FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
Commission File Number 0-15003
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 38902-0947
(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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Grenada Sunburst System Corporation has only one class of common stock
authorized. At October 31, 1994, there were 15,000,000 shares of $1 par value
common stock authorized, and 9,492,975 shares issued and outstanding.
</PAGE>
XXX BEGIN PAGE 2 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION
INDEX
------
PART I. Financial Information
----------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets, September 30, 1994,
December 31, 1993 and September 30, 1993..................3
Consolidated Statements of Income, quarters and
nine months ended September 30, 1994 and 1993..............4
Consolidated Statements of Changes in Stockholders'
Equity, nine months ended September 30, 1994 and 1993......5
Consolidated Statements of Cash Flows, nine months
ended September 30, 1994 and 1993..........................6
Notes to Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................8
PART II. Other Information
------------------
Item 1. Litigation.................................................28
Item 6. Exhibits and Reports on Form 8-K...........................28
Exhibit Index..............................................29
</PAGE>
XXX BEGIN PAGE 3 HERE XXX
PART I
FINANCIAL INFORMATION
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Sept. 30, Dec.31, Sept. 30,
1994 1993 1993
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash and demand balances with banks $ 142,683 133,889 128,968
Interest bearing deposits with banks 1,126 28 28
Securities available for sale 119,000 120,101 119,638
Investment securities (Market value of
approximately $277,620, $301,240
and $302,908) 274,611 287,945 288,855
Mortgage-backed securities (Market
value of approximately $177,183,
$170,815 and $187,313) 182,150 167,532 177,612
Mortgages held for resale 25,079 73,956 55,088
Federal funds sold and securities
purchased under agreements to resell 0 25,000 23,000
Loans 1,704,820 1,569,547 1,539,531
Less:
Unearned income 9,055 9,007 8,823
Allowance for credit losses 32,898 32,749 32,142
---------- --------- ----------
Net loans 1,662,867 1,527,791 1,498,566
Premises and equipment, net 49,763 48,738 48,293
Other real estate 3,795 5,185 6,590
Accrued interest receivable 20,522 18,262 18,115
Other assets 29,299 27,771 29,047
--------- ---------- ---------
Total Assets $2,510,895 2,436,198 2,393,800
========= ========== ==========
LIABILITIES
Deposits
Demand:
Non-interest bearing $ 412,935 419,641 371,463
Interest bearing 657,021 607,472 604,560
Savings 166,120 165,814 163,456
Time, $100,000 and over 217,731 247,538 260,760
Other time 768,567 759,342 764,186
--------- --------- ---------
Total deposits 2,222,374 2,199,807 2,164,425
Federal funds purchased and securities
sold under agreements to repurchase 54,223 30,542 25,256
Other borrowed funds 24,355 12,941 13,116
Accrued interest payable 9,360 8,939 8,064
Other liabilities 11,840 9,897 13,589
--------- --------- ---------
Total Liabilities 2,322,152 2,262,126 2,224,450
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 15,000,000
authorized, 9,492,975 shares issued at
September 30, 1994, December 31, 1993 and
September 30, 1993 9,493 9,493 9,493
Paid in capital 31,842 31,842 31,842
Net unrealized loss-securities
available for sale (620) (75) (14)
Retained earnings 148,028 132,812 128,029
-------- -------- --------
Total Stockholders' Equity 188,743 174,072 169,350
-------- -------- --------
Commitments and contingent liabilities
Total Liabilities and
Stockholders' Equity $2,510,895 2,436,198 2,393,800
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 4 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans including fees $ 36,523 31,785 102,573 90,340
Deposits with banks 11 0 22 108
Mortgages held for resale 595 1,077 2,355 2,954
Federal funds sold and securities
purchased under agreements to resell 43 141 306 417
Securities:
Taxable 6,296 6,827 18,702 21,147
Exempt from federal taxes 1,210 1,261 3,748 4,069
Dividends 461 337 1,324 1,159
------- ------- ------- -------
Total Interest Income 45,139 41,428 129,030 120,194
INTEREST EXPENSE
Deposits:
Demand 4,037 3,588 11,275 10,473
Time, $100,000 and over 2,115 2,025 6,204 5,763
Other time and savings 9,363 9,321 26,962 27,870
Federal funds purchased and securities
sold under agreements to repurchase 353 260 876 728
Other borrowed funds 446 254 1,130 636
------- ------- ------- -------
Total Interest Expense 16,314 15,448 46,447 45,470
------- ------- ------- -------
Net interest income 28,825 25,980 82,583 74,724
Provision for credit losses 990 1,560 2,765 5,500
------- ------- ------- -------
Net interest income after
provision for credit losses 27,835 24,420 79,818 69,224
NON-INTEREST INCOME
Service charges on deposit accounts 4,400 4,509 12,994 12,734
Other service charges,
commissions, and fees 2,705 2,827 7,951 7,855
Investment securities, net (44) 171 (145) (131)
Fees from fiduciary activities 515 450 1,511 1,464
Other 90 403 440 1,030
------- ------- ------- -------
Total Non-Interest Income 7,666 8,360 22,751 22,952
NON-INTEREST EXPENSE
Salaries 10,872 10,944 32,424 30,371
Employee benefits 2,077 1,940 6,439 5,731
Net occupancy expense 1,920 1,893 5,535 5,208
Furniture and equipment expense 1,985 1,771 5,875 5,359
FDIC deposit insurance expense 1,231 1,219 3,656 3,573
Other 6,201 5,122 18,452 16,013
------- ------- ------- -------
Total Non-Interest Expense 24,286 22,889 72,381 66,255
------- ------- ------- -------
Income before income taxes and
cumulative effect of a change
in accounting principle 11,215 9,891 30,188 25,921
Income taxes 3,475 3,171 9,297 7,984
------- ------- ------- -------
Income before cumulative effect of
a change in accounting principle 7,740 6,720 20,891 17,937
Cumulative effect on prior years of
a change to a different method of
accounting for income taxes 0 0 0 781
------- ------- ------- -------
Net Income $ 7,740 6,720 20,891 18,718
======= ======= ======= =======
EARNINGS PER SHARE:
Income before cumulative effect
of a change in accounting principle $0.82 0.71 2.20 1.91
Cumulative effect of a change
in accounting principle 0.00 0.00 0.00 0.08
Net Income 0.82 0.71 2.20 1.99
DIVIDENDS PER SHARE 0.20 0.20 0.60 0.52
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 5 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(In thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Net
Common Paid in Unrealized Retained
Stock Capital Loss Earnings Total
------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Balances January 1, 1993 $9,047 22,953 (459) 114,197 145,738
Net income 18,718 18,718
Net unrealized gain on
securities available
for sale, net of tax 445 445
