking and bank-related activities. The Company's
subsidiaries are subject to the regulations of certain federal and state
agencies and undergo periodic examinations by those regulatory agencies. The
following is a summary of the significant accounting and reporting policies
used in preparing the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Grenada
Sunburst System Corporation and its wholly-owned subsidiaries: Sunburst Bank,
Mississippi; Sunburst Bank, Louisiana; and Sunburst Financial Group, Inc. All
significant intercompany accounts and transactions are eliminated in
consolidation.
MORTGAGES HELD FOR RESALE
Mortgages held for resale are carried at the lower of aggregate cost or
market as determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis.
SECURITIES
When investment securities, primarily debt securities, are purchased,
they are classified as investment securities and are stated at cost adjusted
for amortization of premiums and accretion of discounts, as the Company has
both the intent and the ability to hold such securities on a long-term basis
or until maturity. Gains and losses from the sale of securities are recorded
in non-interest income using the specific identification method.
If it is the Company's intent at the time of purchase or during any
subsequent reporting period to sell securities prior to maturity, they are
stated at the lower of cost or aggregate market. Also, from time to time,
the Company might identify securities that it intends to use as a part of its
asset/liability strategy, and therefore that may be sold in response to
changes in interest rate and/or prepayment risks. These securities are
reported at the lower of cost or aggregate market at December 31, 1993 and
shown as investments held for sale.
Marketable equity securities are carried at market at the balance sheet
date. A valuation allowance is established by a charge to stockholders'
equity representing net unrealized losses on these securities as management
believes that the declines in market value are temporary.
Trading account securities are stated at market value and were not
material at any year end.
</PAGE>
<PAGE>16
XXX BEGIN PAGE 16 HERE XXX
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed principally on the straight-line
method over the estimated useful life of the assets. Costs of major
additions and improvements are capitalized and expenditures for maintenance
and repairs are charged to expense as incurred.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered
adequate by management to absorb potential losses in the loan portfolio. The
provision for credit losses is based on management's evaluation of the loan
portfolio. Factors considered in management's evaluation are current and
anticipated future economic conditions, previous loan loss experience,
industry concentrations, and the overall quality of the loan portfolio.
While management uses available information to recognize losses on loans and
real estate owned, future additions to the allowance may be necessary based
on changes in economic conditions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
allowances for losses on loans and real estate owned. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments about information available to them at the time of their
examination.
INCOME RECOGNITION ON LOANS
Loans are reported at the principal amount outstanding, net of unearned
income and the allowance for credit losses. Unearned income on installment
loans is amortized to income using methods which approximate the interest
method. Management does not accrue interest on loans when it is determined
that the borrower is unable to meet its contractual obligation or where
interest or principal is 90 days or more past due, unless the loan is
adequately secured by way of collateralization, guarantees, or other
security. A loan may be designated as partially-accruing when the rate of
interest has been reduced because the borrower has experienced financial
difficulties. Interest income on such loans is recognized at the reduced
interest rate. Consumer loans that become approximately 120 days past due
are generally charged to the allowance for loan losses.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and amortized as a yield adjustment to the related loans,
generally over the contractual life of the loans.
RETIREMENT PLANS
The Company has a self-trusteed non-contributory defined benefit pension
plan covering substantially all employees with more than one year of service.
The Company's policy is to contribute to the pension plan the amount required
to fund the benefits expected to be earned for the current year and
amortization of amounts related to prior years using the projected asset
credit evaluation method. The difference between pension cost included in
current income and the funded amount is included in other assets or
liabilities, as appropriate.
The 401(k) deferred compensation plan permits eligible employees to make
contributions up to 6% of base compensation which are matched 50% by the
Company. The Company's contributions are invested in Company stock.
</PAGE>
<PAGE>17
XXX BEGIN PAGE 17 HERE XXX
INCOME TAXES
The Company files a consolidated federal income tax return. Deferred
income taxes are provided for differences in the methods of reporting income
and expense in the consolidated financial statements and those reported for
tax purposes. Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes", and has
reported the cumulative effect of that change in the Consolidated Statement
of Earnings (See Note 12).
OTHER REAL ESTATE
Other real estate, principally consisting of foreclosed properties, is
carried at the lower of the recorded investment in the property or its fair
value. Any loss at foreclosure is charged to the allowance for credit
losses. Provisions for operating expenses of such properties and gains and
losses on their dispositions are included in non-interest expense.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of shares
outstanding during each year (See Note 13).
EXCESS COST RELATED TO ACQUISITIONS
The excess of the Company's cost over the fair value of net assets
acquired in purchased banks (deposit intangible and goodwill) is included in
other assets in the consolidated financial statements and is being amortized
on a straight-line basis over terms ranging from fourteen to fifteen years.
FIDUCIARY FEE INCOME
Income from providing trust services is recorded on the cash basis, which
does not materially differ from the accrual method.
RECLASSIFICATIONS
Certain 1991 and 1992 amounts have been reclassified to conform with 1993
presentation.
INTEREST RATE MANAGEMENT
The net differential to be paid or received on interest rate agreements
entered into to reduce the impact of changes in interest rates on identified
assets is recognized as a yield adjustment to the related asset over the life
of the agreements.
NOTE 2: BUSINESS COMBINATIONS
Effective March 1, 1993, GSSC, through its wholly-owned Mississippi
banking subsidiary, Sunburst Bank, acquired selected net assets of Eastover
Bank for Savings ("Eastover") in a transaction accounted for as a purchase.
Accordingly, the results of operations from this date, which are related to
the acquired assets, have been included in the Company's consolidated
financial statements. Approximately 439,000 shares of stock and $100,000 cash
were issued to Eastover in exchange for the selected net assets. The excess
of the purchase price over the fair value of the net assets acquired of
$1,739,000 has been recorded as core deposit intangible. The fair value of
Eastover's selected net assets at the date of acquisition are as follows:
cash, $35,922,000: securities, $123,797,000: loans, $241,584,000: property,
plant, and equipment, $9,415,000: other assets, $7,370,000: deposits,
$396,208,000: and other liabilities, $12,708,000.
</PAGE>
<PAGE>18
XXX BEGIN PAGE 18 HERE XXX
Based on unaudited pro forma financial information provided by the
seller, net interest income after provision for credit losses would have been
$95,123,000 for 1993 and $86,398,000 for 1992. Net income would have been
$26,154,000 for 1993 and $22,654,000 for 1992 and earnings per share would
have been $2.78 for 1993 and $2.39 for 1992. This unaudited pro forma
financial information is presented as if the acquisition had occurred as of
the beginning of 1993 and 1992, and does not necessarily reflect the results
of operations that would have occurred had GSSC and Eastover constituted a
single entity during such periods.
NOTE 3: REQUIRED CASH BALANCES
Aggregate average daily reserves of $36,303,000 were maintained for the
two-week reserve period ending December 31, 1993 to satisfy Federal
regulatory requirements. Under informal agreements, as compensation for
check clearing services, compensating balances of approximately $15,580,000
were maintained with correspondent banks.
NOTE 4: SECURITIES
The book value and approximate market value of securities held for sale at
December 31, along with gross unrealized gains and losses, are as follows
(in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993
---------------------------------------------
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
---------------------------------------------
<S> <C> <C> <C> <C>
Obligations of other U. S.
government agencies and
corporations $ 31,240 52 4 31,288
Other securities 29,700 0 0 29,700
Mortgage-backed securities 59,161 329 70 59,420
-------- ------ ------ --------
Total securities held
for sale $120,101 381 74 120,408
======== ====== ====== ========
1992
---------------------------------------------
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
---------------------------------------------
Other securities $ 29,700 0 0 29,700
======== ====== ====== ========
</TABLE>
</PAGE>
<PAGE>19
XXX BEGIN PAGE 19 HERE XXX
The amortized cost and estimated market value of securities held for
sale at December 31, 1993 and 1992, by contractual maturity, are shown below
(in thousands).
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992
--------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 35,992 35,988 29,700 29,700
Due after one year
through five years 20,000 20,000 0 0
Due after five years
through ten years 4,948 5,000 0 0
Mortgage-backed
securities 59,161 59,420 0 0
------- ------- ------- -------
Total $120,101 120,408 29,700 29,700
======= ======= ======= =======
</TABLE>
The book value and approximate market value of investment securities at
December 31, were as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992
------------------------ ------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------------------ ------------------------
<S> <C> <C> <C> <C>
U. S. Treasury $104,630 106,783 105,321 107,263
Obligations of other
U. S. Government
agencies and
corporations 73,599 73,707 52,965 54,278
Obligations of states
and political
subdivisions 73,205 82,657 83,109 91,718
Other investment
securities 36,511 38,093 48,817 50,053
------- ------- ------- -------
Total investment
securities 287,945 301,240 290,212 303,312
Mortgage-backed
securities:
FHLMC 81,064 82,530 87,482 89,637
FNMA 57,502 58,621 59,091 60,032
GNMA 15,877 16,454 11,507 12,255
Other 13,089 13,210 21,393 22,054
------- ------- ------- -------
Total Mortgage-backed
securities 167,532 170,815 179,473 183,978
------- ------- ------- -------
Total securities $455,477 472,055 469,685 487,290
======= ======= ======= =======
</TABLE>
</PAGE>
<PAGE>20
XXX BEGIN PAGE 20 HERE XXX
Included in other investment securities are marketable equity securities
with a cost of approximately $12,341,000 and $11,220,000, less a valuation
allowance of approximately $76,000 and $460,000, at December 31, 1993 and
1992, respectively. Also included is stock in the FHLB of Dallas carried at
cost of $6,582,500 at December 31, 1993 and $4,458,300 at December 31, 1992.
Investment securities, including mortgage-backed securities, with an
aggregate book value of approximately $354,699,000 and $281,463,000, at
December 31, 1993 and 1992, respectively were sold under agreements to
repurchase, pledged to secure public deposits, and pledged for other purposes
as required by law.
Investments in general obligations of the State of Mississippi as of
December 31, 1993, had a book value of approximately $12,782,000 and a market
value of approximately $14,876,000.
The total difference in the book value and approximate market value of
total investment securities at December 31, 1993 and 1992, was represented by
gross unrealized gains of $17,554,000 and $18,305,000 and gross unrealized
losses of $976,000 and $700,000, respectively.
The tables below show these gains and losses by type security as of
December 31, 1993 and 1992 (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993
---------------------------------------------
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
---------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities and
obligations of U.S. government
agencies and corporations $178,229 2,757 496 180,490
Obligations of states and
political subdivisions 73,205 9,555 103 82,657
Corporate securities 12,265 0 0 12,265
Mortgage-backed securities 167,532 3,658 375 170,815
Other debt securities 24,246 1,584 2 25,828
-------- ------ ------ -------
Totals $455,477 17,554 976 472,055
======== ====== ====== =======
1992
---------------------------------------------
Gross Estimated
Amortized Unrealized Market
Cost Gains Losses Value
---------------------------------------------
U. S. Treasury securities and
obligations of U.S. government
agencies and corporations $158,286 3,396 141 161,541
Obligations of states and
political subdivisions 83,109 8,728 119 91,718
Corporate securities 10,760 0 0 10,760
Mortgage-backed securities 179,473 4,747 242 183,978
Other debt securities 38,057 1,434 198 39,293
-------- ------ ---- -------
Totals $469,685 18,305 700 487,290
======== ====== ==== =======
</TABLE>
</PAGE>
<PAGE>21
XXX BEGIN PAGE 21 HERE
The amortized cost and estimated market value of debt and equity
securities at December 31, 1993 and 1992, 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 (in thousands).
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992
--------------------------- -------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 64,370 64,932 85,004 86,160
Due after one year
through five years 161,955 166,705 139,879 145,672
Due after five years
through ten years 19,590 21,941 20,475 23,054
Due after ten years 42,030 47,662 44,854 48,426
-------- ------- ------- -------
Total investment
securities 287,945 301,240 290,212 303,312
Mortgage-backed
securities 167,532 170,815 179,473 183,978
-------- ------- ------- -------
Total securities $455,477 472,055 469,685 487,290
======== ======= ======= =======
</TABLE>
Proceeds from sales of investments in debt securities during 1993, 1992
and 1991 were $27,308,555, $20,792,580 and $48,643,631, respectively. Gross
gains of $86,534, $1,694,029 and $480,471 and gross losses of $40,376,
$278,390 and $1,150,034 were realized on those sales in 1993, 1992 and 1991,
respectively.
