1
EXHIBIT 99.5
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(1) The unaudited pro forma combined condensed information presented herein is
not necessarily indicative of the results of operations or the combined
financial position that would have resulted had the acquisitions been
consummated at the beginning of the applicable periods presented, nor is it
necessarily indicative of the results of operations in future periods or
the future financial position of the combined entities.
(2) The Deposit Guaranty acquisition will be accounted for on a "pooling of
interests" accounting basis, and accordingly the related pro forma
adjustments herein reflect, where applicable, an Exchange Ratio of 1.17
shares of First American Common Stock for each of the 41,597,648 shares of
Deposit Guaranty Common Stock which were outstanding at March 31, 1998.
As a result, information was adjusted for the acquisitions by the (i)
addition of 48,669,248 shares of First American Common Stock amounting to
$121,672,500; (ii) elimination of 41,597,648 shares of Deposit Guaranty
Common Stock; and (iii) recording the difference of $98,973,000 as a
decrease to capital surplus.
(3) In connection with the merger, the companies expect to incur certain
restructuring and merger-related costs, including investment banking,
legal, accounting, and other related transaction costs and fees.
Additionally, the companies expect to incur other restructuring and
merger-related costs associated with the integration of the separate
companies and institution of efficiencies anticipated as a result of the
charges to be recognized in connection with the merger is estimated to be
approximately $71 million, after tax. Such items include severance of
$27,000,000, systems and software write-offs of $13,000,000, facilities
contracts of $18,000,000 and a $15,000,000 contribution to the charitable
foundation and other items which in total amount to $71,000,000, after tax.
These restructuring and merger related costs will be charged to expense in
the period in which the Merger is consummated, or in subsequent periods
when incurred. The restructuring and merger related expenses can only be
estimated at this time, and are subject to revision as further information
becomes available.
(4) Income per share data has been computed in accordance with FASB No. 128
based on the combined historical net income applicable to the First
American shareholders and Deposit Guaranty shareholders using the
historical weighted average shares outstanding of First
2
American Common Stock and the weighted average outstanding shares of
Deposit Guaranty, adjusted to equivalent shares of First American Common
Stock, as of the earliest applicable period presented.
(5) Certain insignificant reclassifications have been included herein to
conform statement presentations. Transactions conducted in the ordinary
course of business between First American and Deposit Guaranty are
immaterial and, accordingly, have not been eliminated.
(6) First American expects to realize significant revenue enhancements and cost
savings from the Deposit Guaranty acquisition. The pro forma financial
information, which does not reflect any revenue enhancements or potential
savings from the consolidation of operations of First American and Deposit
Guaranty, is not indicative of future operations. No assurance can be given
with respect to the ultimate level of revenue enhancements or cost savings.
To the extent that statements in this report relate to the plans,
objectives or future performance of First American Corporation, these
statements may be deemed to be forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on Management's current expectations and the current
economic environment. Actual strategies and results in future periods may
differ materially from those currently expected due to various risks and
uncertainties. Additional discussion of factors affecting First American's
business and prospects is contained in the Company's periodic filings with
the Securities and Exchange Commission.
3
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Statements of Condition - December 31, 1997 and 1996
Consolidated Statements of Earnings - Years Ended December 31, 1997,
1996, and 1995
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
1996, and 1995
Notes to Consolidated Financial Statements
4
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Deposit Guaranty Corp.:
We have audited the consolidated financial statements of
Deposit Guaranty Corp. and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Deposit Guaranty Corp. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Jackson, Mississippi KPMG Peat Marwick LLP
February 12, 1998
5
CONSOLIDATED STATEMENTS OF CONDITION
Deposit Guaranty Corp.
(In Thousands Except Share Data) December 31,
- -------------------------------- ------------
1997 1996
---- ----
Assets
Cash and due from banks $ 418,137 $ 385,009
Interest-bearing bank balances 11,218 1,732
Federal funds sold and securities purchased under agreements to resell 59,590 47,640
Trading account securities 1,459 2,505
Securities available for sale 1,424,527 1,462,038
Investment securities (fair value: 1997-$181,266; 1996-$152,412) 174,952 145,087
Loans 4,431,683 3,979,877
Allowance for loan losses (64,651) (62,205)
--------------- --------------
Net loans 4,367,032 3,917,672
------------ ------------
Premises and equipment 171,190 148,327
Intangible assets 137,084 89,239
Other assets 174,538
183,648
Total assets $ 6,939,727 $ 6,382,897
=========== ===========
Liabilities
Deposits:
Noninterest-bearing $ 1,270,344 $ 1,160,914
Interest-bearing 4,103,618 3,864,835
------------ ------------
Total deposits 5,373,962 5,025,749
Federal funds purchased, securities sold under agreements to repurchase
and other short-term borrowings 642,812 543,029
Long-term liabilities 186,397 99,405
Other liabilities 101,318 133,448
------------- -------------
Total liabilities 6,304,489 5,801,631
------------ ------------
Stockholders' equity
Cumulative preferred stock, no par value, authorized: 25,000,000 shares
of class A voting; and 25,000,000 shares of class B non-voting; issued
and outstanding: none - -
Common stock, no par value, authorized 100,000,000 shares; issued and
outstanding: 1997 - 40,830,231 shares; 1996 - 39,185,394 shares 22,355 21,491
Surplus 154,748 174,995
Retained earnings 455,872 383,211
Unrealized gain on securities available for sale, net of deferred income taxes 2,263 1,569
--------------- ---------------
Total stockholders' equity 635,238 581,266
------------- -------------
Total liabilities and stockholders' equity $ 6,939,727 $ 6,382,897
=========== ===========
See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF EARNINGS
Deposit Guaranty Corp.
(In Thousands Except Share Data) Year Ended December 31,
- -------------------------------- -----------------------
1997 1996 1995
---- ---- ----
Interest income
Interest and fees on loans $ 372,016 $ 327,065 $ 287,742
Interest on investment securities:
Taxable 13,531 10,467 87,896
Exempt from Federal income tax 6 1 8,180
Interest on securities available for sale:
Taxable 87,186 72,576 10,095
Exempt from Federal income tax 10,048 11,383 967
Interest on trading account securities 221 416 354
Interest on Federal funds sold and securities purchased under agreements to resell 2,264 9,989 6,317
Interest on bank balances 193 325 1,153
------------ --------- ----------
Total interest income 485,465 432,222 402,704
---------- ---------- ----------
Interest expense
Interest on deposits 163,779 151,375 143,640
Interest on Federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings 28,780 27,222 29,792
Interest on long-term liabilities 8,310 4,091 -
------------ ------------ ----------
Total interest expense 200,869 182,688 173,432
---------- ---------- ----------
Net interest income 284,596 249,534 229,272
Provision for loan losses 7,500 5,340 2,160
------------ ------------ -----------
Net interest income after provision for loan losses 277,096 244,194 227,112
---------- ---------- ----------
Other operating income
Service charges on deposit accounts 42,143 35,584 32,084
Fees for trust services 19,084 16,413 14,793
Gains on securities transactions 2,086 118 919
Other service charges, commissions and fees 63,266 56,624 39,250
Other 7,024 8,506 4,943
----------- ------------ ------------
Total other operating income 133,603 117,245 91,989
---------- ---------- -----------
Other operating expense
Salaries and employee benefits 139,792 129,660 111,556
Net occupancy 19,523 16,073 13,838
Equipment 20,083 17,618 16,196
Service fees 17,428 16,237 12,735
Communication 12,430 10,607 9,100
FDIC assessment 689 94 4,906
Advertising and public relations 10,851 9,484 8,668
Intangible amortization 11,580 6,917 5,734
Other 38,671 30,518 28,719
----------- ----------- -----------
Total other operating expense 271,047 237,208 211,452
---------- ---------- ----------
Income before income taxes 139,652 124,231 107,649
Income tax expense 47,372 40,621 35,029
----------- ----------- -----------
Net income $ 92,280 $ 83,610 $ 72,620
========== ========== ==========
Net income per share:
Basic $ 2.25 $ 2.16 $ 1.89
Diluted 2.23 2.14 1.87
Weighted average shares outstanding:
Basic 41,082,356 38,760,192 38,431,162
Diluted 41,413,294 39,006,669 38,780,032
See accompanying notes to consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Deposit Guaranty Corp.