Cash dividend declared (4,936) (4,936)
Stock issued in exchange
for net assets of Eastover
Bank for Savings 439 8,734 9,173
Stock issued under
compensation plan 7 155 162
Unearned compensation 50 50
------ ------ ------ ------- -------
Balances September 30, 1993 $9,493 31,842 (14) 128,029 169,350
====== ====== ====== ======= =======
Balances January 1, 1994 $9,493 31,842 (75) 132,812 174,072
Net income 20,891 20,891
Net unrealized loss on
securities available
for sale, net of tax (545) (545)
Cash dividend declared (5,696) (5,696)
Unearned compensation 21 21
------ ------ ------ ------- -------
Balances September 30, 1994 $9,493 31,842 (620) 148,028 188,743
====== ====== ====== ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 6 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 20,891 18,718
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of goodwill and intangible assets 1,312 801
Depreciation and amortization of premises and equipment 3,859 3,671
Net accretion of investment securities (364) (974)
Provision for possible credit losses 2,765 5,500
Net decrease in mortgages held for resale 48,877 7,984
Other real estate provision 363 774
Gains on sales of other real estate (209) (303)
(Gains) losses from sales of premises and equipment (67) 98
(Increase) decrease in interest receivable (2,260) 1,304
Increase (decrease) in interest payable 421 (1,513)
Losses on sales of securities, net 146 131
Other, net (875) (5,322)
------- ------
Net cash provided by operating activities 74,859 30,869
Cash flows from investing activities:
Net (increase) decrease in interest-bearing
deposits with banks (1,098) 20,002
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell 25,000 (23,000)
Purchases of securities available for sale (42,889) 0
Principal prepayments on securities available for sale 55,651 0
Purchases of securities held to maturity (60,600) (72,370)
Maturities of securities held to maturity 52,850 77,037
Principal prepayments on securities held to maturity 9,538 6,171
Purchases of mortgage-backed securities held to maturity (73,609) (70,621)
Sales of mortgage-backed securities 0 16,749
Principal prepayments of mortgage-backed securities 58,549 81,400
Net increase in loans (138,870) (86,961)
Net increase in premises and equipment (4,969) (2,775)
Proceeds from sale of premises and equipment 196 141
Proceeds from sales of other real estate 2,220 4,107
Net cash received from Eastover acquisition 0 35,922
-------- --------
Net cash used by investing activities (118,031) (14,198)
Cash flows from financing activities:
Net increase in demand and savings accounts 43,149 48,578
Net decrease in other deposits (20,582) (56,933)
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 23,681 (408)
Net increase (decrease) in other borrowed money 11,414 (801)
Cash dividends paid (5,696) (4,936)
-------- --------
Net cash provided (used) by financing activities 51,966 (14,500)
-------- --------
Net increase in cash and due from banks 8,794 2,171
Cash and due from banks at the beginning of the period 133,889 126,797
-------- --------
Cash and due from banks at the end of the period $142,683 128,968
======== ========
Unrealized (loss) on securities
available for sale $ (545) 445
Securities transferred to the available
for sale category from the held to
maturity category 12,266 0
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
XXX BEGIN PAGE 7 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1994 and 1993
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the accounting policies in effect as of December
31, 1993, as set forth in the annual consolidated financial statements of
Grenada Sunburst System Corporation and subsidiaries ("GSSC", or the
"Company"). In the opinion of management, all adjustments necessary for a
fair presentation of the condensed consolidated financial statements have
been included and are of a normal recurring nature.
2. The results of operations for the nine-month period ended September
30, 1994 are not necessarily indicative of the results to be expected for the
full year.
3. Per share data is based on weighted average shares of common stock
outstanding of 9,492,975 for the quarter and nine months ended September 30,
1994 and for the quarter ended September 30, 1993. Per share data is based
on weighted average common shares outstanding of 9,396,904 for the nine
months ended September 30, 1993. The Company had outstanding 14,478 options
on common stock at September 30, 1994 and 1993. Each option entitles the
holder to purchase one share of the Company's common stock at an exercise
price of $22.375. Generally, these options are exercisable beginning in 1995.
The weighted average number of shares outstanding at September 30, 1994 and
1993 adjusted for the assumed exercise of all outstanding stock options using
the treasury stock method would be 9,497,831 and 9,397,790, respectively for
the calculation of primary earnings per share and 9,497,636 and 9,397,742,
respectively for the calculation of fully diluted earnings per share. The
assumed exercise of these options would have a less than one-half of $.01
dilution of earnings per share.
4. On July 1, 1994 a definitive agreement was entered into between Union
Planters Corporation (UPC) and GSSC in which UPC will acquire all of the
outstanding stock of GSSC in a transaction valued at approximately $305
million based on UPC's November 8, 1994 closing stock price of $22.125.
Under the terms of the definitive agreement, UPC will exchange 1.4530 shares
of UPC common stock for each common share of GSSC. The acquisition, which is
to be accounted for as a pooling of interests, is expected to be completed by
year-end 1994, pending approval by both companies' shareholders and the
completion of other closing conditions.
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.
Had the acquisition occurred on January 1, 1993, for the nine months ended
September 30, 1993, net interest income for the Company would have increased
by approximately $3,140,000, net income would have increased by approximately
$897,000, and earnings per share would have increased by approximately $.08
per share.
5. Effective January 1, 1994, GSSC adopted Financial Accounting Standards
Board ("FASB") SFAS No. 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
which 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 as an addition to or a deduction from
stockholders' equity.
</PAGE>
XXX BEGIN PAGE 8 HERE XXX
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GSSC reported net income of $7,739,874 for the quarter ended September
30, 1994, an increase of $1,019,587 from the $6,720,287 reported for the
quarter ended September 30, 1993. Income for the first nine months of 1994
was $20,890,956 or $2.20 per share compared to $18,717,980 or $1.99 per share
for the first nine months of 1993. The effect of the adoption of SFAS No.