NOTE 5: LOANS
Loans outstanding at December 31, by major lending classification, were
as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Commercial and industrial loans $ 392,437 322,964
Real estate:
Construction and land development 72,392 41,179
Secured by residential properties 417,651 340,907
Other real estate loans 337,101 248,654
Loans to individuals for household,
family, and other personal expenditures 261,683 190,200
Loans to finance agricultural production
and other loans to farmers 41,910 32,910
Loans for purchasing or carrying securities 6,063 4,898
All other loans 40,310 25,887
--------- ---------
Total loans 1,569,547 1,207,599
Unearned income 9,007 5,660
--------- ---------
1,560,540 1,201,939
Allowance for credit losses 32,749 24,412
--------- ---------
Net loans $1,527,791 1,177,527
========== =========
</TABLE>
</PAGE>
<PAGE>22
XXX BEGIN PAGE 22 HERE XXX
Non-accrual and restructured loans totaled approximately $4,023,000 and
$6,708,000 at December 31, 1993, and 1992, respectively. If interest had
earned at the original interest rates on these loans in 1993, income before
income taxes would have been increased by approximately $281,000. Interest
recognized on these loans was approximately $165,000 in 1993. There were no
commitments to lend additional funds to borrowers whose loans are classified
as non-accrual or restructured.
NOTE 6: ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for credit losses for the years
ended December 31, is as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991
------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $24,412 19,547 16,324
Provision charged to operating expenses 6,815 7,988 8,922
Acquisitions 4,962 0 0
Deductions:
Loans charged off (4,830) (4,450) (7,693)
Recoveries 1,390 1,327 1,994
------- ------ ------
Net charge-offs (3,440) (3,123) (5,699)
------- ------ ------
Balance at end of year $32,749 24,412 19,547
======= ====== ======
</TABLE>
NOTE 7: SHORT-TERM AND OTHER BORROWINGS
Short-term and other borrowing data for the years ended December 31,
1993, 1992 and 1991, are as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Balance Weighted
Outstanding Average Rate
-------------------------------- ----------------
Maximum Average At During At
Month End Daily Year End Year Year End
-------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
1993
Federal funds purchased
and securities sold
under agreements to
repurchase $ 60,343 32,363 30,542 2.91% 2.93
FHLB advances 13,523 11,716 12,838 7.46% 7.66
Other long-term 110 83 103 3.00% 2.41
1992
Federal funds purchased
and securities sold
under agreements to
repurchase $ 53,384 32,964 25,664 3.33% 2.88
FHLB advances 4,000 1,128 3,781 4.13% 4.13
Other long-term 139 129 111 9.11% 4.68
1991
Federal funds purchased
and securities sold
under agreements to
repurchase $ 39,303 28,687 24,839 5.49% 4.03
Other short-term 20,302 3,265 161 5.89% 6.07
</TABLE>
</PAGE>
<PAGE>23
XXX BEGIN PAGE 23 HERE XXX
Federal funds purchased represent primarily overnight borrowings, while
securities sold under agreements to repurchase generally mature in less than
thirty days. Other short-term borrowings represent primarily interest-
bearing revolving U.S. Treasury accounts.
FHLB advances, net of unamortized discounts of $29,000 in 1993, are
secured under an agreement pledging the stock of the FHLB and certain real
estate loans of the Company. Total eligible collateral under the agreement
was $509,000,000 in 1993 and $381,000,000 in 1992. All FHLB advances at
December 31, 1993, had prepayment penalty provisions.
NOTE 8: PREMISES AND EQUIPMENT
Premises and equipment and accumulated depreciation thereon at December
31, are as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Estimated
Useful Lives - Years 1993 1992
-------------------- --------- --------
<S> <C> <C> <C>
Land -- $ 9,009 7,528
Buildings 15-40 37,483 32,319
Furniture and equipment 5-12 36,197 30,035
Construction in progress -- 359 181
--------- --------
Total 83,048 70,063
Accumulated depreciation:
Buildings (13,040) (11,538)
Furniture and equipment (21,270) (18,645)
--------- --------
Premises and equipment, net $ 48,738 39,880
========= ========
</TABLE>
Depreciation expense on premises and equipment for 1993, 1992, and 1991
was approximately $4,749,000, $3,987,000, and $3,950,000, respectively.
NOTE 9: RELATED PARTY TRANSACTIONS
From time to time, the Company provides credit to directors and
executive officers of the Company and their affiliates. In the opinion of
management, such transactions are made on substantially the same terms as
those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectibility or present
other unfavorable features.
Such loans were $16,031,000 and $13,758,000 at December 31, 1993 and
1992, respectively. During 1993, new loans of $11,992,000 were made, and
repayments of $9,719,000 were received.
</PAGE>
<PAGE>24
XXX BEGIN PAGE 24 HERE XXX
NOTE 10: EMPLOYEE BENEFITS
The Company maintains a non-contributory defined benefit plan (the Plan)
covering substantially all full-time employees who have completed at least
one year of service and who have attained the age of 21. The Company's
policy is to fund the pension plan based on both the legal requirements and
tax considerations.
Net periodic pension cost for 1993, 1992, and 1991 included the
following components (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 1,181 1,087 1,036
Interest cost 1,519 1,344 1,249
Actual return on plan assets (1,792) (1,564) (1,344)
Net amortization and deferral 225 174 (50)
-------- -------- --------
Pension expense $ 1,133 1,041 891
======== ======== ========
</TABLE>
Pension expense also includes approximately $33,000 in 1993, $70,000 in
1992, and $62,000 in 1991 paid to employees who retired prior to adoption of
the Plan, and approximately $51,000 for 1993, $26,000 for 1992, and $131,000
for 1991, relating to the cost of funding supplemental retirement plans. The
Plan's funded status at December 31, was as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $16,262 13,562 11,853
======== ======= ========
Accumulated benefit obligation 16,513 13,704 12,155
======== ======= ========
Plan assets at fair value 20,608 18,584 16,273
Projected benefit obligation 23,419 19,297 17,054
-------- --------- ---------
Plan projected benefit obligation
in excess of plan assets (2,811) (713) (781)
Unrecognized net obligation (1,007) (1,165) (1,324)
Unrecognized prior service cost 2,061 2,244 2,438
Unrecognized net (gain) loss 2,268 195 (232)
Contribution after measurement date 341 241 232
-------- --------- --------
Prepaid pension cost $ 852 802 333
======== ========= ========
</TABLE>
The assumed weighted average discount rate used in determining the
acturarial present value of benefit obligations was 7.25%, 8% and 8% in
1993, 1992 and 1991, respectively. The rate of increase in future
compensation levels used in determining the actuarial present value of
benefit obligations was 5.5%, 6% and 6% in 1993, 1992, and 1991,
respectively. The expected long-term rate of return on assets during 1993
and 1992 was 8.5%.
</PAGE>
<PAGE>25
XXX BEGIN PAGE 25 HERE XXX
The Company has a 401(k) deferred compensation plan allowing eligible
employees to contribute up to 6% of their base compensation, as defined in
the plan. The Company matches 50% of the employee contribution, with the
Company's portion of the contribution approximately $561,000 in 1993,
$309,000 in 1992, and $386,000 in 1991, invested in company stock at
prevailing market prices.
The Company issued 30,000 shares of common stock to a key employee
in 1991. These shares are held in escrow and, subject to achievements of
certain performance goals, will vest over a ten year period. Related
compensation expense is recognized over the ten year period.
In December 1990, the financial accounting standards board (FASB) issued
SFAS No. 106 which establishes accounting standards for post retirement
benefits other than pensions, and focuses on post retirement health care
benefits. The requirements are effective for fiscal 1993. The Company has
made the decision to discontinue its practice of providing healthcare
insurance at no cost to retirees. Based on this new policy, the adoption of
SFAS 106 would have an immaterial effect on the Company's financial position
and results of operations. The cost of retiree health care and life
insurance benefits, which was expensed annually, amounted to approximately
$108,000 and $123,000 for the years ended December 31, 1992 and 1991,
respectively. There was no cost for the year ended December 31, 1993.
NOTE 11: OTHER REAL ESTATE
A summary of changes in the valuation allowance for other real estate
for the years ended December 31, was as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balances at beginning of year $2,115 2,240 1,332
Provision charged to operating
expense 956 1,051 1,430
Transfer (131) 0 0
Sales (1,211) (832) (870)
Market value adjustments (18) (344) 348
-------- --------- ---------
Balances at end of year $1,711 2,115 2,240
======== ========= =========
</TABLE>
Depreciation expense of leased other real estate properties was $142,000
for 1993, $206,000 for 1992 and $154,000 for 1991.
NOTE 12: INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 109, "Accounting for Income Taxes".
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
</PAGE>
<PAGE>26
XXX BEGIN PAGE 26 HERE XXX
Effective January 1, 1993, the Company adopted Statement 109 and has
reported the cumulative effect of that change in the method of accounting for
income taxes in the December 31, 1993 consolidated statement of earnings.
Pursuant to the deferred methods under APB Opinion 11, which was applied
in 1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of the calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
As previously discussed, the Company adopted Statement 109 as of January
1, 1993. The cumulative effect of this change in accounting for income taxes
of $781,000 was determined as of January 1, 1993 and is reported separately
in the consolidated statement of earnings for the year ended December 31,
1993. Prior years' financial statements have not been restated to apply the
provisions of Statement 109.
Based on the Company's historical and current pretax earnings, management
believes that it is more likely than not that the Company will realize the
benefits of the Federal net operating loss carry forwards and minimum tax
credit carry forwards existing at December 31, 1993. Further, management
also believes that the existing Federal net deductible temporary differences
will reverse during future periods in which the Company generates Federal net
taxable income. Management is currently protesting certain state income tax
issues and believes that a portion of the deferred state tax assets will not
be realized. As such, the Company has established a valuation allowance for
the portion of deferred state deductible temporary differences where
management does not believe realization is more likely than not. There can
be no assurance, however, that the Company will generate any earnings or any
specific level of continuing earnings.
Total income tax expense for the year ended December 31, 1993 was
allocated as follows (in thousands):
Income from continuing operations $11,087
Cumulative transition adjustment (781)
--------
Total income tax expense $10,306
========
</PAGE>
<PAGE>27
XXX BEGIN PAGE 27 HERE XXX
Income tax expense consists of (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Current Deferred Total
-------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1993
Federal $10,635 (653) 9,982
State 1,203 (98) 1,105
-------- -------- --------
Totals $11,838 (751) 11,087
======== ======== ========
Year ended December 31, 1992
Federal $7,882 (3,106) 4,776
State 1,474 0 1,474
-------- -------- --------
Totals $9,356 (3,106) 6,250
======== ======== ========
Year ended December 31, 1991
Federal $5,040 (1,041) 3,999
State 0 0 0
-------- -------- --------
Totals $5,040 (1,041) 3,999
======== ======== ========
</TABLE>
Income tax expense was $11,087,000 for the twelve months ending
December 31, 1993, and differed from the amounts computed by applying the
Federal income tax rate of 35% as a result of the following (in thousands).
1993
--------
Computed "expected" tax expense: $12,495
Increase (reduction) in income
taxes resulting from:
Tax exempt interest (1,965)
Dividends exclusion (320)
State income taxes 718
Other, net 159
-------
Total tax expense $11,087
=======
The significant components of deferred income tax expense for the year ended
December 31, 1993 are as follows (in thousands):
Deferred tax expense (credits):
Provision for credit losses $(1,290)
Depreciation expense (7)
Net deferral of loan origination
fees and costs 87
Pension expense 89
Provision for valuation on ORE (361)
Gain/loss on sale of ORE 512
Securities gains (losses) (225)
Discount accretion - securities 209
Interest on IRS tax assessment 375
Core deposit 89
Mark to market on securities (191)
Other, net (38)
--------
Total $ (751)
========
</PAGE>
<PAGE>28
XXX BEGIN PAGE 28 HERE XXX
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 are presented below (in thousands).