Unrealized
Gain on
Securities
Common Retained Available Treasury
(In Thousands Except Share Data) Stock Surplus Earnings For Sale Stock Total
- --------------------------------- ----- ------- -------- -------- ----- -----
Balance, December 31, 1994 $ 19,361 $ 154,726 $ 269,508 $ 1,973 $ (2,019) $ 443,549
Net income for 1995 - - 72,620 - - 72,620
Net change in unrealized gain on securities
available for sale, net of deferred income
tax of $10,447 - - - 17,117 - 17,117
Cash dividends declared ($ .605 per share) - - (23,075) - - (23,075)
Issuance of 6,114,582 shares of common stock
in acquisitions 3,348 64,094 8,580 - - 76,022
Purchase of 2,645,800 shares and retirement
of 2,785,800 shares of common stock (1,526) (49,253) - - 2,019 (48,760)
Issuance of 134,400 shares of common stock
under executive stock option plan 74 1,027 - - - 1,101
Tax benefit from exercise of stock options - 479 - - - 479
------------------------------------------------------------------------
Balance, December 31, 1995 21,257 171,073 327,633 19,090 - 539,053
Net income for 1996 - - 83,610 - - 83,610
Net change in unrealized gain on securities
available for sale, net of deferred income
tax of $10,656 - - - (17,521) - (17,521)
Cash dividends declared ($ .715 per share) - - (28,000) - - (28,000)
Issuance of 1,687,888 shares of common stock
in acquisitions 926 36,523 (32) - - 37,417
Purchase and retirement of 1,629,900 shares
of common stock (894) (38,206) - - - (39,100)
Issuance of 368,120 shares of common stock
under executive stock option plan 202 3,643 - - - 3,845
Tax benefit from exercise of stock options - 1,962 - - - 1,962
------------------------------------------------------------------------
Balance, December 31, 1996 21,491 174,995 383,211 1,569 - 581,266
Net income for 1997 - - 92,280 - - 92,280
Net change in unrealized gain on securities
available for sale, net of deferred income
tax of $375 - - - 694 - 694
Cash dividends declared ($ .830 per share) - - (33,558) - - (33,558)
Issuance of 4,410,470 shares of common stock
in acquisitions 2,378 68,220 13,939 - - 84,537
Purchase and retirement of 2,900,636 shares
of common stock (1,588) (91,337) - - - (92,925)
Issuance of 135,003 shares of common stock
under executive stock option plan 74 1,857 - - - 1,931
Tax benefit from exercise of stock options - 1,013 - - - 1,013
----------------------------------------------------------------------------
Balance, December 31, 1997 $ 22,355 $ 154,748 $ 455,872 $ 2,263$ - $ 635,238
============================================================================
See accompanying notes to consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Deposit Guaranty Corp.
(In Thousands) Year Ended December 31,
1997 1996 1995
--------------------------------
Cash flows from operating activities
Net income $ 92,280 $ 83,610 $ 72,620
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 7,500 5,340 2,160
Provision for losses on other real estate 736 165 154
Provision for depreciation and amortization 38,769 31,176 25,998
Provision for deferred income taxes 6,847 1,979 (3,259)
Amortization (accretion) of premium (discount) on investment securities, net 86 563 (23,339)
Accretion of discount on securities available for sale, net (2,641) (3,477) (666)
Deferred loan fees and costs (2,251) (2,677) (2,716)
Decrease in other liabilities (10,518) (7,034) (3,306)
Increase in other assets (4,300) (9,378) (11,940)
Net cash received from (paid for) loans held for resale 56,120 (19,796) (49,934)
Gains on securities available for sale transactions (323) (12) (919)
Gains on investment securities transactions (1,763) (106) -
Other, net (1,900) 6,269 (4,621)
---------------------------------
Net cash provided by operating activities 178,642 86,622 232
---------------------------------
Cash flows from investing activities
Net (increase) decrease in interest-bearing bank balances (9,423) (1,732) 135,298
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell 51,896 399,129 (209,410)
Proceeds from sales of securities available for sale 1,551,028 1,391,991 423,530
Proceeds from maturities and principal repayments of investment securities 65,956 46,077 816,065
Proceeds from maturities and principal repayments of securities available for sale 209,693 545,643 174,371
Purchases of investment securities (88,619) (52,104) (643,049)
Purchases of securities available for sale (1,600,939)(2,154,049) (492,674)
Net increase in loans (149,658) (284,040) (348,698)
Proceeds from sales of other real estate 3,384 4,591 3,578
Purchases of premises and equipment (25,607) (18,263) (18,551)
Proceeds from sales of premises and equipment 1,602 742 586
Payment for purchase of common stock of acquired companies and other acquisition costs (28,952) (3,593) (19,739)
Cash and due from banks of acquired companies 38,365 8,304 26,646
----------------------------------
Net cash provided (used) by investing activities 18,726 (117,304) (152,047)
----------------------------------
Cash flows from financing activities
Net increase (decrease) in deposits (217,902) 101,217 238,759
Net increase (decrease) in Federal funds purchased, securities sold
under agreements to repurchase, and other short-term borrowings 91,981 (66,851) 31,963
Repayment of line of credit to fund loans held for resale - - (32,955)
Proceeds from long-term liabilities 85,000 99,381 -
Proceeds from the exercise of common stock options 1,931 3,845 1,101
Purchases of common stock (92,925) (39,100) (48,760)
Cash dividends paid (32,325) (26,507) (21,355)
----------------------------------
Net cash provided (used) by financing activities (164,240) 71,985 168,753
----------------------------------
Increase in cash and due from banks 33,128 41,303 16,938
Cash and due from banks at beginning of year 385,009 343,706 326,768
----------------------------------
Cash and due from banks at year end $ 418,137 $ 385,009 $ 343,706
==================================
Income taxes: The Company made income tax payments of $37.2 million, $38.6
million and $35.5 million during the years ended December 31, 1997, 1996 and
1995, respectively.
Interest: The Company paid $197.6 million, $183.3 million and $168.7 million in
interest on deposits and other borrowings during the years ended December 31,
1997, 1996 and 1995, respectively.
See accompanying notes to consolidated financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deposit Guaranty Corp.
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS
The Company and its subsidiaries are engaged in the general banking
business and activities closely related to banking. Banking services are
provided primarily to customers in Mississippi, Louisiana and Arkansas through
the Company's banking subsidiary. The Company is subject to the regulations of
certain federal agencies and undergoes periodic examinations by those regulatory
authorities.
On December 8, 1997, the Company announced an agreement to be acquired
by First American Corp. headquartered in Nashville, Tennessee. The merger is
expected to take place during the second quarter of 1998 in a tax free exchange
of common stock and is expected to be accounted for as a pooling of interests.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, the Company is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the dates of
the statements of condition and the reported amounts of revenues and expenses
for the years then ended. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowance for loan losses and real estate owned, the Company obtains independent
appraisals for significant properties.
The Company believes that the allowances for loan losses and real
estate owned are adequate. While the Company uses available information to
recognize losses on loans and real estate owned, future adjustments to the
allowances may be necessary based on changes in economic conditions.
ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements of the Company include Deposit
Guaranty Louisiana Corp. (DGLC) and G & W Life Insurance Co., wholly-owned
subsidiaries and Deposit Guaranty National Bank (DGNB), a wholly-owned
subsidiary of DGLC. All significant intercompany accounts and transactions have
been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers only cash and amounts due from banks to be cash
equivalents.
TRADING ACCOUNT SECURITIES
Trading account securities are reported at fair value. Realized and
unrealized gains or losses on trading account securities are reflected in other
operating income.
SECURITIES AVAILABLE FOR SALE
Securities available for sale prior to maturity are reported at fair value
with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of related deferred income
taxes. Premiums are amortized and discounts are accreted using the interest
method. The amortization of premiums and accretion of discounts on
mortgage-backed securities is periodically adjusted to reflect the actual
prepayment experience of the underlying mortgage loans. Gains or losses on the
sale of these securities, computed based on the carrying value of the specific
securities sold, are classified as gains on securities transactions in other
operating income.