109, "Accounting for Income Taxes" in 1993 accounted for $.08 of the first
nine months 1993 earnings per share. 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. Net interest income before provision for credit losses was up
$7,858,942 or 10.52% for the nine months ended September 30, 1994, when
compared to the same period in 1993. Net interest income before provision
for the third quarter of 1994 was $28,825,072 compared to $25,980,090 for the
same period in 1993. The provision for credit losses decreased $2,735,000
for the nine months ended September 30, 1994, compared to the nine months
ended September 30, 1993 and $570,000 for the quarter ended September 30,
1994 compared to the quarter ended September 30, 1993. Non-interest income
decreased $201,681 for the nine months ended September 30, 1994 compared to
the nine months ended September 30, 1993 while non-interest expense increased
$6,126,081 for the same period. For the third quarter of 1994, non-interest
income decreased $692,843 from the same period in 1993 and non-interest
expense increased $1,397,994 from the $22,888,387 reported for the third
quarter of 1993 to $24,286,381 for the third quarter of 1994.
The return on average assets (ROA) for the first nine months of 1994
was 1.13% compared to 1.07% for the same period in 1993. The return on
average equity (ROE) was 15.38% for the first nine months of 1994 compared to
15.46% for the first nine months of 1993.
The following provides management's discussion of the consolidated
financial condition and results of operations of GSSC, focusing on those
factors that have had the most significant impact for the first nine months
of 1994. This commentary should be read in conjunction with the accompanying
financial statements.
</PAGE>
XXX BEGIN PAGE 9 HERE XXX
RESULTS OF OPERATIONS
Contribution to Earnings Per Share
(Fully Taxable Equivalent)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Quarter Nine Months
ended Sept 30, ended Sept 30,
1994 1993 1994 1993
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net interest income - FTE $ 3.12 2.82 8.96 8.23
Provision for credit losses 0.10 0.16 0.29 0.59
------ ------ ------ ------
Net interest income after provision
for credit losses - FTE 3.02 2.66 8.67 7.64
Service charges on deposit accounts 0.46 0.47 1.37 1.36
Other service charges, commissions and fees 0.29 0.30 0.84 0.84
Investment securities gains (losses), net 0.00 0.02 (0.02) (0.01)
Fees from fiduciary services 0.05 0.04 0.16 0.16
Other 0.01 0.08 0.05 0.20
------ ------ ------ ------
Total non-interest income 0.81 0.91 2.40 2.55
Adjusted gross income after provision
for credit losses - FTE 3.83 3.57 11.07 10.60
Salaries 1.15 1.15 3.42 3.23
Employee benefits 0.22 0.20 0.68 0.61
Occupancy expense, net of rental income 0.20 0.20 0.58 0.55
Furniture and equipment expense 0.21 0.19 0.62 0.57
Other 0.78 0.70 2.33 2.18
------ ------ ------ ------
Total non-interest expense 2.56 2.44 7.63 7.14
Income before income taxes (FTE) and
cumulative effect of a change in accounting
principle 1.27 1.13 3.44 3.05
Applicable income taxes - FTE 0.45 0.42 1.24 1.14
------ ------ ------ ------
Income before cumulative effect of a change
in accounting principle 0.82 0.71 2.20 1.91
Cumulative effect of a change in method
of accounting for income taxes 0.00 0.00 0.00 0.08
------ ------ ------ ------
Net income $ 0.82 0.71 2.20 1.99
===== ====== ====== ======
Assumed tax rate of 35% for 1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 10 HERE XXX
NET INTEREST INCOME
Net interest income (NII) is the largest component of the Company's
income and 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 $7.8 million or 10.52% for the first nine
months of 1994 compared to the same period in 1993 due principally to a 6.66%
increase in average earning assets. For the third quarter of 1994, net
interest income was up $2.8 million or 10.95% from the third quarter of 1993.
The net interest spread increased 10 basis points to 4.46% for the nine
months ended September 30, 1994, from 4.36% for the nine months ended
September 30, 1993. The prime lending rate for bank loans declined
periodically to 6.00% early in 1993 from 6.50% early in 1992. The prime
lending rate increased on April 15, 1994 to 6.75% and again on May 17, 1994
to 7.25%. However, the repricing of loans during 1993 and the first quarter
of 1994 at the lower rates in effect during this period was the primary
factor causing the decrease in yield on the loan portfolio to 8.46% for the
nine months ended September 30, 1994, from 8.50% for the nine months ended
September 30, 1993. Approximately 39% of the Company's loans earn interest
that fluctuates with the prime lending rate in effect at their repricing
interval. At September 30, 1994, $623.3 million in loans or 36% of the bank
subsidiaries' loan portfolios are subject to reprice during the next quarter.
This decline in yield on the largest component of earning assets for the
Company's subsidiary banks was more than offset by a decline in the cost of
funds.
Average deposits increased by $125.9 million or 6.03% from the first
nine months of 1993 to the first nine months of 1994 and $53.6 million or
2.47% for the third quarter of 1994 compared to the third quarter of 1993.
The cost of interest-bearing deposits decreased 11 basis points from the
first nine months of 1993 to the first nine months of 1994, while increasing
9 basis points for the third quarter of 1994 compared to the third quarter of
1993. Average other borrowings were up by $8.2 million to $53.2 million for
the nine months ended September 30, 1994, from $45.0 million for the same
period in 1993, and the rate paid for this source of funds increased to 4.97%
in 1994 from 4.00% in 1993. The increase in average other borrowings for the
third quarter of 1994 over the third quarter of 1993 was $10.9 million with
the rate paid also increasing to 5.26% from 4.15% for the same period.
Federal Home Loan Bank (FHLB) term advances increased an average of $9.5
million for the nine months ended September 30, 1994 compared to the nine
months ended September 30, 1993. The advances are at fixed rates of interest
with maturities from October 1996 to November 2003. These term advances are
used to support fixed rate loans made by the Company's subsidiary banks. The
average cost of the FHLB borrowings was 7.26% for the nine months ended
September 30, 1994 compared to 7.32% for the same period ended September 30,
1993. The remainder of the increase in the rate paid for other borrowings for
the third quarter of 1994 was due to the increase in the cost of short-term
borrowings (i.e. federal funds purchased and securities sold under agreements
to repurchase) even though the average balance of these borrowings only
increased $1.3 million for the third quarter of 1994 compared to the third
quarter of 1993. The increase in the Federal Reserve's discount rate charged
to member banks was the major cause for the increase in the average cost for
these type funds.