Deferred tax assets:
Loans receivable, principally due to
allowance for possible credit loss
and deferred loan costs $12,354
Deferred liabilities, principally due
to compensation arrangements, interest
on Federal and State taxes, and non-
accruals 1,253
Other real estate, principally due to
provisions for possible losses 570
Capital losses 148
Net operating loss carry forwards 258
-------
Total gross deferred tax assets 14,583
Less: Valuation allowance 647
-------
Total gross deferred tax assets 13,936
=======
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences in
depreciation 2,696
Pension costs 466
Deferred assets, principally due to core
deposits 860
Other assets, principally due to prepaid expenses 754
-------
Total gross deferred tax liabilities 4,776
-------
Net deferred tax assets $9,160
=======
The valuation allowance for deferred tax assets as of January 1, 1993
was $499,000. Below are the changes in the valuation allowance for the year
ended December 31, 1993.
Beginning balance as of January 1, 1993 $499
Non-deductible capital losses 148
-----
Balance as of December 31, 1993 $647
=====
</PAGE>
<PAGE>29
XXX BEGIN PAGE 29 HERE XXX
A reconciliation of income tax expense as reflected in the consolidated
statements of income and expense, calculated at the statutory rate of 34% in
1992 and 1991, is as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Tax at statutory rate $8,322 5,699
Increase (reduction) in tax
resulting from:
Tax exempt interest (2,133) (2,262)
Dividend exclusion (337) (289)
State income taxes 973 0
Acquisition intangibles 85 54
Other, net 254 47
IRS tax assessment on prior years 0 966
Alternative minimum tax provision
(credit) in excess of regular tax (914) (216)
------ ------
Income tax expense $6,250 3,999
====== ======
</TABLE>
The Company settled its audit with the Internal Revenue Service (IRS)
for the tax years 1988, 1989, 1990 and 1991. This settlement resulted in
the payment of $952,000 in additional taxes and $389,000 in interest.
The sources of timing differences and the resulting deferred income tax
expense (credits) for 1992 and 1991 follow (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Provision for credit losses $(1,679) (1,596)
Depreciation expense 10 2
Net deferral of loan origination fees
and costs (125) (177)
Alternative minimum tax credit
carry forward 0 594
Pension expense (38) (69)
Provision for valuation on ORE (357) (486)
Reserve for loss on investment
securities 0 (345)
Securities gains (losses) (173) 981
Other, net 170 271
Effect on deferred taxes of application
of alternative minimum tax (914) (216)
-------- --------
Total deferred tax expense $(3,106) (1,041)
======== ========
</TABLE>
</PAGE>
<PAGE>30
XXX BEGIN PAGE 30 HERE XXX
NOTE 13: STOCKHOLDERS' EQUITY AND PER SHARE DATA
Dividends paid by the Company are provided primarily from dividends
received from the subsidiaries. Banking regulations limit the amount of
dividends that may be paid without prior approval of the agencies which
regulate the Banks. Earnings per share are based on the weighted average
number of shares outstanding of 9,421,119 in 1993, 9,046,847 in 1992 and
9,028,989 in 1991.
NOTE 14: COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company has various outstanding
commitments to extend credit and standby letters of credit which are not
reflected in the accompanying consolidated financial statements. In the
opinion of management, no significant credit losses will result from these
commitments. On December 31, 1993 and 1992 the Company had outstanding
approximately $24,723,000 and $25,449,000, respectively, in standby letters
of credit and commitments to extend approximately $159,212,000 and
$97,126,000, respectively, under outstanding lines of credit.
The Company, in the normal course of business, is a defendant in various
legal claims. Management and legal counsel are of the opinion that these
actions will not have a material effect on the Company's consolidated
financial position.
The Company is a party to financial instruments with off-balance-sheet
risks in the normal course of business both to meet the financing needs of
its customers and to reduce its own exposure to fluctuation in interest
rates. These financial instruments may extend to include commitments to
extend credit, options, standby letters of credit, interest rate caps or
floors, or interest rate swaps. These financial instruments help the Company
in managing its interest rate exposure and, to varying degrees, involve
elements of credit and interest rate risk in excess of the amount recognized
in the balance sheets. The contract or notional amounts of these instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
At December 31, 1993 the Company had entered into two interest rate swap
agreements to reduce the impact of changes in interest rates on its cost of
funds. These swaps had a notional principal amount of $16,000,000. Also
outstanding at December 31, 1993 was one interest rate cap with a total
contract or notional value of $6,000,000. The Company is exposed to
essentially the same credit risk in these contracts as in any other extension
of credit and attempts to manage this through credit approvals, limits and
other monitoring procedures.
</PAGE>
<PAGE>31
XXX BEGIN PAGE 31 HERE XXX
NOTE 15: CONDENSED PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information of Grenada Sunburst System Corporation
(parent company only) is as follows (in thousands):
<TABLE>
XXX BEGIN TABLE HERE XXX
Condensed Balance Sheets
December 31,
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Assets
Cash and demand balances with banks $ 7 19
Securities purchased under agreements
to resell 2,570 3,376
Investment in subsidiaries 169,808 141,748
Other assets 5,894 4,576
-------- --------
Total Assets 178,279 149,719
======== ========
Liabilities - Other 4,207 3,981
Stockholders' Equity 174,072 145,738
-------- --------
Total Liabilities and Stockholders'
Equity $178,279 149,719
======== ========
</TABLE>
<TABLE>
XXX BEGIN TABLE HERE XXX
Condensed Statements of Income
For the Years Ended December 31,
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Income
Dividends received from subsidiaries $ 6,600 6,000 5,800
Other income 276 255 299
------- ------- -------
Total Income 6,876 6,255 6,099
Expenses 2,161 2,897 1,959
------- ------- -------
Income before equity in undistributed
earnings of subsidiaries and cumulative
effect of a change in accounting principle 4,715 3,358 4,140
Equity in undistributed earnings of
subsidiaries 20,763 14,869 8,622
------- ------- -------
Income before cumulative effect of a
change in accounting principle 25,478 18,227 12,762
Cumulative effect on prior years of
a change in accounting for
income taxes (85) 0 0
------- ------- -------
Net Income $25,393 18,227 12,762
======= ======= =======
</TABLE>
</PAGE>
<PAGE>32
XXX BEGIN PAGE 32 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
Condensed Statements of Cash Flows
For the Years Ended December 31,
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net Cash Flows From Operating Activities:
Net income $ 25,393 18,227 12,762
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Earnings from subsidiaries (25,003) (19,119) (11,977)
Dividends received from subsidiaries 6,600 6,000 5,800
Other, net (166) 656 254
------- ------- -------
Net cash provided by operating
activities 6,824 5,764 6,839
Cash Flows From Investing Activities:
Net (increase) decrease in securities
purchased under agreements to resell 806 (349) (1,511)
Purchases of securities of non-affiliates (807) 0 0
Sale of treasury stock 0 0 51
------- ------- -------
Net cash used by investing activities (1) (349) (1,460)
Cash Flows From Financing Activities:
Cash dividends paid (6,835) (5,428) (5,421)
------- ------- -------
Net cash used by financial activities (6,835) (5,428) (5,421)
------- ------- -------
Net decrease in cash and demand balances
with banks (12) (13) (42)
Cash and demand balances with banks at the
beginning of the year 19 32 74
------- ------- -------
Cash and demand balances with banks at the
end of the year $ 7 19 32
======= ======= =======
</TABLE>
NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The fair value of most investments and mortgage-backed securities is
estimated based on market prices or dealer quotes. See "Note 4: Securities",
for market values.
</PAGE>
<PAGE>
XXX BEGIN PAGE 33 HERE XXX
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, mortgage
and consumer loans. Each loan category is further segregated into fixed and
variable interest rate terms and credit risk categories, as applicable.
The fair value of performing loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount
rates that reflect the credit and interest rate risk inherent in the loan.
Fair values for non-performing loans is either based on recent external
appraisals, or where appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgementally determined using available market
information and specific borrower information
The following tables present information for loans:
<TABLE>
XXX BEGIN TABLE HERE XXX
December 31, 1993
(in thousands)
<CAPTION>
Average Discount Calculated
Book Maturity Rate Fair
Value (1) (2) Value
------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $983,537 2.7 7.46% 989,864
Mortgage 250,353 7.2 6.24% 255,727
Consumer 335,657 1.3 7.67% 338,955
December 31, 1992
(in thousands)
<CAPTION>
Average Discount Calculated
Book Maturity Rate Fair
Value (1) (2) Value
-----------------------------------------------
<S> <C> <C> <C> <C>
Commercial $775,093 3.3 7.21% 782,543
Mortgage 211,819 11.7 6.82% 217,300
Consumer 220,687 2.1 7.82% 236,656
(1) Average maturity represents the expected average cash flow period, which
in some instances is different than the stated maturity.
(2) Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for many of
these financial instruments, management has no basis to determine whether the
fair value presented above would be indicative of the value negotiated in an
actual sale.
</TABLE>
</PAGE>
<PAGE>34
XXX BEGIN PAGE 34 HERE XXX
DEPOSIT LIABILITIES
Under Statement 107, the fair value of deposits with no stated maturity,
such as non-interest bearing demand deposits, savings, NOW accounts, and
money market and checking accounts, is equal to the amount payable on demand
as of December 31, 1993. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar
maturities.
<TABLE>
XXX BEGIN TABLE HERE XXX
December 31,
(in thousands)
<CAPTION>
1993 1992
--------------------------------------------
Calculated Calculated
Book Fair Book Fair
Value Value Value Value
--------------------------------------------
<S> <C> <C> <C> <C>
Demand:
Non-interest bearing $ 419,641 419,641 317,397 317,397
Interest bearing 607,472 607,472 517,480 517,480
Savings 165,814 165,814 100,968 100,968
Certificates of deposit:
Maturing in six months
or less 468,548 468,893 594,800 595,333
Maturing between six months
and one year 211,081 211,035 127,020 128,209
Maturing between one and
three years 155,491 156,341 55,963 57,418
Maturing beyond three years 171,760 179,095 62,943 66,474
</TABLE>
INTEREST RATE SWAP AGREEMENTS AND INTEREST RATE CAPS
The fair value of interest rate swap agreements and interest rate caps is
the estimated amount the Company would receive or pay to terminate the
contracts or agreements, taking into account current interest rates and, when
appropriate, the current creditworthiness of the swap counterparties.
The notional amount, carrying amount, and estimated fair value for
interest rate swaps, financial futures and interest rate caps follow.
<TABLE>
XXX BEGIN TABLE HERE XXX
December 31, 1993
(in thousands)
<CAPTION>
Calculated
Notional Carrying Fair
Amount Amount Value
----------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
In a net payable position $ 6,000 300 (344)
In a net receivable position 10,000 (167) 1,839
Interest rate caps 6,000 0 0
December 31, 1992
(in thousands)
<CAPTION>
Calculated
Notional Carrying Fair
Amount Amount Value
---------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
In a net payable position $ 6,000 25 (322)
Interest rate caps 10,500 0 0
</TABLE>
</PAGE>
<PAGE>35
XXX BEGIN PAGE 35 HERE XXX
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN
The fair value of commitments to extend credit 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 financial guarantees written and 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. The contract amount, carrying amount, and estimated fair
value for commitments to extend credit, standby letters of credit and
financial guarantees written follow.