INVESTMENT SECURITIES
Investment securities are securities which the Company has the positive
intent and ability to hold to maturity. Investment securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts using the
interest method. The amortization of premiums and discounts on mortgage-backed
securities is periodically adjusted to reflect the actual prepayment
experience of the underlying mortgage loans.
10
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
LOANS
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs.
DERIVATIVE FINANCIAL INSTRUMENTS
TRADING INSTRUMENTS: Derivative financial instruments held for trading
are recorded at fair value. These instruments are used by the Company to
generate additional other operating income. Realized and unrealized gains and
losses on trading positions are recognized in other operating income during the
period in which the gain or loss occurs. Interest income and expense arising
from trading instruments are included in other operating income.
RISK MANAGEMENT INSTRUMENTS: As part of its asset/liability management
activities, the Company may enter into interest rate futures, forwards, swaps
and option contracts. These derivative financial instruments are categorized as
risk management instruments and are carried at fair value unless the instrument
qualifies for hedge accounting treatment. Adjustments on risk management
instruments carried at fair value are reflected in other operating income. Gains
and losses realized on futures and forward contracts qualifying as hedges are
deferred and amortized over the terms of the related assets or liabilities and
are included as adjustments to interest income or interest expense. Settlements
on interest rate swaps and option contracts are recognized over the lives of the
agreements as adjustments to interest income or interest expense.
Interest rate contracts used in connection with the securities
available for sale portfolio are carried at fair value with gains and losses,
net of applicable deferred income taxes, reported in stockholders' equity,
consistent with the reporting of unrealized gains and losses on such securities.
Premiums paid for interest rate floors qualifying for hedge accounting are
deferred and classified with the assets and liabilities hedged and are amortized
to interest income or expense over the life of the instrument.
INTEREST AND FEES ON LOANS
Interest on loans is recognized based on the interest method. The
recognition of interest is suspended on commercial loans when principal or
interest is past due ninety days or more and collateral is inadequate to cover
principal and interest or when, in the opinion of management, full collection is
unlikely. Interest on such loans is subsequently recognized only in the period
in which payments are received, and in certain situations, such payments are
applied to reduce principal when loans are unsecured or collateral values are
deficient. A nonaccrual loan is returned to accrual status provided all
principal and interest amounts are reasonably assured of repayment within a
reasonable period and the borrower has demonstrated sustained payment
performance. Nonrefundable loan fees and direct origination costs are deferred
and amortized over the life of the loan as an adjustment of the yield.
Commitment fees are deferred and recognized as noninterest income over the
commitment period.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered
adequate to provide for reasonably foreseeable potential losses on loans. The
allowance is based on management's evaluation of the loan portfolio considering
economic conditions, volume and composition of the loan portfolio, past
experience and other relevant factors.
Impaired and restructured loans are measured at the present value of
expected future cash flows, discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The difference
between the impaired loan's carrying value and the fair value is recognized as a
valuation adjustment and included in the allowance for loan losses.
OTHER REAL ESTATE OWNED
Other real estate owned includes assets that have been acquired in
satisfaction of debt. Other real estate owned is reported in other assets and is
recorded at the lower of cost or estimated fair value less estimated costs to
sell. Any valuation adjustments required prior to foreclosure are charged to the
allowance for loan losses. Subsequent to acquisition, losses on the periodic
revaluation of the property are charged to current period earnings as other
operating expense. Costs of operating
11
and maintaining the properties, net of related income and gains (losses) on
their disposition, are charged to other operating expense as incurred.
Expenditures to complete or improve properties are capitalized if the
expenditures are expected to be recovered upon the ultimate sale of the
property.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost. Depreciation and
amortization are computed principally using the straight-line method over the
estimated useful lives of the assets. Any gain or loss resulting from
disposition is included in other operating income. Expenditures for maintenance
and repairs are charged to other operating expense and renewals and betterments
are capitalized.
Effective January 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to hold
and use is based on the fair value of the asset. This statement requires that
the majority of long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. The adoption of SFAS No. 121 did not have a material impact on the
consolidated financial statements.
INTANGIBLE ASSETS
Goodwill, representing the excess of the cost of acquisitions over the
fair value of the net assets acquired, is amortized using the straight-line
method over periods not exceeding 15 years. Core deposit intangibles represent
the net present value of the future economic benefits related to the use of
deposits assumed and are amortized on a straight-line basis generally over ten
years.
The Company reviews its intangible assets for possible impairment when
there is a significant event that may detrimentally impact the underlying basis
of the asset.
MORTGAGE SERVICING RIGHTS
Mortgage servicing rights, which represent the right to receive future
servicing income, are amortized over the period of, and in proportion to,
estimated net servicing income. At least annually, the Company evaluates the
carrying amount of its servicing rights for impairment by analyzing the
discounted cash flows of such assets under current market conditions.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the deferred tax
liability or asset is expected to be settled or realized.
NET INCOME PER SHARE
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share. Basic net income per share is based on net income
available to common shareholders divided by the weighted average number of
shares outstanding during each year. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the Company's earnings. The
dilutive effect of securities and contracts potentially convertible to common
stock is calculated using the treasury stock method. Prior periods have been
restated to conform to the new presentation.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
1997 presentation.
12
RECENT PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. SFAS No. 125 requires that an entity recognize
the financial and servicing assets it controls and the liabilities it has
incurred, derecognize financial assets when control has been surrendered, and
derecognize liabilities when extinguished. This statement provides consistent
accounting for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. This statement, as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125," is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is
effective after December 31, 1997, for repurchase agreements, dollar-roll
agreements, securities lending, and similar transactions. The adoption of this
statement did not have a material impact on the consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting comprehensive income
and its components in a full set of general-purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement displayed with the same prominence as other financial
statements. The statement requires that the Company classify items of other
comprehensive income by their nature and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the Statement of Condition. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. The
adoption of this statement will not have a material impact on the financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires that the
Company report financial and descriptive information about its reportable
segments. Financial information is required to be reported on the basis that is
used internally for evaluating segment performance and deciding how to allocate
resources to segments. This statement also requires that the Company report
descriptive information about the way the operating segments were determined,
the products and services provided by the operating segments, differences
between the measurements used in reporting segment information and those used in
the Company's financial statements, and changes in the measurement of segment
amounts from period to period. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The adoption of this
statement will provide additional disclosures in the financial statements for
the year ended December 31, 1998.
NOTE 2 - ACQUISITIONS
Bank mergers and acquisitions completed by the Company during the three
years ended December 31, 1997, along with the related accounting treatment, are
as follows (dollars in millions):
Common Cash Accounting
Financial Institution State Date Assets Shares Issued Paid Treatment
--------------------- ------ ----- ------- ------------- ---- ---------
LBO Bancorp, Inc. LA Jan. 1995 $ 96 1,360,842 $ - Purchase
Citizens National Bancshares, Inc. LA May 1995 193 2,765,688 - Pooling
First Merchants Financial Corporation AR Aug. 1995 280 1,988,052 4 Purchase
Bank of Gonzales Holding Company LA Jun. 1996 126 1,267,346 - Purchase
Tuscaloosa Bancshares, Inc. LA Nov. 1996 41 420,542 - Purchase
Jefferson Guaranty Bancorp, Inc. LA Jan. 1997 299 1,759,688 10 Purchase
First Capital Bancorp, Inc. LA Mar.1997 186 1,568,467 - Pooling
NBC Financial Corporation LA July 1997 69 422,529 - Purchase
CitiSave Financial Corporation LA Aug. 1997 75 - 19 Purchase
For those acquisitions accounted for as a purchase business
combination, the results of operations have been included in the financial
statements from the date of acquisition. The pro forma effect on prior earnings
of such acquisitions is not significant. For acquisitions accounted for as
pooling of interests, the results of operations have been included in the
financial statements from the beginning of the year acquired. Prior year
financial statements have not been restated as the changes would have been
immaterial.
13
In addition to the mergers included in the table above, the Company
acquired a branch operation and two mortgage companies. On March 10, 1995, the
Company purchased the Coahoma County, Mississippi, operations of a local
Mississippi bank. This acquisition added assets of approximately $82 million.