</PAGE>
XXX BEGIN PAGE 11 HERE XXX
The emphasis in management of the investment portfolio for 1994
continues to be to improve the liquidity and quality of the portfolio,
provide a relatively stable source of income and balance interest rate and
credit risk. As loan demand has improved, funds have been redeployed, and
securities as a percentage of earning assets at September 30, 1994, were
23.90% compared to 27.06% a year earlier.
Net Interest Income Summary
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Quarter Nine Months
ended Sept 30, ended Sept 30,
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 45,139 41,428 129,030 120,194
Taxable equivalent adjustments:
State, county and municipal
Notes 50 43 143 125
Bonds 620 647 1,922 2,095
Dividends 143 103 416 374
------- ------- ------- -------
Total adjustments 813 793 2,482 2,594
Interest income - FTE 45,952 42,221 131,512 122,788
Interest expense 16,314 15,448 46,447 45,470
------- ------- ------- -------
Net interest income - FTE $ 29,638 26,773 85,065 77,318
======= ======= ======= =======
Net interest margin - FTE 5.17% 4.83% 5.03% 4.87%
======= ======= ======= =======
Average earning
assets (millions) $ 2,280.7 2,209.9 2,260.2 2,119.0
======= ======= ======= =======
Assumed tax rate of 35% for 1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 12 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. For the nine months ended
September 30, 1994, the NIM was 5.03%, up 16 basis points from the 4.87%
reported for the same period a year earlier. Average earning assets
increased 6.66% or $141.2 million for the first nine months of 1994 when
compared to the first nine months of 1993. The tax equivalent yield on
average earning assets for the first nine months of 1994 was 7.78%, up 3
basis points from the 7.75% yield for the first nine months of 1993. Average
interest-bearing liabilities increased $80.1 million or 4.48% for the first
nine months of 1994 when compared to the first nine months of 1993. The cost
of funds for the nine months ended September 30, 1994 was 3.32% down 7 basis
points from the 3.39% for the nine months ended September 30, 1993.
PROVISION FOR CREDIT LOSSES
In evaluating the adequacy of the allowance for credit 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 Company's subsidiary banks' allowances for
losses on loans and real estate owned. Such agencies may require the banks
to adjust 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 such 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 first nine months of
1994 was $2,765,000, compared to $5,500,000 for the first nine months of 1993
which reflected a decrease of $2,735,000 from the provision for the first
nine months of 1993. This provision reflects improvement in the quality of
the loan portfolio while still providing for continued growth. Loans
increased an average of 14.02% or $199.4 million from the first nine months
of 1993 to the first nine months of 1994. The percentage of net charge-offs
to average loans net of unearned income annualized for the first nine months
of 1994 was .21% compared to .25% for the first nine months of 1993. This
trend of lower provisions for losses on loans is expected to continue for the
remainder of 1994.
</PAGE>
XXX BEGIN PAGE 13 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 non-traditional 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 first nine months of 1994 decreased .88% or $202,000 compared to the
first nine months of 1993. Non-interest income for the quarter ended
September 30, 1994 decreased $693,000 from the $8,359,000 reported for the
quarter ended September 30, 1993.
The rising interest rate environment has slowed the earnings growth in
non-interest income through subsidiaries' earnings. The mortgage company is
a significant contributor to non-interest income, with gross revenue of
$2,445,000 for the nine months ended September 30, 1994. This compares to
gross revenue of $3,649,000 for the nine months ended September 30, 1993.
This decrease of approximately 49% is due largely to the decrease in mortgage
loans originated the first nine months of 1994 compared to the first nine
months of 1993. The rise in home mortgage rates during 1994 has greatly
slowed mortgage loan demand. The mortgage servicing portfolio increased to
$902.1 million at September 30, 1994, from $741.4 million at September 30,
1993. A portion of the increase in the servicing portfolio was due to a bulk
purchase of servicing in August of 1993. This contributed $118.3 million to
the increase. The remainder of the increase was due to loan closings and
purchases of individual loans by the mortgage company. The broker/dealer
operations also contributed to non-interest income, with gross revenue of
$1,407,000 for the nine months ended September 30, 1994 compared to
$2,233,000 for the nine months ended September 30, 1993. Service charges on
deposit accounts was one area of increased earnings. Revenue from deposit
accounts increased to $12,994,000 for the nine months ended September 30,
1994, compared to $12,734,000 for the nine months ended September 30, 1993.
NON-INTEREST EXPENSE
During recent years, the banking industry has put an increasing emphasis
on expense control to improve its efficiency and, ultimately, its
profitability. The Company has responded to the need for improved efficiency
by emphasizing its commitment to expense control. The Company's efficiency
ratio for the nine months ended September 30, 1994 was 67.13%. The
efficiency ratio is non-interest expenses divided by tax-equivalent net
interest income plus non-interest income. This compares to an efficiency
ratio of 66.05% for the nine months ended September 30, 1993. The
predominant reason for the decline in efficiency is a decrease in net income
from the non-bank subsidiaries which is largely a function of the current
interest rate environment. Non-interest expense increased 9.25% or
$6,126,000 for the first nine months of 1994 compared to the first nine
months of 1993 and $1,398,000 for the quarter ended September 30, 1994
compared to the quarter ended September 30, 1993. Salaries and benefits, the
single largest component of non-interest expense, increased 7.65% or
$2,761,000, compared to the first nine months of 1993. Of this increase,
$2,313,000 is at Sunburst Bank, Mississippi and is largely attributable to
the addition of the Eastover personnel and normal merit increases throughout
the Company. In addition, the number of full time equivalent employees for
the Company has increased to 1,686 at September 30, 1994, from 1,597 at
September 30, 1993. Occupancy expense and furniture and equipment expense
are up primarily due to the addition of 29 banking facilities acquired with
the Eastover acquisition. The following table provides the detail of non-
interest expense for the nine months ended September 30, 1994 and 1993.