<TABLE>
XXX BEGIN TABLE HERE XXX
December 31, 1993
(in thousands)
<CAPTION>
Calculated
Notional Carrying Fair
Amount Amount Value
---------------------------------------------
<S> <C> <C> <C>
Commitments to extend credit $159,212 (365) 159,212
Standby letters of credit 24,723 0 24,723
December 31, 1992
(in thousands)
<CAPTION>
Calculated
Notional Carrying Fair
Amount Amount Value
---------------------------------------------
<S> <C> <C> <C>
Commitments to extend credit $ 97,126 (178) 97,126
Standby letters of credit 25,449 0 25,449
</TABLE>
</PAGE>
<PAGE>36
XXX BEGIN PAGE 36 HERE XXX
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK
THE BOARD OF DIRECTORS AND STOCKHOLDERS
GRENADA SUNBURST SYSTEM CORPORATION
We have audited the consolidated balance sheets of Grenada Sunburst
System Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1993. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. Our audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
finanical statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Grenada
Sunburst System Corporation and subsidiaries at December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 12 to the financial statements, the Company
changed its method of accounting for income taxes in 1993 to adopt the
provisions of Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
/s/KPMG Peat Marwick
Memphis, Tennessee
January 28, 1994
</PAGE>
<PAGE>37
XXX BEGIN PAGE 37 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands except per share data)
<CAPTION>
1993 1992 1991 1990 1989
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET SUMMARY
Total assets $2,436,198 1,970,616 1,897,135 1,863,484 1,782,500
Securities 455,477 469,685 535,566 543,461 525,227
Loans,net of unearned income 1,560,540 1,201,939 1,079,434 1,106,206 1,045,806
Deposits 2,199,807 1,776,571 1,721,882 1,637,848 1,559,677
Stockholders' equity 174,072 145,738 131,661 123,289 118,617
SUMMARY OF OPERATIONS
Interest income 161,589 144,823 162,538 172,410 166,701
Interest expense 60,548 63,067 87,989 104,629 103,217
------------------------------------------------------------
Net interest income 101,041 81,756 74,549 67,781 63,484
Provision for credit losses 6,815 7,988 8,922 7,042 11,592
------------------------------------------------------------
Net interest income
after provision
for credit losses 94,226 73,768 65,627 60,739 51,892
Non-interest income 30,835 25,335 20,008 18,845 18,030
Non-interest expenses 89,362 74,626 68,874 66,255 63,174
------------------------------------------------------------
Income before taxes
and cumulative effect of a
change in accounting principle 35,699 24,477 16,761 13,329 6,748
Income taxes 11,087 6,250 3,999 2,742 1,148
------------------------------------------------------------
Income before cumulative
effect of a change in
accounting principle 24,612 18,227 12,762 10,587 5,600
Cumulative effect of a
change in accounting principle 781 0 0 0 0
------------------------------------------------------------
Net income $ 25,393 18,227 12,762 10,587 5,600
============================================================
PER SHARE DATA
Income before cumulative effect $ 2.62 2.01 1.41 1.17 0.62
Cumulative effect of a change
in accounting principle 0.08 0.00 0.00 0.00 0.00
Net income 2.70 2.01 1.41 1.17 0.62
Cash dividends 0.72 0.60 0.60 0.60 0.60
Book value at year end 18.34 16.11 14.55 13.68 13.16
SELECTED RATIOS
Return on average assets 1.09% 0.94 0.69 0.58 0.32
Return on average equity 15.56% 13.16 10.07 8.78 4.68
Dividend payout 26.92% 29.78 42.48 50.37 94.82
Capital formation rate 19.44% 10.70 6.79 3.94 0.46
Equity to year-end assets 7.15% 7.40 6.94 6.62 6.65
All per share information (relating to shares authorized, issued and
outstanding), earnings per share, and dividends per share have been
retroactively adjusted to reflect business combinations accounted for as
poolings-of-interests.
</TABLE>
</PAGE>
<PAGE>38
XXX BEGIN PAGE 38 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
<CAPTION>
------------------------------------------------------
Quarter Ended, 1993
March 31 June 30 September 30 December 31
------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $37,109 41,656 41,428 41,396
Net interest income 22,824 25,920 25,980 26,317
Provision for credit
losses 2,085 1,855 1,560 1,315
Net income 5,911 6,087 6,720 6,675
Earnings per share 0.64 0.64 0.71 0.71
-----------------------------------------------------
Quarter Ended, 1992
March 31 June 30 September 30 December 31
-----------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $37,033 36,509 35,869 35,412
Net interest income 19,266 20,039 20,996 21,455
Provision for credit
losses 1,961 1,963 2,029 2,035
Net income 3,933 4,293 5,098 4,903
Earnings per share 0.44 0.47 0.56 0.54
</TABLE>
</PAGE>
<PAGE>39
XXX BEGIN PAGE 39 HERE XXX
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three Years Ended December 31, 1993, 1992, and 1991
FINANCIAL REVIEW
The following provides management's discussion of the consolidated
financial condition and results of operations of the Company, focusing on
those factors which have had the most significant impact for the last three
years. This commentary should be read in conjunction with the accompanying
consolidated financial statements and the notes thereto.
The Company reported net income of $2.70 a share for 1993, verses
earnings of $2.01 a share for 1992 and $1.41 a share for 1991. The effect of
the adoption of SFAS NO. 109, "Accounting for Income Taxes", accounted for
$.08 of the increase in 1993 earnings per share. The Company's earnings of
$25.4 million for 1993 reflect an increase of 39.32% over 1992 earnings,
resulting principally from a higher level of earning assets and the lower
cost of funds coupled with the increase in non-interest income that the
Company experienced in 1993 compared to 1992. During the first quarter of
1993, the Company acquired approximately $400 million in selected assets and
liabilities from Eastover in a transaction accounted for as a purchase.
Accordingly, the results of operations of this acquisition are included in
the consolidated financial statements only from the acquisition date (March
1, 1993), which affects the comparability of the consolidated financial
statements. The provision for credit losses decreased from 1992 to 1993.
The 1992 provision also showed a decrease from the 1991 level. Non-interest
income increased in 1993 due in part to increased service charges on deposit
accounts with the additional deposits acquired from Eastover. Other sources
of non-interest income increases were Sunburst Mortgage Corporation and
Sunburst Financial Group. Non-interest expense increased 19.75% or $14.7
million from 1992 to 1993 compared to an increase of only 8.10% or $5.7
million from 1991 to 1992. This increase for 1993 is predominately the
result of the Eastover addition of employees and locations.
Return on average assets (ROA) and return on average equity (ROE) are
two key measures of profitability in the banking industry. The Company's ROA
for the year ended December 31, 1993 was 1.09% compared to .94% for the year
ended December 31, 1992 and .69% for the year ended December 31, 1991. This
ratio reflects how well a corporation utilizes its assets to produce income.
The Company's ROE for the year ended December 31, 1993 was 15.56% compared to
13.16% for the year ended December 31, 1992 and 10.07% for the year ended
December 31, 1991. ROE is the measure of income earned to average
shareholders' equity.
</PAGE>
<PAGE>40
XXX BEGIN PAGE 40 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
Contribution to Earnings Per Share
For the Years Ended December 31,
<CAPTION>
1993 1992 1991 1990 1989
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for credit losses $ 10.00 8.15 7.26 6.74 5.76
Non-interest income 3.27 2.80 2.22 2.09 2.00
Non-interest expense 9.48 8.25 7.63 7.35 7.01
---------------------------------------------
Income before income taxes
and cumulative effect of a
change in accounting
principle 3.79 2.70 1.85 1.48 0.75
Income taxes 1.17 0.69 0.44 0.31 0.13
---------------------------------------------
Income before cumulative effect
of a change in accounting
principle 2.62 2.01 1.41 1.17 0.62
Cumulative effect on prior
years of change to a
different method of accounting
for income taxes 0.08 0.00 0.00 0.00 0.00
---------------------------------------------
Net income $ 2.70 2.01 1.41 1.17 0.62
=============================================
</TABLE>
NET INTEREST INCOME
Net interest income (NII) is the largest component of the Company's
income and is the primary source of earnings for the Company's significant
subsidiaries, and therefore for the Company. NII represents the amount by
which interest and fee income on earning assets exceeds the cost of deposits
and other borrowed funds. The Company's long-term objective is to manage
those earning assets and interest-bearing liabilities to provide the largest
possible amount of income while balancing interest rate, credit, liquidity
and capital risk.
Net interest income was up $19.3 million or 23.59% in 1993 when compared
to 1992 and up $7.2 million or 9.67% in 1992 when compared to 1991. The
increase in 1993 was principally due to an increase of $377.3 million or
21.35% in average earning assets. Average earning assets increased 4.46%
from 1991 to 1992. Also contributing to this increase in net interest income
was the Company's ability to lower its cost of funds more rapidly than its
yield on earning assets declined. The acquisition of approximately $374
million in earning assets from Eastover on March 1, 1993, accounted for
approximately 83.1% of the increase in average earning assets for 1993. The
table below shows the breakdown of average earning assets for the past three
years.
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991
-----------------------------------
<S> <C> <C> <C>
Average Earning Assets (in millions) $2,144.5 1,767.1 1,691.6
Comprised of:
Loans 70.5% 66.8 64.1
Investment securities 28.5% 30.6 31.4
Money Market Instruments 1.0% 2.6 4.5
-----------------------------------
100.0% 100.0 100.0
===================================
Taxable equivalent yield on Average
Earning Assets 7.70% 8.40 9.83
</TABLE>
</PAGE>
<PAGE>41
XXX BEGIN PAGE 41 HERE XXX
The prime lending rate for bank loans declined to 6.00% early in 1993
from 6.50% early in 1992. This prime rate decrease was the primary factor in
the decrease in yield on the loan portfolio to 8.38% for the year ended
December 31, 1993, from 9.11% for the year ended December 31, 1992.
Approximately 36% of the Company's loans earn interest that fluctuates with
the prime lending rate. At December 31, 1993, $1,082 million in loans or
65.8% of the bank subsidiaries' loan portfolios are subject to reprice during
the next year. This decline in yield on loans, the largest component of
earning assets for the banks was more than offset by a decline in the cost
of funds.
The average cost of funds, excluding non-interest bearing deposits, for
the year ended December 31, 1993 was 3.36%, down 82 basis points from the
4.18% reported for the same period in 1992. 1992 reflected an improvement in
the average cost of funds of 178 basis points from the 5.96% reported in
1991. The decrease in the cost of funds for the last two years produced an
improved net interest spread for both 1992 and 1993, from 3.87% in 1991 to
4.22% in 1992 and 4.34% in 1993. As the rates offered on normally higher-cost
time deposits and short-term borrowings were lowered, the level of savings
and interest bearing demand deposits increased significantly. The decreases
in the rates paid on these liabilities, the higher level of core deposits and
the general interest rate decline were the primary factors producing the
lower cost of funds.
<TABLE>
XXX BEGIN TABLE HERE XXX
Net Interest Income Summary
For the Years Ended December 31,
(in thousands)
<CAPTION>
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
Interest income $161,589 144,823 162,538
Fully taxable equivalent
adjustments:
Municipal securities 2,768 3,005 3,104
Municipal notes 175 145 148
Dividends 493 510 437
------------------------------------------
Total adjustments 3,436 3,660 3,689
------------------------------------------
Interest income - FTE 165,025 148,483 166,227
Interest expense 60,548 63,067 87,989
------------------------------------------
Net interest income - FTE $104,477 85,416 78,238
==========================================
Net interest margin 4.87% 4.83% 4.63%
==========================================
Average earning assets
(in millions) $2,144.5 1,767.1 1,691.6
==========================================
</TABLE>
</PAGE>
<PAGE>42
XXX BEGIN PAGE 42 HERE XXX
The taxable equivalent net interest margin (NIM) is net interest income
plus an adjustment for tax exempt income expressed as a percentage of average
earning assets. The NIM is affected by the net interest spread, level of
interest rates, amount of non-performing assets and the amounts of non-
interest bearing funds supporting earning assets. To maximize and maintain
consistency of earnings, the Company endeavors to monitor and control
interest rate risk. It is possible through Asset/Liability modeling to
estimate the NIM and earnings impact of different interest rate scenarios.
Assuming the current mix and sensitivities of interest bearing assets and
liabilities remains constant and historical relationships between rates on
different products and investments reoccur, a 1% rise in short term interest
rates would cause the Company's NIM to decline 1 basis point for the
succeeding 12 months. A 3% rise would result in a 13 basis point decline.
Conversely, a 1% decline in short term rates would result in a 4 basis point
increase in the Company's NIM. For the year ended December 31, 1993, the NIM
was 4.87%, up 4 basis points from the 4.83% reported a year earlier. NIM for
the year ended December 31, 1992 was up 20 basis points from the 4.63%
reported for the year ended December 31, 1991. Average earning assets
increased 21.35% or $377.3 million for year ended December 31, 1993 when
compared to the year ended December 31, 1992. The decreased cost of funds in
1993 coupled with this increase in average earning assets improved the net
interest margin. Another significant contributor to the improvement in NIM
was the decrease in non-performing assets of $4.3 million or 24.14% from 1992
to 1993, taking non-performing assets to the lowest level since before 1988.
PROVISION FOR CREDIT LOSSES
In evaluating the adequacy of the allowance for loan losses, among the
issues the Company examines are current economic conditions, results of
quantitative analysis of the quality of commercial loans and commercial real
estate loans, and the historical rate of charge-offs on all loan types.
Various regulatory agencies, as a part of their examination process,
periodically review each of the banks' allowances for losses on loans and
real estate owned. Such agencies may require the banks to recognize
additions to the allowances based on their judgments of information available
to them at the time of their examination.