On August 8, 1995, the acquisition of First Mortgage Corp. located in
Omaha, Nebraska, was completed for $15.8 million in a purchase business
combination. At the acquisition date, First Mortgage Corp. had a $1.1 billion
mortgage servicing portfolio and six production offices in Nebraska and
Oklahoma.
On June 29, 1996, the Company purchased for $3.6 million, McAfee
Mortgage and Investment Company, located in Lubbock, Texas, in a transaction
accounted for as a purchase business combination. McAfee Mortgage and Investment
Company has 15 offices located throughout Texas and originated approximately
$240 million in mortgage loans in 1995.
On June 1, 1997, Deposit Guaranty issued 659,786 shares of its common
stock in exchange for the 2% interest in Deposit Guaranty National Bank owned by
minority shareholders. With this acquisition, the Company became the sole
shareholder of Deposit Guaranty National Bank.
On September 24, 1997, Deposit Guaranty entered into a definitive
agreement to acquire Victory Bancshares, Inc. located in Memphis, Tennessee. The
acquisition of Victory Bank, with approximately $115 million in assets, is
expected to be consummated during the first quarter of 1998. The number of
shares of Deposit Guaranty common stock to be exchanged for all of the
outstanding shares of Victory Bancshares will be between 745,650 and 808,435
based on the exchange ratio which will be calculated based on the average market
price of Deposit Guaranty common stock on the twenty consecutive trading days
prior to the effective date. The acquisition of Victory Bancshares is expected
to be accounted for as a pooling of interests.
NOTE 3 - NET INCOME PER SHARE
Net income and weighted average shares used to calculate basic net
income per share and diluted net income per share are presented below (in
thousands except per share data):
Net Number
1997 Income of Shares Per Share
- -----------------------------------------------------------------------------
Basic net income per share $ 92,280 41,082 $2.25
Effect of dilutive securities:
Forward purchase commitment - 18 -
Stock options - 313 -
- ---------------------------------------------------------------------------
Diluted net income per share $ 92,280 41,413 $2.23
======== ====== =====
1996
Basic net income per share $83,610 38,760 $2.16
Effect of dilutive securities:
Stock options - 246 -
- ---------------------------------------------------------------------------
Diluted net income per share $83,610 39,006 $2.14
======= ====== =====
1995
Basic net income per share $72,620 38,431 $1.89
Effect of dilutive securities:
Stock options - 349 -
- ---------------------------------------------------------------------------
Diluted net income per share $72,620 38,780 $1.87
======= ====== =====
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
On November 27, 1995, the Company transferred investment securities
with a carrying amount of $1.1 billion and a fair value of $1.2 billion to
securities available for sale, as allowed by the FASB's Special Report, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities."
14
The amortized cost and estimated fair value of securities available for
sale, and investment securities follow (in thousands):
December 31,
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities available for sale Cost Gains Losses Value
- ----------------------------- ---------------------------------------------------------------
1997
U.S. Treasury and other U.S. Government agencies $ 555,614 $ 1,170 $ (1,785) $ 554,999
Obligations of states and political subdivisions 179,021 3,877 (190) 182,708
Mortgage-backed securities 686,283 1,675 (1,138) 686,820
------- ----- ------- -------
$1,420,918 $ 6,722 $ (3,113) $1,424,527
========== ======= ========= ==========
1996
U.S. Treasury and other U.S. Government agencies $ 715,808 $ 2,994 $ (7,287) $ 711,515
Obligations of states and political subdivisions 175,977 6,092 (1,236) 180,833
Mortgage-backed securities 567,235 3,008 (1,982) 568,261
Other securities 1,424 5 - 1,429
--------------------------------------------------------------
$1,460,444 $12,099 $(10,505) $1,462,038
========== ======= ========= ==========
December 31,
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Investment securities Cost Gains Losses Value
- --------------------- ---------------------------------------------------------------
1997
U.S. Treasury and other U.S. Government agencies $ 9,369 $ - $ (59) $ 9,310
Obligations of states and political subdivisions 55 - - 55
Mortgage-backed securities 18,375 1,467 - 19,842
Other securities 147,153 4,907 (1) 152,059
------- ----- --- -------
$ 174,952 $ 6,374 $ (60) $ 181,266
========== ======= ========= ==========
1996
U.S. Treasury and other U.S. Government agencies $ 9,379 $ - $ (110) $ 9,269
Obligations of states and political subdivisions 105 - - 105
Mortgage-backed securities 60,581 5,047 - 65,628
Other securities 75,022 2,423 (35) 77,410
------ ----- ---- ------
$ 145,087 $ 7,470 $ (145) $ 152,412
========== ======= ========= ==========
The amortized cost and estimated fair value of securities available for
sale and investment securities at December 31, 1997, by contractual maturity,
are shown below (in thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Estimated
Amortized Fair
Securities available for sale Cost Value
- ----------------------------- ---- -----
Due in one year or less $ 24,221 $ 24,272
Due after one year through five years 285,773 287,343
Due after five years through ten years 273,491 274,714
Due after ten years 151,150 151,378
------- -------
734,635 737,707
Mortgage-backed securities 686,283 686,820
------- -------
$ 1,420,918 $ 1,424,527
=========== ===========
15
Estimated
Amortized Fair
Investment securities Cost Value
- ---------------------- ---- -----
Due in one year or less $ 6,266 $ 6,290
Due after one year through five years 20,962 20,955
Due after five years through ten years 116,450 121,280
Due after ten years 12,899 12,899
------ ------
156,577 161,424
Mortgage-backed securities 18,375 19,842
------ ------
$ 174,952 $ 181,266
========= =========
Gross gains of $8.3 million, $10.8 million and $1.2 million and gross
losses of $7.9 million, $10.8 million and $338 thousand were realized on sales
of securities available for sale in 1997, 1996, and 1995, respectively. Included
in gross gains for 1997, 1996 and 1995 were $1.7 million, $107 thousand and $829
thousand, respectively related to premiums received for exercised written option
contracts on securities available for sale.
Securities available for sale and investment securities with a carrying
amount of $1,194.0 million (fair value $1,196.8 million) at December 31, 1997
were pledged to secure public and trust deposits, for repurchase agreements, and
for other purposes.
NOTE 5 - LOANS
The Company makes commercial, financial, agribusiness, real estate and
consumer loans to customers. Although the Company has a diversified loan
portfolio, a substantial portion of its loan portfolio is concentrated in the
states of Mississippi, Louisiana and Arkansas. Loans held for sale at December
31, 1997 and 1996 were $241.1 million and $295.1 million, respectively. The
valuation allowance on such loans at December 31, 1997 and 1996 was not
significant. The Company services mortgage loans, and at December 31, 1997, 1996
and 1995, the loan servicing portfolio approximated $3.8 billion, $3.8 billion
and $3.5 billion, respectively. The composition of the loan portfolio follows
(in thousands):
December 31,
1997 1996
----------------------------
Commercial, financial and agricultural $ 1,261,556 $ 1,104,648
Real estate - construction 207,322 170,711
Real estate - mortgage 2,001,094 1,800,031
Consumer 961,711 904,487
----------- -----------
Total loans $ 4,431,683 $ 3,979,877
=========== ===========
In the ordinary course of business, the Company makes loans to its
directors and principal officers of its subsidiaries, as well as other related
parties. In the opinion of management, such loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other parties. A summary of changes in
such loans during 1997 follows (in thousands):
Balance at January 1 $ 45,402
Additions 157,856
Reductions (including participations sold) (159,169)
----------
Balance at December 31 $ 44,089
==========
16
Transactions in the allowance for loan losses follow (in thousands):
1997 1996 1995
---- ---- ----
Balance at January 1 $ 62,205 $ 58,719 $ 55,873
Additions due to acquisitions 7,541 2,062 4,652
Loans charged-off (22,851) (14,309) (12,324)
Recoveries on loans previously charged-off 10,256 10,393 8,358
------ ------ -----
Net charge-offs (12,595) (3,916) (3,966)
Provision for loan losses 7,500 5,340 2,160
----- ----- -----
Balance at December 31 $ 64,651 $ 62,205 $ 58,719
======== ======== ========
The Company's total recorded investment in impaired loans as of
December 31, 1997 and 1996 was $16.6 million and $11.7 million, respectively.