</PAGE>
XXX BEGIN PAGE 14 HERE XXX
Other Non-interest Expense
For the Nine Months Ended September 30,
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Stationary and office supplies $ 1,422,893 1,363,244
Professional fees 1,603,850 678,531
Dues and subscriptions 666,197 636,864
Freight and express 659,195 555,450
Postage and box rent 1,311,329 1,406,476
Telephone and telegraph 1,450,189 1,175,842
Employee education 529,726 480,105
Core deposit premium amortization 733,618 700,749
Amortization of purchased mortgage
servicing rights 578,583 96,532
Other taxes 1,544,705 1,438,258
Advertising 2,050,100 2,301,366
Other 5,901,155 5,179,981
--------- ---------
Total $18,451,540 16,013,398
========== ==========
</TABLE>
TAXES
Income tax expense consists of provisions for Federal and state income
taxes. Applicable income taxes were $9,297,000 for the nine months ended
September 30, 1994, compared to $7,985,000 for the nine months ended
September 30, 1993. The statutory Federal income tax rates for 1994 and 1993
were 35%. 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 non-deductible expenses and the impact of alternative
minimum taxes, including carry forward credits. The Company's effective tax
rate was 30.79% for the nine months ended September 30, 1994, and 30.80% for
the nine months ended September 30, 1993.
The 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 or
$.08 per share. 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. Management believes the
effect of these changes is not material to the Company's financial condition.
</PAGE>
XXX BEGIN PAGE 15 HERE XXX
EARNINGS CONSIDERATIONS FOR THE LAST QUARTER OF 1994
In connection with the pending acquisition of the Company by UPC,
management anticipates that possible significant expenses (e.g. elimination
of duplicate facilities, staff reductions, elimination of duplicate
functions, etc.) may be incurred in the fourth quarter of 1994 upon
completion of ongoing financial, due diligence, and strategic reviews and
assessments of the post-merger operating environment of the combined
corporations. As part of both companies continuing efforts to reduce
expenses, both UPC and GSSC have retained the services of Alex Sheshunoff
Management Services, Inc. ("ASMS"), a nationally recognized consulting firm,
to assist in improving the financial performance of each organization, and to
assist in the consolidation of the two organizations. Through the study of
each organization, individually and collectively, opportunities to reduce
costs and reengineer operations in order to become more efficient will be
identified. Management expects that there will be a reduction in the number
of employees and branches in each organization. Independent of whether or not
the acquisition is consummated, UPC and GSSC will each offer voluntary early
retirement and voluntary separation programs in the fourth quarter to help
facilitate the staff reduction. All charges which may be incurred in the
fourth quarter as a result of completion of the studies cannot be estimated
at this time. However, approximately $2.75 million will be charged to
expense in the fourth quarter in connection with the ASMS study, legal
and accounting fees, and the fairness opinion issued on the pending
acquisition of the Company by UPC. Management expects significant future cost
savings from the combined operations of the Company and UPC once the
acquisition is consummated. Preliminary studies indicate that there are
significant savings opportunities and management expects that they will be
realized once the recommendations are implemented; however, the final savings
which may actually be realized cannot be estimated at this time.
FINANCIAL CONDITION
LOANS
The subsidiary banks' loan portfolios represent the largest single
component of the Company's earning asset base. Average loans outstanding
increased 14.02% from the September 30, 1993 level. The majority of this
growth occurred in the real estate secured and commercial and industrial
categories. In addition, modest growth was experienced in the consumer
sector. As a general practice, floating rate mortgages are held within the
loan portfolio and fixed rate loans are packaged for sale and are hedged to
guard against interest rate swings.
CREDIT QUALITY AND CREDIT RISK MANAGEMENT
The risks involved in extending credit are inherent in the business of
providing financing alternatives to our customers. 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. Policies are determined by
carefully evaluating current economic, financial, regulatory and market
factors based on the objectives and strategies of the Company. The Company
has in place a structured policy that quickly identifies problem credits,
monitors their performance, and provides reasonable estimates of the possible
credit loss, if any, relating to the loans. The Company's Asset Quality
Group continuously monitors the entire loan portfolio, classifying problem
credits, estimating loss exposure, and determining systematically the level
of risks and necessary level of provision for credit losses.
</PAGE>
XXX BEGIN PAGE 16 HERE XXX
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 and are reviewed regularly by the
assigned loan officer and Asset Quality personnel. The preponderance of the
subsidiary banks' loans are rated C, denoting standard and acceptable risk.
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, historical loss
experience, economic conditions, trends, and other factors. The adequacy of
the allowance is reviewed frequently. Since the first nine months of 1993,
the allowance for credit losses has increased $756,000 or 2.35% to $32.9
million. Following its commitment to sound, conservative banking practices,
management believed that it was prudent to continue to increase the
allowance, given the significant increase in loans and the uncertainty
surrounding national and state economics. The allowance currently
approximates 1.94% of total loans outstanding compared to 2.10% a year
earlier.
Credit Experience Summary
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Nine Months Quarter
ended Sept 30, ended Sept 30,
1994 1993 1994 1993
------ ------ ------- ------
<S> <C> <C> <C> <C>
Allowance for credit losses:
Beginning balance $ 32,749 24,412 33,132 31,849
Reserves of acquired company 0 4,934 0 0
Provision for loan losses 2,765 5,500 990 1,560
Net charge-offs 2,616 2,704 1,224 1,267
------ ------ ------ ------
Ending Balance $ 32,898 32,142 32,898 32,142
====== ====== ====== ======
Allowance to loans
(net of unearned) 1.94% 2.10%
Net charge-offs to average
loans (net of unearned)
annualized 0.22 0.25
</TABLE>
A measure of asset quality 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. The following table sets
forth information concerning the non-performing assets of the Company.
</PAGE>
XXX BEGIN PAGE 17 HERE XXX
Non-Performing Assets
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Sept 30, Sept 30,
1994 1993
-------- --------
<S> <C> <C>
Non-accrual loans $ 2,608 2,992
Restructured loans 294 3,286
-------- --------
Total non-performing loans 2,902 6,278
Foreclosed real estate 3,723 6,507
Other assets 221 207
-------- --------
Total non-performing assets $ 6,846 12,992
======== ========
Allowance for credit losses $ 32,898 32,142
======== ========
Non-performing loans to total loans
(net of unearned) 0.17% 0.41
Non-performing loans plus foreclosed
real estate and other assets to
total loans (net of unearned) 0.40 0.85
Non-performing loans to allowance 8.82 19.53
</TABLE>
</PAGE>
XXX BEGIN PAGE 18 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. The Company's
Asset Liability Management Committee ("Asset Liability Committee"), manages
interest rate sensitivity of the Company's portfolio 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. The Company attempts to
maximize earnings by managing the one-year "gap," the difference between
interest-earning assets and interest-bearing liabilities maturing or
repricing in one year or less. As of September 30, 1994, the Company had a
one-year liability sensitive gap (i.e., an excess of liabilities over assets
maturing or repricing within one year) of $233 million or 9.29%. Management
believes that this range can be effectively managed against interest rate
movements while allowing sufficient flexibility to take advantage of
opportunities presented by varying interest rate environments. To maximize
and maintain consistency of earnings, the Company endeavors to monitor and
control interest rate risk. Assuming the current mix and sensitivities of
interest-bearing assets and liabilities remain constant and historical
relationships between rates on different products and investments reoccur, an
increase of 1% in short-term interest rates would cause the Company's NIM to
decline 1 basis point for the succeeding 12 months. An increase of 3% would
result in an 8 basis point decline. Conversely, a 1% decline in short-term
rates would result in a less than 1 basis point increase in the Company's
NIM. The following table summarizes the Company's gap position at September
30, 1994.