The provision for credit losses is the amount charged against current
earnings which management believes is necessary to maintain the allowance at
an adequate level at a point in time, after giving consideration to potential
problem credits, the collateral adequacy of loans, net charge-offs, asset
quality measures, size of the loan portfolio and general economic conditions
and trends. The provision for credit losses for the year ended December 31,
1993 was $6.8 million, a decrease of 14.68%, compared to $8.0 million for the
year ended December 31, 1992. The provision for the year ended December 31,
1991 was $8.9 million. This provision reflects the continued growth in
loans, including mortgage loans held for resale, in 1993 of $158.7 million or
12.5% exclusive of the Eastover acquisition.
</PAGE>
<PAGE>43
XXX PAGE 43 HERE XXX
NON-INTEREST INCOME
One of the Company's key long-term strategies has been to seek
additional sources of non-interest revenue. The growth in non-interest
income has become an increasingly important component of the Company's
profitability, given the uncertainty of future loan demand and increased
competition from nontraditional sources.
Non-interest income includes fees for trust services, mortgage loan
servicing fees, income from broker/dealer services, service charges on
deposit accounts and many other retail products. Non-interest income for the
year ended December 31, 1993 increased 21.71% or $5.5 million compared to the
year ended December 31, 1992. Non-interest income for the year ended
December 31, 1992 increased 26.62% from 1991.
The low interest rate environment continues to enhance non-interest
income through non-bank subsidiaries' earnings, which are the primary
contributing factors to the increase. Sunburst Mortgage Corporation has
substantially increased the Company's level of activity in the mortgage loan
origination and servicing area. Sunburst Mortgage is engaged in the
creation of and purchasing of one to four family residential mortgage loans.
Sunburst Mortgage pools the loans to be sold as mortgage-backed securities to
GNMA, FNMA, and FHLMC. Interest rate risk is mitigated by hedging using
forward sales of mortgage-backed securities as well as option contracts on
U.S. Government securities. Servicing rights are retained by Sunburst
Mortgage subsequent to loan sales. Sunburst Mortgage earns a fee on its
servicing portfolio, which is a major source of its earnings. The mortgage
company contributed to non-interest income, with an increase in revenue to
$5,090,000 for the year ended December 31, 1993, from $2,526,000 for the same
period in 1992. The mortgage servicing portfolio increased to $782 million
at December 31, 1993, from $445 million at December 31, 1992. Net income for
Sunburst Mortgage was $1,351,000 for the year ended December 31, 1993
compared to $1,039,000 for the year ended December 31, 1992. Sunburst
Financial Group, Inc. is a full service broker dealer and registered
investment advisor. Sunburst Financial Group provides a broad range of
brokerage services primarily to retail clients in its market area. These
services include investment advice as well as the purchase and sale of
stocks, bonds, mortgage-backed securities, U.S. Government securities, mutual
funds, unit investment trusts and other investment vehicles. Sunburst
Financial Group's contribution to non-interest income increased from
$2,104,000 for the year ended December 31, 1992 to $2,804,000 for the year
ended December 31, 1993, while its net income for the year ended December 31,
1993 was $258,000 compared to $225,000 for the year ended December 31, 1992.
These new subsidiaries are affording the Company the ability to generate fee
income from non-traditional bank sources of revenue.
During November of 1993, Sunburst Bank, Mississippi rolled out a
proprietary mutual fund, the Sunburst Short-Intermediate Government Bond
Fund. Sunburst Bank, Mississippi serves as investment advisor to the fund.
The bank's investment department manages the fund's assets on a day-to-day
basis, thereby taking advantage of significant economies of scale.
Investment strategy will be centered around the desire to maximize returns
and provide investors with a stable net asset value.
Trust services income increased 6.28% from 1992 to 1993 and 17.08% from
1991 to 1992. These increases are primarily the result of fee increases.
Total trust assets under management at December 31, 1993 were $695 million,
an increase of 13.01% from the $615 million in assets under management at
December 31, 1992. The number of accounts under management has decreased
from 2,046 at December 31, 1992 to 2,005 at December 31, 1993. The largest
area of activity was in the management of estates and personal trusts.
</PAGE>
<PAGE>44
XXX BEGIN PAGE 44 HERE XXX
Service charges on deposit accounts were another area of increased
earnings. Revenue from deposit accounts increased to $17,258,000 for the year
ended December 31, 1993, compared to $14,255,000 for the year ended December
31, 1992 and $13,758,000 for the year ended December 31, 1991. The increase
in 1992 was largely attributable to the change in rate structure late in
1991. The increase in 1993 can be attributed partly to the acquisition of
deposits from Eastover.
Losses on the sale of investment securities for the year ended December
31, 1993 were $237,000 compared to gains of $656,000 for the year ended
December 31, 1992 and losses of $767,000 for the year ended December 31,
1991. The gains in 1992 were predominately from the sale of securities which
were classified by the bank regulatory authorities in the April 1992
examination as less than investment grade. The examination concluded that
these securities were "highly speculative" and were considered unsuitable
investments unless they were classified as held for sale or acquired as a
designated hedge for specific interest rate risks.
Details of non-interest income components are presented below:
<TABLE>
XXX BEGIN TABLE HERE XXX
Analysis of Non-Interest Income
For the Years Ended December 31,
(in thousands)
<CAPTION>
1993 1992 1991
---------------------------------
<S> <C> <C> <C>
Commission income -
Sunburst Financial Group $ 2,673 2,079 737
Sunburst Mortgage Corporation
Origination fees 1,859 1,012 360
Servicing income 1,609 866 443
Trust fee income 1,905 1,792 1,531
Service charges on deposit
accounts 17,258 14,255 13,758
Other service charges,
commissions, fees 4,524 3,746 3,490
Security gains (losses) (237) 656 (767)
Other 1,244 929 456
---------------------------------
$30,835 25,335 20,008
=================================
</TABLE>
NON-INTEREST EXPENSE
During recent years, the banking industry has put an increasing emphasis
on expense control and improving its efficiency and, ultimately, its
profitability. The Company has responded to the need for improved efficiency
by emphasizing its commitment to expense control. One of the measures of the
Company's success is the improvement in its efficiency ratio from 67.38% for
the year ended December 31, 1992 to 66.04% for the year ended December 31,
1993. The efficiency ratio for the year ended December 31, 1991 was 70.10%.
The efficiency ratio is non-interest expenses divided by tax-equivalent net
interest income plus non-interest income. Non-interest expense increased
19.7% or $14.7 million for the year ended December 31, 1993 compared to $5.8
million or an 8.35% increase from 1991 to 1992.
In 1990, the Company established an allowance for possible losses of $1.8
million on taxable municipal investment securities, and increased the
allowance for these securities in 1991 by $1.0 million. By December 31,
1991, the Company had sold the specific securities for which the allowance
was established at a loss of $1,062,000, net of the allowance.
</PAGE>
<PAGE>45
XXX BEGIN PAGE 45 HERE XXX
Salaries and benefits, the single largest component of non-interest
expense, increased 23.31% or $9,214,000, compared to the year ended December
31, 1992. The increase is largely attributable to increased salary expense
from the Eastover acquisition and increased staff cost to support the two
subsidiaries. Of this increase for 1993, $566,000 is attributable to
Sunburst Financial Group, Inc. and $1,246,000 is attributable to Sunburst
Mortgage Corporation. The balance of the increase is attributable to the
addition of the Eastover employees and normal merit increases. The number of
full time equivalent employees for the Company has increased to 1,657 at
December 31, 1993, from 1,382 at December 31, 1992 (227 of this increase is
attributable to the Eastover acquisition). Furniture and equipment expense
was up in 1993 by 22.57% principally due to the increase in number of
locations and increased computer costs from the Eastover acquisition.
Occupancy expense was up 20.49% primarily due to the addition of 29 banking
facilities acquired with the Eastover acquisition.
TAXES
Income tax expense consists of provisions for federal and state income
taxes. Applicable income taxes were $11,087,000 for the year ended December
31, 1993, compared to $6,250,000 for the year ended December 31, 1992 and
$3,999,000 for the year ended December 31, 1991. This increase in taxes was
due in part to provisions for state income taxes. In prior years, the
Company had made no provisions for state income taxes due to the utilization
of state net operating loss carry forwards. The statutory federal income tax
rates for 1993, 1992 and 1991 were 35%, 34% and 34%, respectively. The
Company's income tax expense as a percentage of pretax income is different
from these statutory tax rates because of the effect of tax-exempt income,
various nondeductible expenses and the impact of alternative minimum taxes,
including carry forward credits. The Company's effective tax rate was 31.06%
for the year ended December 31, 1993, 25.54% for the year ended December 31,
1992 and 23.86% for the year ended December 31, 1991.
The Financial Accounting Standards Board (FASB) issued SFAS No. 109,
"Accounting for Income Taxes", that superseded SFAS No. 96 and changed the
criteria for recognition and measurement of deferred taxes. The emphasis in
accounting for deferred income taxes changed from an income statement
approach to a balance sheet approach, thereby ensuring the proper accrual of
the appropriate asset or liability for deferred taxes. The Company adopted
SFAS No. 109 on January 1, 1993, and subsequently recorded previously
unrecognized tax benefits of $781,000. On August 10, 1993 the 1993 Tax Act
was signed into law. This law involves a change in the corporate income tax
rate structure. Management has revised its SFAS No. 109 calculation to
incorporate the changes required as a result of the 1993 Tax Act. The effect
of these changes is not material to the Company's financial condition.
FINANCIAL CONDITION
LOANS
The Banks' loan portfolio represents the largest single component of the
Company's earning asset base. Average loans outstanding increased 28.32%
over the December 31, 1992 level. Of the $320.7 million increase in average
loans, $176.7 million is attributable to the Eastover acquisition and $144
million is attributable to growth. At December 31, 1993, the Company did not
have any concentrations of loans or other interest-earning assets in excess
of 10% of total loans or other interest-earning assets outstanding.
</PAGE>
<PAGE>46
XXX BEGIN PAGE 46 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
Loans By Type
December 31,
(in thousands)
<CAPTION>
1993 1992 1991 1990 1989
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Construction & land
development $ 72,392 41,179 27,624 27,250 29,158
Secured by farmland 37,249 28,186 21,995 21,272 11,481
Secured by 1-4 family
Revolving open end 27,979 22,855 20,757 19,431 16,928
Secured by 1st liens* 440,367 345,545 294,170 271,707 251,940
Secured by 2nd liens 22,923 35,177 31,457 18,207 15,824
Secured by multifamily 37,361 23,423 13,115 8,623 2,194
Secured by non-farmland,
non-residential 262,491 197,045 170,795 153,647 102,192
Loans to U.S. banks 2,246 0 1,446 7,089 1,809
Loans to finance
agricultural production 41,910 32,910 34,337 33,109 40,509
Commercial and industrial 389,620 322,784 294,413 333,685 345,252
Loans to individuals
Credit cards 6,230 5,493 5,618 5,706 5,086
All other consumer and
installment 247,355 179,628 169,448 185,154 194,432
Tax exempt loans - states
& political subdivisions 8,966 6,163 4,281 4,962 7,860
All other loans 37,407 24,623 17,302 16,162 20,561
Lease financing receivables 0 0 40 203 580
-------------------------------------------------
Total (net of unearned) $1,634,496 1,265,011 1,106,798 1,106,207 1,045,806
=================================================
*Includes Mortgage loans held for resale
</TABLE>
From 1992 to 1993 loan growth, including mortgage loans held for resale
amounted to $369.5 million or a 29.21% increase. Approximately $210.8 million
in loans were acquired from Eastover and accounted for 56.8% of the increase.
The primary growth occurred in first mortgages on single family residences
($94.8 million). As a general practice, floating rate mortgages are held
within the loan portfolio and fixed rate mortgage loans generated by the
Mortgage Company are packaged for sale and are hedged to guard against
interest rate swings. Loans to individuals, including installment loans,
increased $68.5 million. Approximately $41 million of the installment loan
growth was through acquired loans. Other growth types include commercial and
industrial loans of $66.8 million. This loan type comprises 23.8% of the
total portfolio. Loans secured by non-farm, non-residential, which largely
consist of commercial real estate or income producing properties, increased
$65.4 million. This component comprises 16.1% of the total portfolio.
Construction and land development loans increased $31.2 million. This
category comprises 4.4% of the total portfolio. Internal growth excluding
acquired assets was approximately 12.5% for the year.