Included in the balance of impaired loans at December 31, 1997 and 1996 is $6.4
million and $4.0 million which have related allowances of $2.8 million and $782
thousand, respectively for estimated credit losses determined in accordance with
the provisions of SFAS No. 114. The remaining $10.2 million and $7.7 million of
the balance of impaired loans at December 31, 1997 and 1996, respectively do not
require an allowance under the provisions of SFAS No. 114 since the estimated
discounted future cash flows or the collateral value was considered sufficient
to cover any future deficiencies in loan payments. However, a general allowance
for loan losses is available to absorb losses on these loans. The average
recorded investment in impaired loans for the years ended December 31, 1997 and
1996 was $16.3 million and $14.5 million, respectively. All impaired loans are
on nonaccrual status and are subject to the nonaccrual method for interest
income recognition. There was no interest income recognized in 1997, 1996 and
1995 on loans identified as impaired.
Loans on a nonaccrual status amounted to approximately $21.2 million at
December 31, 1997 and $16.4 million at December 31, 1996. The effect on interest
income of nonaccrual loans was not material in 1997, 1996 or 1995. Restructured
loans were not significant in 1997 and 1996.
Other real estate owned was $5.0 million at December 31, 1997 and
December 31, 1996. Transactions in the allowance for losses on other real estate
follow (in thousands):
1997 1996 1995
---- ---- ----
Balance at January 1 $ 1,236 $ 1,730 $ 2,024
Additions due to acquisitions 209 197 -
Provision charged to expense 736 165 154
Losses charged to the allowance (608) (856) (448)
----- ----- ----
Balance at December 31 $ 1,573 $ 1,236 $ 1,730
======= ======= =======
NOTE 6 - PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
December 31,
1997 1996
-----------------------
Land $ 34,030 $ 27,485
Buildings and leasehold improvements 196,831 177,087
Furniture and equipment 122,911 107,465
------- -------
353,772 312,037
Less: Accumulated depreciation and amortization (182,582) (163,710)
--------- --------
Premises and equipment, net $ 171,190 $ 148,327
========= =========
NOTE 7 - DEPOSITS
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000, was $481.9 million and $395.6 million at December 31,
1997 and 1996, respectively.
17
NOTE 8 - SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other short
term borrowings consist of term federal funds purchased and treasury tax and
loan deposits and generally are repaid within one to 120 days from the
transaction date.
Information concerning securities sold under agreements to repurchase is
summarized as follows (dollars in thousands):
1997 1996
---- ----
Average balance during the year $ 311,623 $ 280,876
Maximum month-end balance during the year 394,029 346,215
Balance at December 31 394,029 271,435
Average interest rate during the year 4.74% 4.65%
Securities underlying the repurchase agreements remain under the Company's
control.
NOTE 9 - LONG-TERM LIABILITIES
In April 1996, the Company issued $100 million in 7.25% Senior Notes due in
2006. These notes are not callable prior to maturity and no sinking fund
is required. Interest on the notes is paid semi-annually. During 1997, the
Company received $85 million in advances from the Federal Home Loan Bank. The
advances, which accrue interest at a variable rate of interest with an average
rate of 5.73% at December 31, 1997, mature in 2004. The advances are
collateralized by Federal Home Loan Bank stock and first mortgage real
estate loans. Interest on the advances is paid monthly. The table below
shows the components of long-term liabilities included in the Company's
statements of condition (in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Par Carrying Par Carrying
Value Amount Value Amount
Senior notes $ 100,000 $ 101,397 $ 100,000 $ 99,405
Federal Home Loan Bank advances 85,000 85,000 - -
------ ------ --------- ----------
Total $ 185,000 $ 186,397 $ 100,000 $ 99,405
========= ========= ========= ==========
The Company maintains a $50 million line of credit at a commercial bank.
The line of credit, which is for general corporate purposes, bears interest at
an adjustable rate based on LIBOR and expires in May 1998. There is no
commitment fee or compensating balance arrangement relating to this line of
credit and there was no balance outstanding at December 31, 1997 or 1996.
NOTE 10 - LEASES
Operating leases (primarily for branch bank space) expire at various
dates. Most of these leases may be renewed beyond their present expiration
dates. Future minimum payments under noncancelable operating leases with initial
or remaining terms of one year or more at December 31, 1997, follow (in
thousands):
1998 $ 3,146
1999 2,500
2000 2,156
2001 843
2002 796
Thereafter 3,650
-----
Total minimum lease payments $ 13,091
========
18
At December 31, 1997, the Company leases office space to others with
expirations at various dates through 2005. These leases have an average term of
approximately three years and require total minimum rentals of approximately
$19.1 million. Most of these leases may be renewed beyond their present
expiration dates.
Rental expense of $10.5 million, $7.1 million, and $5.8 million in
1997, 1996 and 1995 respectively, included amounts for short-term cancelable
leases and minimum rentals under operating leases.
NOTE 11 - INCOME TAXES
Total income tax expense was allocated as follows (in thousands):
1997 1996 1995
---- ---- ----
Income before income taxes $ 47,372 $ 40,621 $ 35,029
Other noncurrent intangible assets, for recognition of acquired tax
benefits that previously were included in the valuation allowance - - (2,949)
Other noncurrent intangible assets, for recognition of acquired tax
benefits relating to a prior purchase business combination - - (181)
Stockholders' equity, for compensation expense for tax purposes in
excess of amount recognized for financial reporting purposes (1,013) (1,962) (479)
Stockholders' equity, for gains on securities available for sale for
financial reporting purposes 375 (10,656) 10,447
-------- --------- ------
$ 46,734 $ 28,003 $ 41,867
======== ========= ========
The current and deferred components of income tax expense follow (in
thousands):
1997 1996 1995
---- ---- ----
Current
Federal $ 38,250 $ 36,900 $ 36,020
State 1,600 1,742 2,268
Deferred
Federal 6,903 1,835 (2,673)
State 619 144 (586)
--- --- ----
$ 47,372 $ 40,621 $ 35,029
======== ======== ========
The differences between the income tax expense shown on the
consolidated statements of earnings and the amounts computed by applying the
Federal income tax rate of 35% to income before income taxes follow (in
thousands):
1997 1996 1995
---- ---- ----
Amount computed at statutory tax rates $ 48,878 $ 43,481 $ 37,677
Increases (decreases):
Cash surrender value of life insurance (1,680) (1,461) (1,834)
Tax exempt interest income (4,189) (4,840) (3,951)
Amortization of intangible assets 2,508 1,406 926
State income taxes, net 1,443 1,226 1,093
Other, net 412 809 1,118
--- --- -----
$ 47,372 $ 40,621 $ 35,029
======== ======== ========
19
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset follow (in thousands):
December 31,
1997 1996
--------------------------
Deferred tax assets
Allowance for loan losses $ 24,909 $ 23,815
Other real estate owned 947 700
Deferred compensation 12,396 11,503
Investment tax credit carryforwards 1,548 2,398
Other 7,297 5,718
----- -----
Total gross deferred tax asset $ 47,097 $ 44,134
--------- --------
Deferred tax liabilities
Bank premises and equipment $ 7,314 $ 4,505
Pension plan 5,592 4,931
Leveraged leases - 225
Core deposit intangibles 12,175 8,472
Mortgage servicing rights 10,031 7,989
Unrealized gain on securities available for 1,345 970
sale
Other 2,787 1,574
----- -----
Total gross deferred tax liability 39,244 28,666
------ ------
Net deferred tax asset $ 7,853 $ 15,468
========= ========
There was no valuation allowance for the gross deferred tax asset as of
December 31, 1997, 1996 and 1995. The net change in the total valuation
allowance for the year ended December 31, 1995 was a decrease of $3.0 million.
This decrease is due to management's belief that it is now more likely than not
that DGLC will be able to utilize the entire portion of the investment tax
credit carryforwards.
At December 31, 1997, the Company had investment tax credit
carryforwards for federal income tax purposes of approximately $1.6 million
which are available to reduce DGLC's future federal income taxes, if any,
through 2001.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and anticipated future taxable income over the periods which the deferred
tax assets are realizable, management believes it is more likely than not the
Company will realize the benefits of these deferred tax assets.