</PAGE>
XXX BEGIN PAGE 19 HERE XXX
INTEREST RATE SENSITIVITY
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
3 Months 3 to 12 1 to 5 5 to 10 10 Years
or Less Months Years Years and over Total
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Deposits with banks $ 1,126 0 0 0 0 1,126
Securities:
Available for sale 119,000 0 0 0 0 119,000
Mortgage-backed 18,134 24,600 122,012 17,404 0 182,150
Investment 30,543 56,527 137,357 29,112 21,072 274,611
Mortgages held
for resale 25,079 0 0 0 0 25,079
Loans 598,174 493,991 476,337 82,138 54,180 1,704,820
-------- -------- -------- -------- ------- ---------
Total Interest-Earning
Assets $ 792,056 575,118 735,706 128,654 75,252 2,306,786
======== ======== ======== ======== ======= =========
Interest-Bearing Liabilities :
Deposits:
Demand $ 65,702 591,320 0 0 0 657,022
Savings 0 166,120 0 0 0 166,120
Time < $100,000 224,926 324,032 217,972 1,637 0 768,567
Time > $100,000 88,285 85,819 43,266 360 0 217,730
Fed. funds purchased 32,425 0 0 0 0 32,425
Securities sold under
repurchase agreements 21,798 0 0 0 0 21,798
Other borrowed funds 0 0 16,637 7,718 0 24,355
-------- -------- -------- -------- ------- ---------
Total Interest-Bearing
Liabilities $ 433,136 1,167,291 277,875 9,715 0 1,888,017
======== ========= ======== ======== ======= =========
Net Repricing Gap 358,920 (592,173) 457,831 118,939 75,252 418,769
Net Repricing Gap/
Total Assets 14.29% (23.58%) 18.23% 4.74% 3.00% 16.68%
Cumulative Gap 358,920 (233,253) 224,578 343,517 418,769 0
Cumulative Gap/
Total Assets 14.29% (9.29%) 8.94% 13.68% 16.68% 0.00%
</TABLE>
</PAGE>
XXX BEGIN PAGE 20 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 purchase funds readily from reliable sources, and the ability to liquidate
short-term marketable securities. GSSC 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 79.84% at
September 30, 1994, and 79.52% at September 30, 1993. 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
were 10.83% at September 30, 1994, compared to 11.95% at September 30, 1993.
Temporary investments as a percentage of total assets decreased to 5.15% at
September 30, 1994, compared to 6.97% at September 30, 1993. 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 6.68%
at September 30, 1994, compared to 5.97% at September 30, 1993.
SECURITIES
The 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 intention to hold such securities until maturity. If it is
the Company's intention at the time of purchase to sell securities prior to
maturity, such securities are classified as trading securities and are
carried at fair value with unrealized gains or losses included in earnings.
At September 30, 1994, the Company held no securities in its trading
portfolio. Debt and equity securities not classified as either held-to-
maturity or trading securities are classified as available for sale and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as an addition to or a deduction from stockholders'
equity. Also, from time to time, the Company may 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, such securities are transferred
to available-for-sale and subsequently carried at fair value. At September
30, 1994, the Company had $119 million in the available-for-sale category
with an unrealized loss of $621,000, net of taxes, which has been deducted
from stockholders' equity.
</PAGE>
XXX BEGIN PAGE 21 HERE XXX
Securities decreased 1.80% or $10.3 million from September 30, 1993, to
September 30, 1994. This decrease was due to the increased demand for loans,
which caused a redeployment of funds. 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 U. S. government agency securities and by decreasing holdings
of other securities while shortening average maturities. Investments in
collateralized mortgage obligations (CMOs) issued by U. S. government
agencies were $143.9 million at September 30, 1994 and $162.9 million at
September 30, 1993. The Company also had investments in certain privately-
issued CMOs which were collateralized by mortgage-backed securities issued or
guaranteed by U. S. government agencies totaling $4.7 million at September
30, 1994 and $13.8 million at September 30, 1993. In addition, the average
balance of the investment in corporate securities has increased from the
first nine months of 1993. These investments consist principally of
adjustable rate money market preferred instruments. The following table
reflects the mix of the investment portfolio, including securities available
for sale, for the quarters ended September 30, 1994, and 1993, in thousands.
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
Average Average
Balance % Balance %
------- ------ -------- -------
<S> <C> <C> <C> <C>
US Treasuries $ 129,503 22.57% 126,089 20.42%
Securities of other US
government agencies and corp. 303,286 52.85% 328,013 53.11%
Obligations of states and
political subdivisions 69,763 12.15% 74,728 12.10%
Other securities 29,547 5.15% 46,763 7.57%
Corporate securities 41,799 7.28% 41,981 6.80%
------- ------- ------- -------
Total investment securities $ 573,898 100.00% 617,574 100.00%
======= ======= ======= =======
</TABLE>
</PAGE>
XXX BEGIN PAGE 22 HERE XXX
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. Average interest-bearing
deposit liabilities as a percentage of average funds sources were 80.14% for
the nine months ended September 30, 1994, compared to 81.80% for the nine
months ended September 30, 1993. Average non-interest bearing deposits
increased $53.9 million or 15.7% for the same period.
Average certificates of deposit increased by $6.3 million for the nine
months ended September 30, 1994, compared to the same period in 1993. The
average rate paid on these certificates of deposit decreased to 3.77% for the
nine months ended September 30, 1994, from 3.85% for the nine months ended
September 30, 1993. The total cost of interest-bearing liabilities has
averaged 3.32% and 3.39% for the nine months ending September 30, 1994, and
1993, respectively. Interest-free funds supported 17.57% of average earning
assets for the first nine months of 1994 compared to 16.19% for the first
nine months of 1993.