</PAGE>
<PAGE>47
XXX BEGIN PAGE 47 HERE XXX
The table below shows the maturity distribution of commercial,
financial, agricultural and real estate construction loan portfolios of the
Banks as of December 31, 1993.
<TABLE>
XXX BEGIN TABLE HERE XXX
Maturity Distribution
(in thousands)
<CAPTION>
1 Year 1-5 Over 5
or Less Years Years Total
-------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial
& agricultural $ 318,885 259,060 193,503 771,448
Real estate -
construction 49,018 15,904 7,470 72,392
-------------------------------------------------
$ 367,903 274,964 200,973 843,840
=================================================
</TABLE>
CREDIT QUALITY AND CREDIT RISK MANAGEMENT
Inherent in the business of providing financing alternatives to our
customers are the risks involved in extending credit. Management believes
that strong credit policies and guidelines, good underwriting, and constant
supervision and servicing are needed to insure a sound and profitable loan
portfolio. These are the primary factors that control risk and thereby
insure safety and profitability for our depositors and stockholders. Risk
reduction is achieved through diversity in the portfolio as to type,
geographic location, industry and borrower. Credit policies are determined
by carefully evaluating current economic, financial, regulatory and market
factors based on the objectives and strategies of the Company. Policies are
prepared by the Asset Quality Groups of Sunburst Bank, Mississippi and
Sunburst Bank, Louisiana. These policies are recommended for approval by the
Senior Loan Committees of both subsidiaries to the Directors' Loan Review
Committees, comprised of members of the respective boards of directors, which
approve the policies and guidelines and review credit quality and compliance
with policy on a quarterly basis. Asset review staffs, independent of the
lending functions, continually evaluate the loan portfolio for adherence to
established quality standards and compliance with policy and to determine if
the loans are collectible. Credit Administrators are assigned to the
different lending units but report to the Asset Quality Group. Prior to the
making of the loans over set amounts, Credit Administrators review, assist in
underwriting and insure that those loans are made in compliance with policy.
The Company's Audit and Loan Review Committee and Executive Committees,
comprised of members of the Company's Board, also inspect the findings of the
loan reviews provided by the respective asset review staffs. Further, these
committees monitor quality trends and approve allowance for credit loss
adequacy and provision amounts on a quarterly basis. The Asset Quality Group
is also utilized in determining loan portfolio quality for any potential
acquisitions.
In order to manage the credit risk of the commercial, single family
mortgage and installment loan portfolios, loans and blocks of loans are
internally assigned a grade ranging from A to F, depending on the financial
condition, the status of payments or collateral on the loans. Grades are
assigned at the inception of the loans, reviewed regularly by the assigned
loan officer and by the Asset Quality personnel. The preponderance of the
Banks' loans are rated C, denoting standard and acceptable risk. Installment
loans are rated at inception, but, later are graded by past due status as a
group. At year-end approximately 90% of the Company's subsidiaries loan
portfolios were graded C. Below is a table reflecting the amounts of loans
classified in categories that are considered to have less than acceptable
risk.
</PAGE>
<PAGE>48
XXX BEGIN PAGE 48 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
Internally Graded Loans
December 31,
(in thousands)
<CAPTION>
1993 1992 1991
----------------------------------------
<S> <C> <C> <C>
D Grade $ 15,011 15,999 20,612
E Grade (Classified) 27,063 19,032 35,850
F Grade (Classified) 5,491 10,307 7,667
----------------------------------------
Total Graded Loans $ 47,565 45,338 64,129
========================================
Total Classified/Net Loans 2.09% 2.32% 3.93%
Total Graded/Net Loans 3.05% 3.58% 5.79%
</TABLE>
Internally graded loans have increased slightly in 1993 over 1992. As a
percent of total loans, graded loans have decreased since 1990.
Approximately $7.5 million in loans acquired from Eastover were graded as a
result of findings by the Asset Review department. The decrease can be
attributed to management's continued efforts to recognize problems early and
take action to resolve the problems.
The Asset Quality Group continuously monitors the entire loan portfolio,
classifying troubled credits and determining loss exposure and risk levels in
order to set the provision for loan losses on a monthly basis. Risk
weightings are assigned, and reserves are allocated to the entire portfolio.
General reserves are allocated to the performing portion of the portfolio,
and specific reserves are allocated on the non-performing and classified
loans. The allowance for credit losses reflects management's judgment as to
the level considered appropriate to absorb potential losses in the portfolio
based on a review of factors that include individual loans, historic loss
experience, internally graded loan trends, non-performing loan trends, loan
growth factors, economic factors and portfolio diversity. While all credit
quality trends in the Company continue to show positive tendencies,
management has ongoing concerns about the strength of the economy,
particularly within certain market areas. Since the end of 1992, the
allowance for loan losses has increased $8.3 million or 34.15% to $32.7
million, including a $4.9 million reserve transferred with the purchase of
the Eastover assets. Management believes that it was prudent to continue to
increase the allowance, given the uncertainty surrounding national and state
economics and its commitment to sound, conservative banking practices. The
allowance currently approximates 2.10% of total loans outstanding compared to
2.03% a year earlier. Because the current economic recovery is predicted to
produce only modest economic growth at both national and state levels during
1994, management will continue to take a prudent approach to evaluating the
adequacy of the allowance for loan losses.
</PAGE>
<PAGE>49
XXX BEGIN PAGE 49 HERE XXX
The following table presents the components of the allowance for credit losses
at December 31, 1989 through 1993. Management has allocated the allowance for
credit losses by category of loans at December 31, 1992 and 1993 based on the
internal grading system described above. The breakdown for the years ended
December 31, 1989 through 1991 is based on the percentage of loans by type to
total loans (in thousands).
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991 1990 1989
----------------------------------------------------------------------------------------------------
Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of
$ loans $ loans $ loans $ loans $ loans
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,financial,
& agriculture $15,616 48% 11,223 48 9,643 49 8,151 51 7,115 47
Real estate-construction 1,404 4% 411 3 496 2 398 2 412 3
Real estate-mortgage 4,368 30% 5,249 32 5,747 31 4,531 28 4,030 27
Installment loans to
individuals 4,004 16% 2,323 15 3,273 16 2,932 17 3,037 20
Lease financing 0 0% 0 0 0 0 3 0 8 0
Other 7,357 2% 5,206 2 388 2 309 2 401 3
----------------------------------------------------------------------------------------------------
Total $32,749 100% 24,412 100 19,547 100 16,324 100 15,003 100
====================================================================================================
</TABLE>
</PAGE>
<PAGE>50
XXX BEGIN PAGE 50 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
Credit Experience Summary
For the Years Ended December 31,
(in thousands)
<CAPTION>
1993 1992 1991 1990 1989
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Beginning of year $24,412 19,547 16,324 15,003 13,115
Reserves of acquired banks 4,962 0 0 0 0
Provision for credit losses 6,815 7,988 8,922 7,042 11,592
Charge-offs:
Commercial, financial & agricultural 2,160 1,724 4,172 3,082 6,552
Real estate - construction 31 50 49 228 388
Real estate - mortgage 377 703 667 1,629 1,234
Installment loans to
individuals 2,085 1,830 2,315 2,402 1,759
Lease financing 0 0 44 0 22
Other 177 143 446 838 848
------------------------------------------------
Total charge-offs 4,830 4,450 7,693 8,179 10,803
Recoveries:
Commercial, financial & agricultural 470 495 1,082 1,485 432
Real estate - construction 10 0 40 0 0
Real estate - mortgage 77 43 126 128 167
Installment loans to
individuals 817 731 591 668 310
Lease financing 0 25 9 8 43
Other 16 23 146 169 147
------------------------------------------------
Total recoveries 1,390 1,327 1,994 2,458 1,099
------------------------------------------------
Net Charge-offs 3,440 3,123 5,699 5,721 9,704
------------------------------------------------
End of year $32,749 24,412 19,547 16,324 15,003
================================================
Average loans (in millions) $1,511.9 1,180.5 1,083.6 987.5 848.3
================================================
Allowance to loans
(net of unearned income) 2.10% 2.03 1.81 1.48 1.43
Net charge-offs to loans
(net of unearned income) 0.22% 0.26 0.53 0.52 0.93
</TABLE>
A measure of asset quality in the financial industry is the level of
non-performing assets in the portfolio. Non-performing assets consist of
loans or securities on which interest is no longer accruing (non-accrual),
certain restructured loans where the interest rate or other terms have been
renegotiated and other real estate that includes in-substance foreclosures.
From 1992 to 1993, non-performing assets decreased 24.14% and 13.77% from
1991 to 1992. The coverage rate of allowance for credit losses to non-
performing assets increased from 1.35:1 to 2.41:1 from 1992 to 1993. The
coverage rate for 1991 was .94:1. The decrease in non-performing assets is a
significant benefit realized by the Company, and the result of management's
aggressive identification of and early intervention with regard to potential
problem assets. The following table sets forth information concerning the
non-performing assets of the Company.
</PAGE>
<PAGE>51
XXX BEGIN PAGE 51 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
Non-performing Assets
For the Years Ended December 31,
(in thousands)
<CAPTION>
1993 1992 1991 1990 1989
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 2,770 4,905 4,272 10,211 11,084
Past due loans* 4,126 1,801 2,478 4,837 4,068
Restructured loans 1,253 1,803 1,613 2,675 2,535
---------------------------------------------
Total non-performing loans 8,149 8,509 8,363 17,723 17,687
Other real estate 3,692 6,685 10,259 11,346 5,148
In-substance foreclosures 1,430 2,464 1,963 2,464 0
Other assets 323 263 197 374 271
---------------------------------------------
Total non-performing
assets $13,594 17,921 20,782 31,907 23,106
=============================================
Non-performing loans to
total loans (net of
unearned income) 0.52% 0.71 0.77 1.60 1.69
Non-performing loans plus
foreclosed real estate
and other assets to total
loans (net of unearned
income) 0.87% 1.49 1.93 2.88 2.21
Non-performing loans plus
foreclosed real estate
and other assets excluding
past due loans to total
loans (net of unearned
income) 0.61% 1.34 1.70 2.45 1.82
*Loans that are 90 days or more past due as to principal and interest and not
yet on non-accrual status.
</TABLE>
In the normal course of business, management becomes aware of possible
credit problems in which borrowers exhibit potential inability to meet the
contractual terms of their loans, but do not currently meet the criteria for
non-accrual or charge-off status. Historically, some of these loans are
ultimately placed on non-accrual status, restructured, or charged-off. At
December 31, 1993, 411 loans totaling $29.7 million were identified as
potential problem loans.
</PAGE>
<PAGE>52
XXX BEGIN PAGE 52 HERE XXX
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a function of the repricing characteristics
of the Company's portfolio of earning assets and liabilities. This rate
sensitivity is measured as the difference between the volume of assets and
liabilities from the Company's existing portfolio that are subject to
repricing in a future period of time. While interest rate sensitivity has
an effect on earnings, it is also an indicator of a company's liquidity
position, as the sensitivity "gap" reflects the ability to match the
repricing, or maturity intervals of assets and liabilities so as not to be
overly sensitive to fluctuating interest rates.
Through the Company's Asset Liability Management Committee, the Company
manages its interest rate sensitivity to control exposure of net interest
income to risks associated with interest rate movements and maturities of
interest earning assets and interest bearing liabilities and to achieve
consistent growth in net interest income. This executive level committee, by
analysis of various projections of a variety of interest rate scenarios as
well as maturity schedules, pricing alternatives, growth projections and
asset and liability mix, makes informed decisions that are designed to
increase the Company's income, while limiting, to the extent practicable,
exposure to interest rate risk.
The table below shows the contractual maturities and weighted average
yields as of the latest period for each investment category.
<TABLE>
XXX BEGIN TABLE HERE XXX
December 31, 1993
(in thousands)
<CAPTION>
Maturing
-----------------------------------------------------------------
Within 1 Yr. 1-5 Years 5-10 Years After 10 Yrs.