Income taxes resulting from securities transactions were $731 thousand,
$41 thousand, and $322 thousand in 1997, 1996 and 1995, respectively.
20
NOTE 12 - EMPLOYEE BENEFIT PLANS
The Company has the following employee benefit plans:
- A defined benefit pension plan based upon age, length of employment and
hours of service covering substantially all employees; - A retirement
savings plan covering substantially all employees; - Deferred compensation
and stock plans covering certain key executives, directors, and advisory
directors; - Incentive stock plan covering certain key executives; and -
Employee stock purchase plan available to all full-time employees who have
attained legal majority and have one year of continuous service.
Employee benefit expense (benefit) related to these plans follows (in
thousands):
1997 1996 1995
---- ---- ----
Pension plan $ (817) $ (436) $ (17)
Retirement savings plan 3,411 2,902 2,693
Deferred compensation plan 3,964 3,695 3,253
Other plans 868 793 393
--- --- ---
$ 7,426 $ 6,954 $ 6,322
======= ======= =======
Benefits under the defined benefit pension plan are based on years of
service and the employee's compensation during the last five years of
employment. The Company's funding policy is to contribute an amount which will
satisfy the minimum funding requirements of ERISA and will not exceed the
maximum tax-deductible amount allowed by the IRS. The annual contribution is
determined by an enrolled actuary and incorporates benefits earned to date and
in the future.
21
The following table sets forth the plan's funded status and amount
recognized in the Company's consolidated statements of condition (in thousands):
December 31,
1997 1996
----------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $97,016
in 1997 and $88,855 in 1996. $ 99,182 $ 90,622
---------- ----------
Projected benefit obligation for service rendered to date $ 115,038 $ 104,546
Plan assets at fair value, primarily corporate securities 171,978 134,853
------- -------
Plan assets in excess of projected benefit obligation 56,940 30,307
Unrecognized net gain from past experience different from that assumed (42,617) (16,818)
Prior service cost not yet recognized in net periodic pension cost 1,629 1,807
Unrecognized net asset, net of amortization over a fifteen-year period (1,853) (2,192)
------- ------
Prepaid pension cost $ 14,099 $ 13,104
========== ==========
Net pension benefit included the following components (in thousands):
1997 1996 1995
---- ---- ----
Service cost - benefits earned during the year $ 4,375 $ 3,656 $ 2,781
Interest cost on projected benefit obligation 7,681 6,954 6,318
Actual return on plan assets (38,910) (10,734) (8,571)
Net amortization and deferral 26,037 (312) (545)
-------- ----- -----
Net periodic pension benefit $ (817) $ (436) $ (17)
========== ========= =========
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.25% in 1997 and 1996.
The rate of increase in future compensation was 5.0% in 1997 and 1996 and the
expected long-term rate of return on plan assets was 9.0% in 1997 and 1996.
Under the retirement savings plan, the Company automatically
contributes an amount equal to 2% of each participant's base salary to the plan.
A participant, in addition, may elect to contribute up to 15% of base salary to
the plan. The Company contributes an additional amount to the plan equal to 50%
of the participant's contribution up to 5% of base salary.
Participants of the deferred compensation plan can defer a portion of
their compensation for payment after retirement or termination of employment.
Life insurance contracts have been purchased which may be used to fund payments
under the plan.
The incentive stock plan includes the granting of incentive stock
options, nonqualified stock options, stock appreciation rights, and restricted
stock awards. Stock options are granted at a price equal to the market value of
the stock at the date of grant and are exercisable for a period not to exceed
ten years from the date of grant. The maximum number of shares subject to the
plan is 1.91 million.
The Company accounts for the incentive stock plan under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation cost
for the plan been determined consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts (in thousands except per share data):
1997 1996 1995
---- ---- ----
Net income
As reported $ 92,280 $ 83,610 $ 72,620
Pro forma 91,565 82,482 71,364
Basic net income per share
As reported $ 2.25 $ 2.16 $ 1.89
Pro forma 2.23 2.13 1.86
Diluted net income per share
As reported $ 2.23 $ 2.14 $ 1.87
Pro forma 2.21 2.11 1.84
22
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
In the above pro forma disclosures, the fair value of each grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 1997, 1996 and
1995, respectively: risk-free investment rate of 6.87%, 6.34% and 6.28%,
expected dividend yield of 2.58%, 2.55% and 2.55%, expected life of seven years,
and expected volatility of 22.40%, 21.58%, and 19.99%.
The following table summarizes the Company's option activity (in
thousands):
1997 1996 1995
---- ---- ----
Options outstanding at beginning of year 678 886 848
Options issued and assumed 131 160 180
Options exercised and expired (135) (368) (142)
----- ----- ----
Options outstanding at end of year 674 678 886
=== === ===
All options are nonqualified stock options. The exercise prices of the
options are $31.00, $23.63, and $17.75 per share for options issued in 1997,
1996 and 1995, respectively. The weighted average exercise price of all options
outstanding at December 31, 1997 is $18.54.
Participants in the employee stock purchase plan may contribute up to
5% of their base salary. The Company's contribution to each participant's
account is 25% of the participant's contribution. Common stock of the Company is
purchased for the plan on the open market.
The Company also provides certain health care and life insurance
benefits for retired employees. For those employees who have retired and active
employees eligible to retire as of January 1, 1993, the Company shares in the
cost of these benefits. Employees eligible to retire are those age 55 with 10
years of service. The Company pays 50% of the cost of these benefits for the
retiree and covered spouse until the retiree becomes Medicare eligible (age 65).
After the retiree attains age 65, the retiree pays the full cost of these
benefits. Active employees not eligible to retire before January 1, 1993, pay
the full cost of coverage for these benefits at retirement. The plan is
unfunded.
The following table sets forth the amount recognized in the Company's
consolidated statements of condition (in thousands):
December 31,
1997 1996
------------------
Accumulated postretirement benefit obligation
Retired participants $ 879 $ 1,235
Fully eligible active plan participants 581 342
Other active plan participants 397 209
--- ---
1,857 1,786
Unrecognized net gain from past experience different from
that assumed and from changes in actuarial assumptions 321 409
--- ---
Accrued postretirement benefit cost $ 2,178 $ 2,195
======= =======
Net periodic postretirement benefit cost included the following
components (in thousands):
1997 1996 1995
---- ---- ----
Service cost - benefits earned during the period $ 33 $ 27 $ 20
Interest costs on projected benefit obligation 128 112 136
Net amortization and deferral (14) (52) (29)
---- ---- ---
Net periodic postretirement benefit cost $ 147 $ 87 $ 127
====== ====== =====
23
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% in 1997 and 1996. The assumed health care cost
trend rate used in measuring the accumulated postretirement benefit obligation
was 9.8% in 1997 and 10.6% in 1996, graded down to 9.0% in 1998 and graded down
each year to an ultimate rate of 5% in 2008. If the health care cost trend rate
assumptions were increased by 1%, the accumulated postretirement benefit
obligation as of December 31, 1997, would be increased by 1%. The effect of this
change on the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1997 would be an increase of 1%.
NOTE 13 - EQUITY RESTRICTIONS
DGNB is subject to certain regulations controlling national banks that
restrict the amount of dividends that may be distributed and the amount of loans
that may be made by the bank to the parent.
Dividends paid by the Company are substantially provided from dividends
received from DGNB. The approval of the Comptroller of the Currency is required
if the total of all dividends declared by a national bank in any calendar year
exceeds the total of its net profits, as defined, for that year combined with
its retained net profits of the preceding two years. DGNB has available for
payment of dividends in 1998, without regulatory approval, $13.9 million plus
its net profits for 1998.
NOTE 14 - REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, or discretionary actions by
regulators that, if undertaken, could have a direct and material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined). The
minimum required ratios of Total and Tier 1 capital to risk-weighted assets and
Tier 1 capital to average assets are 8.0%, 4.0% and 4.0%. respectively.
Management believes that the Company meets all capital adequacy requirements to
which it is subject at December 31, 1997.
At December 31, 1997, the most recent notification from the Office of
the Comptroller of the Currency categorized the Company's subsidiary bank, DGNB,
as well capitalized under the regulatory framework for prompt corrective action.