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, and to provide stability in
uncertain economic conditions. Indicators of adequate capital are
represented by average equity to assets, average equity to net loans, risk-
based capital ratios and leverage ratios. The Company's equity to asset
ratio at September 30, 1994 was 7.36%, up from the 6.93% reported at
September 30, 1993, and the equity to loan ratio was 11.20% and 11.26% for
September 30, 1994 and 1993, respectively. The Company's total risk-based
capital ratio as of September 30, 1994 was 11.95% and the leverage ratio was
7.50%. These capital ratios were in excess of the required 8.00% total risk-
based capital ratio and the 3.00% required leverage ratio.
</PAGE>
XXX BEGIN PAGE 23 HERE XXX
Selected Capital Information
For the nine months ended September 30,
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Capital:
Common stock $ 9,493 9,493
Surplus 102,965 102,965
Undivided profits 76,285 56,892
Allowance for credit losses 32,898 32,142
Market valuation adjustment on
securities available for sale 620 14
--------- ---------
Total primary capital 222,261 201,506
========= =========
Total assets $ 2,510,895 2,393,800
========= =========
Ratio of primary capital to adjusted assets * 8.735% 8.306%
*Adjusted assets are total assets gross of allowance for credit
losses and market valuation of equity securities.
1994 1993
--------- ---------
Tier I:
Common stockholders' equity $ 112,458 112,458
Undivided profits and capital reserves 76,905 56,906
Less:
Goodwill (1,695) (2,010)
Net unrealized loss on securities
available for sale (620) (14)
--------- ---------
Total Tier I capital 187,048 167,340
--------- ---------
Tier II:
Allowance for credit losses 22,004 20,241
--------- ---------
Total Tier II capital 22,004 20,241
--------- ---------
Total qualifying capital 209,052 187,581
========= =========
Risk-weighted assets 1,717,354 1,585,939
Risk-weighted off-balance sheet exposure 32,102 21,479
--------- ---------
Total risk-weighted assets and
off-balance sheet exposure $ 1,749,456 1,607,418
========= =========
Ratios:
Tier I capital ratio 10.69% 10.41
Minimum Tier I capital ratio 4.00 4.00
Total capital ratio 11.95 11.67
Minimum total capital ratio 8.00 8.00
Leverage ratio 7.50 6.97
Minimum leverage ratio 3.00 3.00
</TABLE>
</PAGE>
XXX BEGIN PAGE 24 HERE XXX
OFF-BALANCE-SHEET ITEMS
At September 30, 1994 and September 30, 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 September 30, 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 and limits and other monitoring procedures.
RECENT DEVELOPMENTS
In May of 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." This statement requires that impaired loans that
are within the scope of SFAS No. 114 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 SFAS No. 5,
"Accounting for Contingencies" and FASB SFAS No. 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructurings." SFAS No. 114 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.
</PAGE>
XXX BEGIN PAGE 25 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1994
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) (2) $1,622,381 137,248 8.46%
Mortgage loans held for sale 42,520 3,140 7.38
U.S. Treasury securities 122,005 5,640 4.62
Securities of other U.S. Government
agencies & corporations 314,520 16,853 5.36
Obligations of state and political
subdivisions (3) 71,840 7,693 10.71
Other securities 31,911 2,326 7.29
Corporate securities 42,014 2,431 5.79
Interest-bearing deposits with banks 767 29 3.78
Federal funds sold and securities
purchased with resell agreements 12,224 404 3.30
-------- ------- -----
Total interest-earning assets/
interest income (3) 2,260,182 175,764 7.78
Cash and due from banks 139,900
Other assets 100,827
Allowance for credit losses (33,131)
Market value adjustment on
securities available for sale (91)
---------
Total $2,467,687
=========
Average Yield/
Balance Interest Rate
LIABILITIES AND --------- -------- ------
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $635,306 15,075 2.37%
Savings 171,399 4,153 2.42
IRA/KEOGH 144,011 7,469 5.19
Certificates of deposit 866,302 32,700 3.77
Federal funds purchased & securities
sold under agreements to repurchase 32,317 1,155 3.57
Other borrowings 20,868 1,490 7.14
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,870,203 62,042 3.32
Non-interest bearing demand 397,091
Other liabilities 18,754
---------
Total liabilities 2,286,048
Stockholders' equity 181,639
---------
Total $2,467,687
=========
Net interest income (3) 113,722
-------
Net yield on interest-earning assets (3) 5.03
Tax equivalent adjustments:
Loans 191
Obligations of state & political subdivisions 2,570
Corporate securities 708
-------
Total tax equivalent adjustment 3,469
-------
Net interest income $110,253
=======
(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
1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 26 HERE XXX
GRENADA SUNBURST SYSTEM CORPORATION AND SUBSIDIARIES
DISTRIBUTION OF ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1993
(dollars in thousands)
<TABLE>
XXX BEGIN TABLE HERE XXX
<CAPTION>
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) (2) $1,422,946 120,888 8.50%
Mortgage loans held for sale 56,266 3,939 7.00
U.S. Treasury securities 136,257 6,918 5.08
Securities of other U.S. Government
agencies & corporations 304,911 17,213 5.65
Obligations of state and political
subdivisions (3) 80,181 8,577 10.70
Other securities 52,006 3,659 7.04
Corporate securities 41,956 2,128 5.07
Trading account 1,807 115 6.36
Interest-bearing deposits with banks 3,160 144 4.56
Federal funds sold and securities
purchased with resell agreements 19,481 550 2.82
--------- ------ -----
Total interest-earning assets/
interest income (3) 2,118,971 164,131 7.75
Cash and due from banks 127,517
Other assets 96,468
Allowance for credit losses (30,018)
Market value adjustment on
securities available for sale (286)
---------
Total $2,312,652
=========
Average Yield/
Balance Interest Rate
LIABILITIES AND --------- -------- ------
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 593,977 14,002 2.36%
Savings 151,125 3,994 2.64
IRA/KEOGH 139,989 7,853 5.61
Certificates of deposit 859,963 33,098 3.85
Federal funds purchased & securities
sold under agreements to repurchase 33,010 986 2.99
Other borrowings 12,019 813 6.76
--------- ------- -----
Total interest-bearing liabilities
/interest expense 1,790,083 60,746 3.39
Non-interest bearing demand 343,137
Other liabilities 19,247
---------
Total liabilities 2,152,467
Stockholders' equity 160,185
---------
Total $2,312,652
=========
Net interest income (3) 103,385
--------
Net yield on interest-earning assets (3) 4.87
Tax equivalent adjustments:
Loans 125
Obligations of state & political subdivisions 2,095
Corporate securities 374
-------
Total tax equivalent adjustment 2,594
-------
Net interest income $100,791
=======
(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
1994 and 1993.