-----------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
$ % $ % $ % $ %
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $29,975 4.65% 70,240 4.38 0 0.00 4,415 9.00
Other U.S. Government
agencies & corporations 25,656 7.31 44,833 4.45 3,110 3.75 0 0.00
Mortgage-backed securities 0 0.00 29,348 5.95 8,831 8.23 129,353 6.07
States & political
subdivisions (1) 5,713 5.95 20,784 6.19 14,561 6.47 32,147 8.34
Other 5 5.40 17,265 7.31 115 7.24 19,126 6.28
-----------------------------------------------------------------
Total or average yield $61,349 5.88% 182,470 5.13 26,617 6.74 185,041 6.56
=================================================================
(1) The yield on obligations of state and political subdivisions has been
adjusted to a tax-equivalent basis. The yield on preferred stocks included in
other investment securities has been adjusted to a tax-equivalent basis. A 35%
federal tax rate was used in the computation of the yields.
</TABLE>
The interest sensitivity of the loans is important in the management of
effective interest differential. The Company attempts to manage the
relationship between the rate sensitivity of its assets and liabilities to
produce an effective interest differential that is not significantly impacted
by the level of interest rates. At December 31, 1993, the Company had $552.6
million in fixed rate loans that were due after one year and $486.9 million
in variable rate loans that were due after one year.
Two principal measures on interest rate risk are gap analysis and market
valuation of the investment securities portfolio. The following table shows
the interest rate sensitivity gap position at December 31, 1993. This table
provides a partial, static view of the Company's interest rate sensitivity at
a specific point in time, using contractual repricing and maturity of assets
and liabilities where possible and management repricing assumptions for
liabilities with indeterminate contractual maturities.
</PAGE>
<PAGE>53
XXX BEGIN PAGE 53 HERE XXX
The other principal measure of interest rate sensitivity, market
valuation risk, reflects the impact that changes in interest rates have had
on the market value of the investment securities portfolio. The difference
in the book value and approximate market value of total investment securities
at December 31, 1993 was represented by gross unrealized gains of
approximately $17,935,000 and gross unrealized losses of approximately
$1,050,000.
<TABLE>
XXX BEGIN TABLE HERE XXX
For the Year Ended December 31, 1993
(in thousands)
<CAPTION>
INTEREST RATE SENSITIVITY
------------------------------------------------------------------------------
Three months Three to One to Five to Ten Years
or Less Twelve months Five Years Ten Years and Over Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Interest-bearing deposits
with banks $ 0 28 0 0 0 28
Federal funds sold 25,000 0 0 0 0 25,000
Securities held for sale 120,101 0 0 0 0 120,101
Investment securities 45,611 39,982 155,207 19,512 27,633 287,945
Mortgage-backed securities 29,806 26,409 108,337 2,980 0 167,532
Loans 615,407 466,515 420,981 81,047 59,553 1,643,503
------------------------------------------------------------------------------
Total Earning Assets $835,925 532,934 684,525 103,539 87,186 2,244,109
==============================================================================
INTEREST-BEARING LIABILITIES
Interest-bearing deposits $ 60,747 546,725 0 0 0 607,472
Savings deposits 0 165,814 0 0 0 165,814
Time deposits<$100,000 281,045 279,098 198,008 1,191 0 759,342
Time deposits>$100,000 125,819 85,674 35,795 250 0 247,538
Federal funds purchased 6,200 0 0 0 0 6,200
Securities sold under
repurchase agreements 24,342 0 0 0 0 24,342
Other borrowed funds 0 0 2,868 10,074 0 12,942
------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities $498,153 1,077,311 236,671 11,515 0 1,823,650
==============================================================================
Net Repricing Gap $337,772 (544,377) 447,854 92,024 87,186 420,459
Net Repricing Gap as a
Percentage of Total
Assets 13.86% (22.35) 18.38 3.78 3.58 17.26
Cumulative Gap $337,772 (206,605) 241,249 333,273 420,459 0
Cumulative Gap as a
Percentage of Total
Assets 13.86% (8.48) 9.90 13.68 17.26 0.00
</TABLE>
</PAGE>
<PAGE>54
XXX BEGIN PAGE 54 HERE XXX
LIQUIDITY
Liquidity is the ability to raise cash quickly when funds are needed.
The needs for liquidity are best met by a strong customer base, the ability
to readily purchase funds from reliable sources, and the ability to liquidate
short term marketable securities. The Company has historically funded its
liquidity requirements with funds generated from operations, including new
deposits and proceeds from the repayments of loans and investments. The
Company also enhances liquidity by the retention of earnings and adequate
capital. The Asset/Liability Committee sets minimum liquidity requirements
and monitors the Company's adherence to these goals on a monthly basis.
Core deposits expressed as a percentage of total assets were 80.14% at
December 31, 1993, 79.94% for 1992 and 78.03% for 1991. Volatile
liabilities, defined as the sum of time deposits over $100,000, foreign
deposits, federal funds purchased and securities sold under agreements to
repurchase, and other liabilities for borrowed money, as a percentage of
total assets was 11.41% at December 31, 1993, compared to 11.52% at December
31, 1992 and 14.04% at December 31, 1991. Temporary investments as a
percentage of total assets decreased to 6.99% at December 31, 1993, compared
to 8.53% at December 31, 1992 and 10.74% at December 31, 1991. The Company's
volatile liability dependence ratio, (which compares volatile liabilities
less temporary investments to net loans, plus lease-financing receivable and
investment securities with remaining maturities or earliest repricing
opportunities of less than one year, including equity securities), was 5.31%
at December 31, 1993, an increase from 3.69% at December 31, 1992.
Parent company liquidity is also important to GSSC. Cash requirements
at the parent company level are met primarily with dividend payments from its
subsidiary banks. The double leverage ratio is the parent company's
investment in subsidiaries divided by total consolidated equity. This ratio
measures the degree that parent company equity supports investment in
subsidiaries. The Company's double leverage ratio as of December 31, 1993
was 97.55% compared to 97.26% as of December 31, 1992 and 96.75% as of
December 31, 1991.
SECURITIES
The investment securities portfolio is the second largest component of
the Company's earning asset base. When securities are purchased, primarily
debt securities, they are classified as investment securities and are carried
at cost adjusted for amortization of premiums and accretion of discounts, if
the Company has the intent to hold such securities on a long-term basis or
until maturity. If it is the Company's intent at the time of purchase or
during any subsequent reporting period to sell securities prior to maturity,
such securities are reclassified and are transferred to a "Held for Sale"
category at the lower of cost or market. Also, from time to time, the
Company might identify securities that it intends to use as a part of its
asset/liability strategy to respond to changes in interest rate and/or
prepayment risk or to increase liquidity or regulatory capital. At
identification date, these securities are also transferred to "Held for Sale"
and subsequently carried at the lower of cost or market.
Acquired in the purchase of selected net assets of Eastover were $122.3
million in investment securities, of which $16.8 million in mortgage-backed
U.S. Government agency securities were sold within three weeks after the
March 1, 1993, acquisition date. Total securities increased 15.26% or $76.2
million from December 31, 1992, to December 31, 1993. Management takes a
conservative approach in the investment portfolio by changing the mix and
maturity as it reinvests maturing securities. This has been done by
increasing the percentage of Treasury and agency securities and by decreasing
holding of other securities while shortening average maturities. The
investment in corporate securities has increased from the first quarter of
1992. These investments consist principally of adjustable rate money market
preferred instruments. The following table reflects the mix of the investment
portfolio, including securities held for sale, for the last three years (in
thousands):
</PAGE>
<PAGE>55
XXX BEGIN PAGE 55 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 1992 1991
-----------------------------------------------
Average Average Average
Balance % Balance % Balance %
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $131,574 21.51 99,997 18.48 69,188 13.01
Securities of other U.S.
government agencies and
corporations 311,163 50.87 231,529 42.78 212,761 40.01
Obligations of state and
political subdivisions 77,876 12.73 87,652 16.20 97,869 18.41
Other securities 49,153 8.03 84,582 15.63 135,244 25.43
Corporate stock 41,976 6.86 37,376 6.91 16,699 3.14
-----------------------------------------------
Total investment securities $611,742 100.00 541,136 100.00 531,761 100.00
======= ====== ======= ====== ======= ======
</TABLE>
DEPOSITS
Managing the mix and repricing alternatives of invested funds is an
important factor affecting the NIM. Strategies for managing the cost and
source of funds have to be flexible enough to meet needs in a changing
interest rate environment. Management's strategy has been to increase core
deposits as a percentage of total funds sources and to reduce the Company's
dependence on more volatile short-term borrowings, principally federal funds
purchased and securities sold under repurchase agreements. Average interest-
bearing deposit liabilities as a percentage of average funds sources were
81.53% for the year ended December 31, 1993 compared to 82.95% for the year
ended December 31, 1992 and 84.63% for the year ended December 31, 1991.
Average non-interest bearing deposits increased $85.5 million or 31.8% for
the same period. Average interest bearing deposits increased 19.25% or
$283.7 million from 1992 to 1993, 2.03% or $29.3 million from 1991 to 1992,
and 2.76% or $38.8 million from 1990 to 1991. The general decline in interest
rates has caused depositors to shorten their time horizons and shift their
deposits from longer term to shorter term savings instruments.
Average certificates of deposit increased by $96.1 million for the year
ended December 31, 1993, compared to the same period in 1992. This was
predominately the result of the Eastover acquisition. Average certificates
of deposit decreased 11.88% from 1991 to 1992 and 2.48% from 1990 to 1991.
The average rate paid on these certificates of deposit decreased to 3.79% for
1993, from 4.73% for 1992 and 6.48% for 1991. The total cost of interest-
bearing liabilities has averaged 3.36%, 4.18%, and 5.96% for the years ended
December 31, 1993, 1992, and 1991, respectively. Interest-free funds
supported 16.51% of average earning assets for the year ended December 31,
1993 compared to 15.20% for 1992 and 13.57% for 1991.
The following table shows time deposits of $100,000 and over, including
certificates of deposits of $100,000 and over at December 31, 1993 by
maturity (in thousands).
Three months or less $ 126,941
Over three months through six months 63,010
Over six months through twelve months 21,541
Over twelve months 36,046
--------
Total $ 247,538
========
</PAGE>
<PAGE>56
XXX BEGIN PAGE 56 HERE XXX
CAPITAL ADEQUACY
Strong capitalization is fundamental to the successful operation of a
banking organization. The Company seeks to maintain a level of capital
flexible enough for profitable growth opportunities, consistent with
management's goal of building stockholder value, at a level adequate to
minimize FDIC insurance premiums and to provide stability in uncertain
economic conditions. The Company utilizes a variety of measures to evaluate
capital adequacy. The Company's equity to asset ratio at December 31, 1993,
was 7.15%, down from the 7.40% reported at December 31, 1992, and up from the
6.94% reported at December 31, 1991. The Company and its subsidiaries comply
with applicable regulatory capital requirements.
Other indicators of adequate capital are represented by average equity
to assets and average equity to net loans. The Company's average equity to
asset ratio for 1993 was 6.98%, down from the 7.16% reported in 1992 and up
from the 6.84% reported in 1991. The average equity to loan ratio was
11.23%, 12.23% and 11.87% for 1993, 1992, and 1991, respectively. The
Company's total risk-based capital ratio as of December 31, 1993, is 11.78%
and the leverage ratio is 7.11%. These capital ratios exceed the required
8.00% total risk-based capital ratio and the 3.00% required leverage ratio.
The Company's qualifying capital at December 31, 1993 is shown in the
following table (in thousands):
Tier I:
Common stockholders' equity $ 112,458
Undivided profits and capital reserves 61,690
Goodwill (1,932)
Net unrealized loss on marketable equity securities (76)
-------
Total Tier I capital 172,140
=======
Tier II:
Allowance for credit losses 20,608
-------
Total Tier II capital 20,608
-------
Total qualifying capital 192,748
=======
Risk-weighted assets $1,610,379
Risk-weighted off-balance sheet exposure 26,154
---------
Total risk-weighted assets and off-balance sheet exposure $1,636,533
=========
Tier I capital ratio 10.52%
Total capital ratio 11.78%
Leverage ratio 7.11%
</PAGE>
<PAGE>57
XXX BEGIN PAGE 57 HERE XXX
STOCK INFORMATION
The Company's common stock is traded in the over-the-counter market
under the NASDAQ symbol "GSSC". The following table sets forth the range of
high and low prices for the Company's common stock as reported by the NASDAQ
National Market System. The Company had 5,951 shareholders of record at
December 31, 1993. These quotations represent prices between dealers, do not
include retail mark-ups, mark-downs, or commissions and do not necessarily
represent actual transactions.