During 1997, the Company's other subsidiary banks were merged into DGNB. To be
categorized as well capitalized, the Company's subsidiary bank must maintain
Total risk-based, Tier I risk-based, and Tier I leverage ratios of 10.0%, 6.0%
and 5.0% respectively. There are no conditions or events since that notification
that management believes have changed the bank's category.
The Company's and its significant banking subsidiaries' actual capital
amounts and ratios are presented in the following table (dollars in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Amount Rate Amount Rate
Total Capital (to Risk-Weighted Assets)
Consolidated $ 557,620 11.12% $ 554,254 12.67%
Deposit Guaranty National Bank 614,070 12.34 430,478 13.32
Commercial National Bank N/A N/A 109,072 12.79
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated 494,896 9.87 499,489 11.42
Deposit Guaranty National Bank 551,829 11.09 390,267 12.07
Commercial National Bank N/A N/A 98,345 11.54
Tier 1 Capital (to Average Assets)
Consolidated 494,896 7.47 499,489 8.23
Deposit Guaranty National Bank 551,829 8.37 390,267 8.96
Commercial National Bank N/A N/A 98,345 9.05
24
The Company is required to maintain cash on hand or noninterest-bearing
balances with the Federal Reserve Bank to meet reserve requirements. Such
reserve requirements are based on a percentage of the volume of certain
deposits. The average required balances with the Federal Reserve Bank for the
year ended December 31, 1997, was approximately $2 million.
NOTE 15 - OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENCIES
In the normal course of business the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby and
commercial letters of credit, securities lent, futures and forward contracts,
interest rate contracts and options. Those instruments involve, to varying
degrees, elements of credit and/or interest rate risk in excess of the amounts
recognized in the consolidated financial statements. The contract or notional
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby and commercial letters of credit is represented by the contractual
notional amount of those instruments. The Company uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. For futures, forward contracts, interest rate contracts, and
options, the contract or notional amounts do not represent exposure to credit
loss. Credit risk for those instruments is controlled by limits and monitoring
procedures.
COMMITMENTS
At December 31, 1997, the financial instruments with contract amounts
representing credit risk and those with notional or contract amounts exceeding
the amount of credit risk are listed in the following table (in thousands):
Contract
Amount
Financial instruments with contract amounts representing credit risk:
Commitments to extend credit $1,235,542
Standby letters of credit 96,003
Commercial letters of credit 3,617
Financial instruments with notional or contract amounts exceeding the amount of
credit risk:
Commitments to purchase securities 20,080
Commitments to sell securities 19,880
Commitments to extend credit are agreements to lend money with fixed
expiration dates or other termination clauses. The Company periodically
reassesses the customers' creditworthiness through ongoing credit reviews. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Collateral is obtained based on the Company's assessment of the customer's
creditworthiness.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk and collateralization policy involved in issuing standby letters of credit
is essentially the same as that involved in extending loans to customers.
The Company issues commercial letters of credit which are short-term
commitments used to finance commercial contracts for the shipment of goods.
Under these instruments, the Company substitutes its own creditworthiness for
that of the customer by committing to pay a third party under certain
contractual conditions. These instruments are collateralized by the goods being
shipped.
25
Securities lending involves transactions in which two parties
simultaneously lend securities of varying grades to each other, agreeing to
return these same securities at a future date. Collateral guidelines require the
lender of the relative lesser grade securities to deliver, through a tri-party
custodian, securities exceeding 102% of the market value of the securities
received by such lender. In order to reduce market risk, the securities, both
lent and received, are marked-to-market daily by the custodian. The process can
be terminated daily, so there is no term exposure. Furthermore, since this is a
securities loan, the Company retains ownership of such securities under this
program.
Commitments to purchase and sell securities, futures and forward
contracts are contracts for delayed delivery of securities, foreign currencies
or money market instruments in which the seller agrees to make delivery of a
specified instrument at a specified future date, at a specified price or yield.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts and from movements in interest rate and securities values.
26
DERIVATIVES
Risk management derivative instruments are used to manage the Company's
exposure to interest rate and market risk. Exposure to market risk is managed in
accordance with risk limits set by senior management. All positions are netted
for risk-management purposes. Credit risk is minimized by using only
exchange-traded futures and options, utilizing a position netting strategy, and
requiring that all positions be fully collateralized.
The notional or contract amounts on risk management derivative
instruments normally exceed the amount of credit risk to the Company. The
positions of the Company in these instruments at December 31, 1997 is summarized
in the following table (in thousands):
Contract or
Notional
Amount
- --------------------------------------------------
Interest rate swap agreements $ 156,225
Interest rate floors 300,000
Forward contracts 139,195
Interest rate swap agreements are entered into by the Company primarily
to manage interest rate exposure. These are contractual agreements between
counterparties to exchange interest streams based on notional principal amounts
over a set period of time. Interest rate swap agreements normally involve the
exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. The notional or principal amount
does not represent an amount at risk, but is used only as a basis for
determining the actual cash flows related to the interest rate contracts. Market
risk, due to potential fluctuations in interest rates, is inherent in swap
agreements. At December 31, 1997, the Company had no aggregate estimated cost of
replacement ( the cost of replacing an existing contract if the counterparty
defaults) for the interest rate swap contracts. All interest rate swap
counterparties have collateral arrangements with the Company.
Interest-rate caps with three-year maturities were purchased during
1994 in anticipation of further increases in interest rates, and were assigned
to certificates of deposit with maturities of three months or less. The interest
rate caps allowed the Company to limit its exposure to unfavorable interest
fluctuations over and above a "capped" rate. A premium was paid for this
protection. The risk assumed by the Company was limited to the amount of the
premium and not the notional amount of the interest rate cap. At December 31,
1997, the Company did not have any outstanding interest rate caps.
Interest-rate floors with five-year maturities were purchased during
1995 in anticipation of decreases in interest rates, and were assigned to
commercial loans. The interest-rate floors allow the Company to limit its
exposure to unfavorable interest fluctuations below a particular rate. A premium
is paid for this protection. The risk assumed by the Company is limited to the
amount of the premium and not the notional amount of the interest-rate floor. At
December 31, 1997, the unamortized portion of the interest-rate floor was $1.9
million.
Futures and forward contracts are contracts for the delayed delivery of
securities in which the seller agrees to make delivery of a specified instrument
at a specified future date, at a specified price or yield. Risks arise from the
possible inability of the counterparties to meet the terms of their contracts
and from movements in interest rates and securities values. The Company intends
to offset or close out open positions prior to settlement; therefore, the total
contract amounts of futures and forward contracts represent the extent of the
Company's involvement. The Company is subject only to the change in value of the
instruments. Future contracts settle in cash daily, therefore there is minimal
risk to the Company.
The Company was a party to a small number of foreign exchange spot and
forward transactions during 1997. These contracts generally involve the exchange
of United States currency for a foreign currency. Spot foreign-exchange
transactions normally settle within two business days, and forward transactions
can settle up to a year in the future. At December 31, 1997, the Company had no
foreign exchange contracts outstanding.
Option contracts allow the holder of the option to purchase or sell a
financial instrument from the seller or writer of the option at a specified
price within a specified period of time. The Company has written call options on
securities held in the available for sale securities portfolio during the year.
Options which have been written do not expose the Company to credit risk. At
December 31, 1997, the Company had no option contracts outstanding.
27
LITIGATION
DGNB is a defendant in a case in which the plaintiffs are beneficiaries
of a trust for which DGNB is the trustee. In an amended complaint, the
plaintiffs claim that DGNB was negligent in its dealings with the trust
property, breached its trust duties by allegedly abusing its discretion and
negligently handling trust assets, engaged in self dealing, and was grossly
negligent in its handling of the trusts. The case seeks actual damages for waste
of trust assets and loss of income and punitive damages, both in an unspecified
amount to be proven at trial, and attorney fees and court costs. While the
ultimate outcome of the lawsuit cannot be predicted with certainty, management
denies all liability and believes that the ultimate resolution of this matter
will not have a material effect on the Company's consolidated financial
statements.
In addition, the Company is subject to numerous other pending and
threatened legal actions arising in the normal course of business, and
management believes that the ultimate resolution of these matters will not have
a material effect on the Company's consolidated financial statements.