</TABLE>
</PAGE>
XXX BEGIN PAGE 27 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>
September 30,
1994 vs. 1993
Increase (decrease)
Due to:
------------------------------
Volume Rate Total
------------------------------
<S> <C> <C> <C>
Interest earned on:
Loans $16,930 (570) 16,360
Mortgages loans warehoused (1,004) 205 (799)
U. S. Treasury securities (685) (593) (1,278)
Securities of other U. S.
government agencies & corporations 536 (896) (360)
Obligations of states and political
subdivisions (892) 8 (884)
Other securities (1,459) 126 (1,333)
Corporate securities 3 300 303
Trading account (57) (58) (115)
Interest-bearing deposits with banks (94) (21) (115)
Federal funds sold (229) 83 (146)
-------- -------- --------
Total interest income 13,049 (1,416) 11,633
Interest paid on:
Demand deposits 1,012 61 1,073
Savings deposits 508 (349) 159
IRA/Keogh 220 (604) (384)
Time deposits 256 (654) (398)
Federal funds purchased and securities
sold under repurchase agreements (21) 190 169
Other borrowings 628 49 677
-------- -------- --------
Total interest expense 2,603 (1,307) 1,296
-------- -------- --------
Increase (decrease) in net interest income $11,946 (2,102) 9,844
======== ======== ========
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>
XXX BEGIN PAGE 28 HERE XXX
PART II
OTHER INFORMATION
Item 1. Litigation
Doris Lockhart et al. v. J. L. Lovett et al.,
---------------------------------------------
Circuit Court, First Judicial District, Hinds County, Mississippi.
Plaintiffs originally filed a lawsuit against Lovett based upon
alleged violations of the Truth In Lending Act and the Mississippi
Home Solicitation Sales Act in connection with contracts and deeds
of trust solicited by Lovett that were later assigned to Sunburst
Financial Services, Inc. ("Rapid"), a wholly owned subsidiary of
the Company. On July 1, 1994, the jury returned verdicts against
Rapid totaling approximately $1,872,000. Rapid is also liable for
attorneys' fees relating to the Truth In Lending claims. The
Company's insurance carrier has posted a supersedeas bond and
perfected the appeal of this judgement. Management believes that
any costs to the Company will be immaterial.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on page 29 hereof
(b) Reports on Form 8-K
A report on Form 8-K dated September 28, 1994, was filed on October
3, 1994. Such report was filed to report that GSSC and Union Planters
Corporation ("UPC") will incur certain one-time charges.
A report on Form 8-K dated October 20 1994, was filed on October 21,
1994. Such report was filed to report GSSC earnings information for the third
quarter of 1994.
</PAGE>
XXX BEGIN PAGE 29 HERE XXX
EXHIBIT INDEX
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement and Plan of Reorganization dated July 1, 1994 by and
among Union Planters Corporation, GSSC Acquisition Company,
Inc., Grenada Sunburst System Corporation, Sunburst Bank,
Mississippi and Sunburst Bank, Louisiana (filed as Exhibit 2.1
to the Company's Report on Form 8-K/A filed August 2, 1994, and
incorporated herein by reference)
10.1 Equity Share Bonus Plan and Participation Agreement, as amended
(filed as Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, and incorporated
herein by reference)
10.2 Deferred Compensation Agreement (filed as Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991, and incorporated herein by reference)
10.3 Management Incentive Compensation Plans (filed as Exhibit 10.3
to the Company'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 Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1994, and incorporated herein by reference)
10.5 Purchase and Assumption Agreement among Eastover Bank for
Savings and Grenada Sunburst System Corporation and Sunburst
Bank, Mississippi dated July 22, 1992, (filed as Appendix H of
the Company's Registration Statement on Form S-4 (Reg. No. 33-
53170) and incorporated herein by reference)
27.1 Grenada Sunburst System Corporation Financial Data Schedule
for the nine months ended September 30, 1994
</PAGE>
XXX BEGIN PAGE 30 HERE XXX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRENADA SUNBURST SYSTEM CORPORATION
(Registrant)
Date: November 14, 1994
-----------------
/s/ D. L. Holland
--------------------------------------------
D. L. Holland, Treasurer and Chief Financial
Officer (Principal Financial and Accounting
Officer and Officer Duly Authorized to sign
on Behalf of Registrant)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 142,683
<INT-BEARING-DEPOSITS> 1,126
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,000
<INVESTMENTS-CARRYING> 456,761
<INVESTMENTS-MARKET> 448,435
<LOANS> 1,695,765
<ALLOWANCE> 32,898
<TOTAL-ASSETS> 2,510,895
<DEPOSITS> 2,222,374
<SHORT-TERM> 54,223
<LIABILITIES-OTHER> 21,200
<LONG-TERM> 24,355
<COMMON> 9,493
0
0
<OTHER-SE> 179,250
<TOTAL-LIABILITIES-AND-EQUITY> 2,510,895
<INTEREST-LOAN> 102,573
<INTEREST-INVEST> 23,774
<INTEREST-OTHER> 2,683
<INTEREST-TOTAL> 129,030
<INTEREST-DEPOSIT> 44,441
<INTEREST-EXPENSE> 46,447
<INTEREST-INCOME-NET> 82,583
<LOAN-LOSSES> 2,765
<SECURITIES-GAINS> (145)
<EXPENSE-OTHER> 72,381
<INCOME-PRETAX> 30,188
<INCOME-PRE-EXTRAORDINARY> 30,188
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,891
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 5.03
<LOANS-NON> 2,608
<LOANS-PAST> 2,591
<LOANS-TROUBLED> 294
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32,749
<CHARGE-OFFS> 3,541
<RECOVERIES> 925
<ALLOWANCE-CLOSE> 32,898
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 32,898
</TABLE>