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
- ------------------------------------------------------------ -------------
High Low Dividends
- ------------------------------------------------------------ -------------
<S> <C> <C> <C>
1993 - First Quarter $25.00 19.75 0.15
Second Quarter 25.25 19.875 0.17
Third Quarter 24.75 22.75 0.20
Fourth Quarter 26.75 23.00 0.20
1992 - First Quarter $22.00 15.00 0.15
Second Quarter 16.50 14.75 0.15
Third Quarter 17.75 15.25 0.15
Fourth Quarter 20.50 15.50 0.15
</TABLE>
RECENT DEVELOPMENTS
The FASB has issued Statement 114, "Accounting by Creditors for
Impairment of a Loan". This statement requires that impaired loans that are
within the scope of the statement be measured on the present value of
expected future cash flows, discounted at the loan's effective interest rate
or at the loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. This statement amends FASB Statement
No. 5, "Accounting for Contingencies" and FASB Statement No. 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings". This Statement
applies to financial statements for fiscal years beginning after December 15,
1994. The Company has not made a determination as to the effect of the
adoption of this statement on the financial condition of the Company.
The FASB has also issued Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities". This statement requires
investments to be classified in three categories and to be accounted for as
follows: (i) debt securities that the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and reported
at amortized cost; (ii) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized gains and
losses included in earnings; and (iii) debt and equity securities not
classified as either held-to-maturity securities or trading securities are
classified as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate
component of shareholders' equity. This statement supersedes FASB Statement
No. 12, "Accounting for Certain Marketable Securities" and amends FASB
Statement No. 65, "Accounting for Certain Mortgage Banking Activities". This
statement is effective for years beginning after December 15, 1993, and is
not expected to have a material impact on the financial position of the
Company.
</PAGE>
<PAGE>58
XXX BEGIN PAGE 58 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE YEAR ENDING DECEMBER 31, 1993
(dollars in thousands)
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) (2) $1,453,419 122,657 8.44%
Mortgage loans warehoused 58,442 4,096 7.01%
U.S. Treasury securities 131,574 6,574 5.00%
Securities of other U.S. Government
agencies & corporations 311,163 17,196 5.53%
Obligations of state and political
subdivisions (3) 77,876 8,356 10.73%
Other securities 49,153 3,434 6.99%
Corporate stock 41,976 2,028 4.83%
Trading account 1,351 86 6.37%
Interest-bearing deposits with banks 2,371 108 4.56%
Federal funds sold and securities
purchased with resell agreements 17,136 490 2.86%
-------- ------ -----
Total interest earning assets/
interest income (3) 2,144,461 165,025 7.70%
Cash and due from banks 127,463
Other assets 97,743
Allowance for credit losses (30,681)
Market value adjustment on
corporate stock (218)
---------
Total $2,338,768
=========
</TABLE>
</PAGE>
<PAGE>59
XXX BEGIN PAGE 59 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE YEAR ENDING DECEMBER 31, 1993
(dollars in thousands)
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits $ 598,258 14,093 2.36%
Savings 154,559 4,007 2.59%
IRA/KEOGH 141,036 7,843 5.56%
Certificates of deposit 863,619 32,767 3.79%
Federal funds purchased & securities
sold under agreements to repurchase 32,363 943 2.91%
Other borrowings 11,799 895 7.59%
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,801,634 60,548 3.36%
Non-interest bearing demand 354,098
Other liabilities 19,817
---------
Total liabilities 2,175,549
Stockholders' equity 163,219
---------
Total $2,338,768
=========
Net interest income (3) 104,477
-------
Net yield on interest earning assets (3) 4.87%
Tax equivalent adjustments:
Loans 175
Obligations of state & political subdivisions 2,768
Corporate stock 493
-------
Total tax equivalent adjustment 3,436
-------
Net interest income $101,041
=======
(1) Non-accruing loans are included in average loans; however, no income is
recognized on these loans.
(2) Includes loan fees in both interest income and the calculation of the
yield on loans.
(3) Tax equivalent adjustments are calculated assuming a 35% tax rate for
1993 and a 34% tax rate for 1992 and 1991.
</TABLE>
</PAGE>
<PAGE>60
XXX BEGIN PAGE 60 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE YEAR ENDING DECEMBER 31, 1992
(dollars in thousands)
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) (2) $1,132,550 103,898 9.17%
Mortgage loans warehoused 47,911 3,689 7.70%
U.S. Treasury securities 99,997 6,111 6.11%
Securities of other U.S. Government
agencies & corporations 231,529 15,817 6.83%
Obligations of state and political
subdivisions (3) 87,652 9,342 10.66%
Other securities 84,582 5,712 6.75%
Corporate stock 37,376 2,028 5.43%
Trading account 0 0 0.00%
Interest-bearing deposits with banks 19,926 916 4.60%
Federal funds sold and securities
purchased with resell agreements 25,602 970 3.79%
--------- ------ -----
Total interest earning assets/
interest income (3) 1,767,125 148,483 8.40%
Cash and due from banks 105,234
Other assets 84,134
Allowance for credit losses (21,989)
Market value adjustment on
corporate stock (1,014)
---------
Total $1,933,490
=========
</TABLE>
</PAGE>
<PAGE>61
XXX BEGIN PAGE 61 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE YEAR ENDING DECEMBER 31, 1992
(dollars in thousands)
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits $ 479,561 14,463 3.02%
Savings 106,429 3,332 3.13%
IRA/KEOGH 120,295 7,816 6.50%
Certificates of deposit 767,535 36,292 4.73%
Federal funds purchased & securities
sold under agreements to repurchase 32,964 1,098 3.33%
Other borrowings 1,257 66 4.93%
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,508,041 63,067 4.18%
Non-interest bearing demand 268,621
Other liabilities 18,302
---------
Total liabilities 1,794,964
Stockholders' equity 138,526
---------
Total $1,933,490
=========
Net interest income (3) 85,416
-------
Net yield on interest earning assets (3) 4.83%
Tax equivalent adjustments:
Loans 145
Obligations of state & political subdivisions 3,005
Corporate stock 510
-------
Total tax equivalent adjustment 3,660
-------
Net interest income $81,756
=======
(1) Non-accruing loans are included in average loans; however, no income is
recognized on these loans.
(2) Includes loan fees in both interest income and the calculation of the
yield on loans.
(3) Tax equivalent adjustments are calculated assuming a 35% tax rate for
1993 and 34% for 1992 and 1991.
</TABLE>
</PAGE>
<PAGE>62
XXX BEGIN PAGE 62 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE YEAR ENDING DECEMBER 31, 1991
(dollars in thousands)
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) (2) $1,067,615 114,417 10.72%
Mortgage loans warehoused 16,146 1,479 9.16%
U.S. Treasury securities 69,188 5,497 7.95%
Securities of other U.S. Government
agencies & corporations 212,761 17,767 8.35%
Obligations of state and political
subdivisions (3) 97,869 9,999 10.22%
Other securities 135,244 10,860 8.03%
Corporate stock 16,699 1,650 9.88%
Trading account 0 0 0.00%
Interest-bearing deposits with banks 36,354 2,373 6.53%
Federal funds sold and securities
purchased with resell agreements 39,721 2,185 5.50%
--------- ------ -----
Total interest earning assets/
interest income (3) 1,691,597 166,227 9.83%
Cash and due from banks 90,698
Other assets 89,485
Allowance for credit losses (17,760)
Market value adjustment on
corporate stock (2,171)
---------
Total $1,851,849
=========
</TABLE>
</PAGE>
<PAGE>63
XXX BEGIN PAGE 63 HERE XXX
<TABLE>
XXX BEGIN TABLE HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE YEAR ENDING DECEMBER 31, 1991
(dollars in thousands)
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits $ 371,148 16,858 4.54%
Savings 88,532 4,250 4.80%
IRA/KEOGH 113,817 8,706 7.65%
Certificates of deposit 870,996 56,409 6.48%
Federal funds purchased & securities
sold under agreements to repurchase 28,686 1,574 5.49%
Other borrowings 4,217 192 4.58%
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,477,396 87,989 5.96%
Non-interest bearing demand 229,483
Other liabilities 18,260
---------
Total liabilities 1,725,139
Stockholders' equity 126,710
---------
Total $1,851,849
=========
Net interest income (3) 78,238
-------
Net yield on interest earning assets (3) 4.63%
Tax equivalent adjustments:
Loans 148
Obligations of state & political subdivisions 3,104
Corporate stock 437
-------
Total tax equivalent adjustment 3,689
-------
Net interest income $74,549
=======
(1) Non-accruing loans are included in average loans; however, no income is
recognized on these loans.
(2) Includes loan fees in both interest income and the calculation of the
yield on loans.
(3) Tax equivalent adjustments are calculated assuming a 35% tax rate for
1993 and 34% for 1992 and 1991.
</TABLE>
</PAGE>
<PAGE>64
XXX BEGIN PAGE 64 HERE XXX
SUMMARY OF CHANGES IN EFFECTIVE INTEREST DIFFERENTIAL
The following table presents the changes in interest earned and interest
paid resulting from changes in volume and changes in rates (in thousands).
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1993 vs. 1992 1992 vs. 1991
Increase (decrease) Increase (decrease)
Due to: Due to:
--------------------------------- ---------------------------
Volume Rate Total Volume Rate Total
--------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $27,554 (8,793) 18,761 6,684 (17,205) (10,521)
Mortgage loans warehoused 759 (352) 407 2,481 (271) 2,210
U.S. Treasury securities 1,703 (1,240) 463 2,079 (1,465) 614
Securities of other U.S.
government agencies & corporations 4,763 (3,384) 1,379 1,475 (3,425) (1,950)
Obligations of states &
political subdivisions (1,047) 61 (986) (1,075) 418 (657)
Other securities (2,474) 196 (2,278) (3,611) (1,537) (5,148)
Corporate stock 234 (236) (2) 1,369 (989) 380
Trading account 86 0 86 0 0 0
Interest bearing deposits
with banks (800) (8) (808) (881) (576) (1,457)
Federal funds sold (276) (204) (480) (648) (567) (1,215)
---------------------------------------------------------------
Total interest income 30,502 (13,960) 16,542 7,873 (25,617) (17,744)
Interest paid on:
Demand deposits 3,165 (3,535) (370) 4,142 (6,536) (2,394)
Savings deposits 1,321 (646) 675 749 (1,667) (918)
IRA/Keogh 1,245 (1,217) 28 475 (1,366) (891)
Time deposits 4,214 (7,740) (3,526) (6,145) (13,971) (20,116)
Federal funds purchased and
securities sold under
repurchase agreements (19) (135) (154) 210 (687) (477)
Other borrowings 780 48 828 (142) 16 (126)
---------------------------------------------------------------
Total interest expense 10,706 (13,225) (2,519) (711) (24,211) (24,922)
---------------------------------------------------------------
Increase (decrease) in net interest income $19,796 (735) 19,061 8,584 (1,406) 7,178
===============================================================
Increases (decreases) are attributed to volume changes and rate changes on
the following basis: Volume Change equals change in volume times old rate.
Rate Change equals change in rate times old volume. The Rate/Volume Change
equals change in volume times change in rate, and it is allocated between
Volume Change and Rate Change at the ratio that the absolute value of each of
those components bears to the absolute value to their total.
</TABLE>
</PAGE>
<PAGE>65
XXX BEGIN PAGE 65 HERE XXX
Exhibit 21.1 - SUBSIDIARIES OF THE REGISTRANT
---------------------------------------------
State or Other
Jurisdiction of Incorporation Doing Business
Name or Organization As
- ----------------------------------------------------------------------------
Sunburst Bank, MS Mississippi Sunburst Bank, MS
Sunburst Bank, LA Louisiana Sunburst Bank, LA
Sunburst Financial
Group, Inc. Delaware Sunburst Financial
Group, Inc.
<PAGE>66
XXX BEGIN PAGE 66 HERE XXX
Exhibit 23.1 - Independent Auditors' Consent
---------------------------------------------
The Board of Directors
Grenada Sunburst System Corporation:
We consent to incorporation by reference in the Registration Statement (No.
33-21215) on Form S-8 of our report dated January 28, 1994, relating to the
consolidated balance sheets of Grenada Sunburst System Corporation and
subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
three-year period ended December 31, 1993, which report appears in the
December 31, 1993 annual report on Form 10-K of Grenada Sunburst System
Corporation.
/s/KPMG Peat Marwick
KPMG PEAT MARWICK
Memphis, Tennessee
March 25, 1994