NOTE 16 - STOCK SPLIT
The Company declared a two-for-one stock split effective December 2,
1996. All shares outstanding and per share amounts are calculated assuming the
split occurred at the beginning of the earliest period presented.
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Because no market exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions significantly affect the estimates and as
such, the derived fair value may not be indicative of the value negotiated in an
actual sale and may not be comparable for the Company versus other financial
institutions.
In addition, the fair value estimates are based on existing
on-and-off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, the Company has
significant fee generation businesses that are not considered financial
instruments and their value has not been incorporated into the fair value
estimates. Significant assets that are not considered financial assets include
trust services, mortgage banking operations, brokerage network, deferred tax
assets, bank premises and equipment, core deposit intangibles and goodwill. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
Fair value estimates, methods, and assumptions are set forth below.
CASH AND SHORT-TERM INVESTMENTS: The carrying amount is a reasonable
estimate of fair value for cash, interest-bearing bank balances, federal funds
sold and securities purchased under agreements to resell due to the maturity of
those instruments being less than six months.
TRADING ACCOUNT SECURITIES: The carrying amount of trading account
securities is fair value which is based on quoted market prices, where
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES: Fair values
for securities available for sale and investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS: The fair values are estimated for portfolios of loans with
similar characteristics. Loans are segregated by type such as commercial taxable
and nontaxable, residential mortgage and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value of performing adjustable-rate loans is the carrying
value adjusted for the discounted value of the expected future loan losses. The
fair value of performing fixed-rate loans is calculated by discounting cash
flows based on estimated scheduled maturities reduced by expected future loan
losses. The discount rate is estimated using the rate currently offered for
similar loans with similar maturities. The fair value of residential mortgage
loans is based on quoted market prices.
28
The fair value of nonperforming loans is calculated by discounting
expected cash flows as projected based on historical cash flows of such
nonperforming loans adjusted for expected loan losses. The discount rate is
estimated using the rates currently offered for acceptable credit quality loans
with similar maturities.
DEPOSITS: The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits and savings accounts, is equal to the amount
payable on demand, which is also their carrying amount. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar maturities.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings
approximate their fair values due to the short maturity of those instruments.
LONG-TERM DEBT: The fair value of the Company's long-term debt is
estimated using discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
COMMITMENTS: The fair value of commercial commitments to extend credit
and letters of credit is the remaining unamortized amount of the prepaid fee
charged to enter into the agreement or the discounted cash flows of estimated
fees that will be charged over the life of the agreement taking into account the
remaining terms of the agreements and counterparties' credit standing. The fair
value of residential mortgage lending commitments is based on quoted market
prices considering expected funding, the contractual interest rates and current
market rates.
DERIVATIVES: Interest rate swaps, interest rate caps, interest rate
floors, futures, forwards, and option contracts are the primary derivative
financial instruments used by the Company. The fair values of interest rate swap
agreements, interest rate caps, interest rate floors, futures, forwards, and
option contracts are obtained from market quotes. These values represent the
estimated amount the Company would receive or pay to terminate the contracts or
agreements, taking into account current interest rates and, when appropriate,
the current creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
December 31, 1997 December 31, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
Financial Assets
Cash and short-term investments $ 488,945 $ 488,945 $ 434,381 $ 434,381
Trading account securities 1,459 1,459 2,505 2,505
Securities available for sale 1,424,527 1,424,527 1,462,038 1,462,038
Investment securities 174,952 181,266 145,087 152,412
Loans 4,367,032 4,390,859 3,917,672 3,919,005
Financial Liabilities
Deposits 5,373,962 5,380,493 5,025,749 5,042,909
Short-term borrowings 642,812 642,812 543,029 543,029
Long-term liabilities 186,397 189,544 99,405 100,659
Commitments
Commitments to extend credit (3,839) (8,696) (1,514) (6,576)
Letters of credit - (273) - (1,222)
Commitments to purchase securities - 32 - (894)
Commitments to sell securities - - - (18)
Risk Management Derivatives
Interest rate swap agreements (53) (2,677) 198 1,607
Forward contracts - (5,741) - 377
Interest rate caps - - 751 7
Interest rate floors 1,883 1,604 2,669 2,814
29
NOTE 18 - DEPOSIT GUARANTY CORP. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
STATEMENTS OF CONDITION
(in Thousands)
December 31,
1997 1996
----------------------------
Assets
Cash on deposit with bank subsidiary $ 2,604 $ 47,196
Interest-bearing bank balance with unaffiliated bank 7,600 -
Securities purchased from bank subsidiary under agreements to resell 21,500 -
Investment in subsidiaries:
Bank subsidiaries 705,709 637,423
Nonbank subsidiaries 8,090 7,742
Cash dividends receivable from bank subsidiaries 11,500 8,376
Other assets 27,103 27,651
--------- ---------
Total assets $ 784,106 $ 728,388
========= =========
Liabilities
Cash dividends payable $ 9,389 $ 8,156
Long-term liabilities 101,397 99,405
Other liabilities 38,082 39,561
------ -----------
Total liabilities 148,868 147,122
------- ----------
Stockholders' equity 635,238 581,266
------- ----------
Total liabilities and stockholders' equity $ 784,106 $ 728,388
========= =========
STATEMENTS OF EARNINGS
(in Thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
Income
Cash dividends from bank subsidiaries $ 143,858 $ 30,620 $ 24,334
Consultant and management fees from subsidiaries 35,902 34,289 28,114
Interest from subsidiaries 466 1,963 557
Other 784 167 108
--- ---------- ----------
Total income 181,010 67,039 53,113
------- -------- --------
Expenses
Interest 7,804 4,693 437
Salaries and employee benefits 23,368 25,597 21,118
Other 18,003 18,213 13,968
------ -------- --------
Total expenses 49,175 48,503 35,523
------ -------- --------
Income before income taxes and equity in undistributed income
(dividends in excess of income) of subsidiaries 131,835 18,536 17,590
Income tax benefit 6,519 5,211 4,513
----- ---------- ---------
Income before equity in undistributed income (dividends in excess of
income) of subsidiaries 138,354 23,747 22,103
Equity in undistributed income (dividends in excess of income) of subsidiaries:
Bank subsidiaries (46,422) 59,337 49,691
Nonbank subsidiaries 348 526 826
--- --------- --------
Net income $ 92,280 $ 83,610 $ 72,620
======== ======== ========
30
STATEMENTS OF CASH FLOWS
(in Thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
Cash flows from operating activities
Net income $ 92,280 $ 83,610 $ 72,620
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation and amortization 2,175 3,344 2,9862
Increase (decrease) in other liabilities (1,479) 11,723 5,557
Increase in other assets (504) (9,129) (3,424)
Dividends in excess of income (equity in undistributed income)
of subsidiaries 46,074 (59,863) (50,517)
------ ----------- ----------
Net cash provided by operating activities 138,546 29,685 27,222
------- --------- ----------
Cash flows from investing activities
Net increase in interest bearing balances with non affiliated bank (7,600) - -
Net decrease (increase) in securities purchased from bank subsidiary
under agreements to resell (21,500) - 13,466
Net decrease in notes receivable from nonbank subsidiary - 2,990 750
Payments for investments in and advances to subsidiaries (28,952) (174) (9,294)
Purchases of premises and equipment (3,961) (2,071) (1,086)
Proceeds from sales of premises and equipment 156 301 11
--- --- --
Net cash provided (used) by investing activities (61,857) 1,046 3,847
-------- ---------- ---------
Cash flows from financing activities
Increase (decrease) in short-term borrowings - (27,600) 27,600
Proceeds from long-term liabilities - 99,381 -
Proceeds from early termination of swap contract on long-term liabilities 2,038 - -
Proceeds from exercise of common stock options 1,931 3,845 997
Purchases of common stock (92,925) (39,100) (32,382)
Cash dividends paid (32,325) (26,507) (21,355)
-------- ---------- --------
Net cash provided (used) by financing activities (121,281) 10,019 (25,140)
--------- --------- --------
Net increase (decrease) in cash (44,592) 40,750 5,929
Cash at beginning of year 47,196 6,446 517
------ ---------- ----------
Cash at end of year $ 2,604 $ 47,196 $ 6,446
=========== ======== ========